NEWS

Budget ‘Credible, Responsible’

ANZ International Economist Kishti Sen has labelled the FijiFirst Government’s 2018-2019 National Budget as  credible and responsible. His statement counters other commentaries critical of the Budget. He says ANZ believes
05 Jul 2018 10:00
Budget ‘Credible, Responsible’
ANZ International Economist Kishti Sen

ANZ International Economist Kishti Sen has labelled the FijiFirst Government’s 2018-2019 National Budget as  credible and responsible.

His statement counters other commentaries critical of the Budget.

He says ANZ believes Government delivered a credible budget because it maintained its commitment to funding a strong pipeline of infrastructure projects.

The Fijian econo­my is on track to realise its ninth consecutive year of economic growth in 2018 – unprecedented in Fijian post-independence history.

The economy, on average, has grown by more than four per cent in the last five years.

Income per capita

Per capita income in 2017 stood at over $12,000, almost doubling from $6,419 in 2006. Unemployment was recorded at the lowest in 20 years of four per cent.  Literacy rate of 93 per cent is an all-time high.

He notes that in an election year, it is quite possible for the Government to significantly cut spending to present itself as fiscally responsible and nullify opposition attacks as a bad economic manager.

He says in an interview: “We have had a good look at the Budget and we have called it a credible and responsible Budget.

“It’s an economy friendly Budget because the Government could have easily slashed expenditure to demonstrate or present itself as a fiscally responsible economic manager.

“However, the Government was brave not to take the sledgehammer to spending, particularly to capital spending as it is easier to cut capex than to reduce headcounts.

“At a time when private demand is soft, this is not the time for austerity (that is to be fixated with returning the budget to balance).

“And a focus on vital infrastructure projects, including water supply, roads and rural electrification projects is good for economic growth and jobs.”

Budget by numbers

Mr Sen highlights the 2018 Budget projects another year of Budget deficit (although an improving one) with at least one more year of deficit to come.

He notes that according to the Budget papers, a deficit of FJ$497.3 million (-3.5 per cent of nominal GDP) is projected for 2018/19, while lower deficit of FJ$368.3m is targeted for 2019/20 (-33 per cent of GDP)

“The reason Fiji has a Budget deficit is because tax receipts, as a share of Gross Domestic Product (GDP), have only gradually increased over time.

“Cyclone Winston induced an economic slowdown in 2016, which did not help.

“If you look at the economic performance as well, we have had continuous growth, that’s quite a remarkable achievement considering that the economy has been consistently hit by very strong cyclones.

“Given all the shock the country has had to endure, it could reach a decade of continuous growth and that could be a remarkable achievement.

“Fiji has got a lot going for it and it’s not always about the rugby team.

“When I look at the Budget, I am glad that Government decided to take the sledgehammer to spending, keep those capital projects going because it keeps people to have jobs and support the economy.

“Added to which, expenditure, boosted by infrastructure projects, lifted sharply over the last five years.”

He noted that after averaging around 30 per cent in the 1990s and 2000s (as a proportion of GDP), it shot up early this decade and is expected to reach 34.4 per cent in 2017/18 before pushing higher to 38.7 per cent in 2018/19.

“That was, however, driven by a surge in capital projects.

“As the fiscal stimulus unwinds, we expect the Government to return expenditure towards 30 per cent of GDP – a level that generates and produces the smallest level of Budget deficits.

“That said we would also caution future governments to not let transfer payments get out of control.

“Transfer payments, which include operating grants as well as pension and compassion allowance will increase by FJ$121m (16.9 per cent) in 2018/19 due to significant allocations for the poverty benefit scheme, free-education for Year 1-13 students, bus fare assistance and the social schemes.

“While it is manageable now, there is danger that if the proportion of the population receiving transfer payments becomes high, then any attempt to achieve significant savings in this area by cutting entitlements or tightening eligibility criteria is likely to encounter considerable community opposition.”

He stressed that future governments should continue to show prudence in this area.

The winners and losers are….

He says in their view, Budget is not all about how the pie is distributed.

“In other words, it’s not all about winners and losers… growing the size of the budget pie is important.

“That being said, low income earners, teachers, young parents, sugarcane farmers and first home buyers gain the most from this year’s Budget.

“As ever, smokers and alcohol drinkers will be worse off.

“What will the Budget do for the economy?

“With ample liquidity, we expect Government to be able to fund its deficit without crowding out private investment.

“Hence, the borrowing and subsequent expenditure of the funds through the annual Budget would add directly to aggregate demand in the economy and help create jobs.” Edited by Naisa Koroi

Feedback:  maraia.vula@fijisun.com.fj

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