Budget 2019

Fiji Budget 2019: Resetting The Economy

"Issues and problems related to climate change needs to be an important part of the budget." - Rohit Kumar, Economist
20 May 2019 17:37
Fiji Budget 2019: Resetting The Economy
Economist Dr. Rohit Kishore. Photo: Ronald Kumar

The last three national budgets announced were focussed on nation building, rebuilding from the devastation left behind by monster storm TC Winston which tore apart parts of Fiji on February 20, 2016.

Given that the rebuilding from TC Winston needs to be factored in once again in the upcoming national budget, we need to also brace ourselves for the outcome of international trade wars.

Economist Rohit Kishore, who is also the executive director for Fiji National University’s Executive MBA programme, shares his views on what could be done to reset our economy.

What should be the focus of our 2019-2020 National Budget?

Coming out TC Winston (20/02/2016), last three budgets had its main focus on nation building, where large part of the budgets were allocated to rebuilding and redevelopment of schools, other government assets and general infrastructure.

This led to increase in government expenditures, debt and budget deficits.  In my view, now is the time for the Government to focus on reducing government expenditure and balance its budget.  However, economic development is essential and has to continue.  Therefore, going forward the Government should seriously think about how to get private sector in leading the economic development.

Issues and problems related to climate change needs to be an important part of the budget, which requires large amounts of funding and taxpayers’ dollars is never going to be enough for this.  This is another area the government needs to draw in the private sector funding.

At this stage green and blue economic developments are not attractive to the private sector and the Government needs to seriously develop policies that will make sustainable development attractive to private sector.  For this, number of initiatives discussed at the recent ADB meetings and a joint special workshop between FNU/ADBI could be drawn upon for policy guidance.

The increasing cost of living is becoming a great concern.  The government has introduced incentives and the tax reliefs to reduce the increasing cost of living.  However, due to increases in prices in trading partner countries, which our Government has no control of, prices of most goods and services has kept on rising.  For example, the current increase in the price of flour is due to an increase in the price of wheat in Australia, from which we import flour.  High cost of transportation due to high cost of fuel prices in another example, which are mainly due to price escalation in crude oil in the international market.

Therefore, to tackle the problem of the increasing cost of living generally, the Government may want to conduct a study on the increase in prices of food and other essential items in order to come up with a more effective and profound long-term polices.

Do you think Fiji should look at resetting the economy in light of international trade wars?

The current trade war between USA and China really is a tariff war between the two countries, each increasing local tariff (import tax) on imported goods of other.

Continuation of such trade barriers between the two largest economies would hit businesses, which could start laying off people that may lead to high unemployment, lower productivity and a general economic downturn in the wider economy.

International Monetary Fund has lowered expected global economic growth to reach 3.7 per cent in 2019/2020, down from its previous prediction of 3.9 per cent in July.

The IMF has further warned that the world faced a permanent hit to growth if the US followed through on a threat to impose a 25 per cent tariff on all imported cars, and global tariffs hit business confidence, investment and borrowing costs.

In this worst-case scenario, the US economy would take a significant hit, while economic growth in China would drop below 5 per cent in 2019, compared with a current prediction of 6.2 per cent.

Then we have continuous problem faced by UK with Brexit, which means lower economic growth in the UK and major partner European countries, number of them already facing crisis and bailout situations; eg; Venezuela, Argentina and Greece.

The above suggests lower to moderate global expected economic growth in 2019/20.

This no doubt puts downward macroeconomic pressure on Fiji’s economy, with Fiji already facing number of microeconomic challenges.

How would Fiji fare in the trade war between China and USA?

The US and China’s escalation of trade tariffs is expected to hit global economic growth, and with Fiji’s major trading partners, e.g. USA, UK, Australia, New Zealand, Japan and other Pacific island countries being affected, could see Fiji’s economy severely affected as well in 2019/2020.

What steps do we need to take?

I don’t think Fiji can play much of a role in controlling the tariff war between USA and China, and in such a situation I would suggest Fiji should prepare itself for lower than expected economic growth in 2019/2020.

What are your views on the past three budgets delivered by this Government?

The Government has delivered expansionary budgets for the past three years, and carried budget deficits.  This was done to provide the much needed impetus for the economic growth which we have experienced.  We have done well in terms of growing our economy in the face of numerous major natural disasters.  As such it could be said that the last three budgets have achieved its purpose in steering the country’s economy in the right direction.

Feedback:  jyotip@fijisun.com.fj

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