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Acting PM Gives A Snapshot Of Fiji’s Economic Recovery Plan

The Macroeconomic Committee recently released the revised economic growth numbers with a double-digit growth projected for this year.
17 Jan 2022 12:55
Acting PM Gives A Snapshot Of Fiji’s Economic Recovery Plan
Acting Prime Minister Aiyaz Sayed-Khaiyum. Photo: Office of the Attorney-General

Acting Prime Minister and Minister for Economy Aiyaz Sayed-Khaiyum gave a snapshot of Fiji’s economic recovery plan during a press conference on Saturday.

“We suffered a serious pandemic-driven blow in 2020 with the largest economic contraction ever of 15.2 per cent,” he said.

The Macroeconomic Committee recently released the revised economic growth numbers with a double-digit growth projected for this year.

This may be the highest ever growth experienced in Fiji’s history. This turnaround was only possible due to our concerted effort to secure vaccines early, effectively rollout those vaccines, and reopen our borders and the economy.

 

Foreign Reserves

At the end of 2021, foreign reserves stood at $3.2 billion equivalent to 9.9 months of import cover.

“This is the first major crisis during which we have not had a balance of payments (foreign exchange) problem or a devaluation,” Mr Sayed-Khaiyum said.

“We entered the crisis with strong foreign exchange holdings and managed to maintain a strong reserves position during the crisis.

“This is despite the closure of our largest foreign exchange earner, tourism, which brings in about $2 billion annually.

“That’s why Government also borrowed from external sources like ADB, World Bank, AIIB, JICA and sourced budget support grants from Australia and New Zealand.

“Had Government not borrowed externally there would have been a very high risk of a devaluation. Imagine a devaluation during this crisis. We avoided it. The Reserves outlook is also comfortable.”

 

Liquidity

At the end of 2021, liquidity stood at almost $2.0 billion. The high foreign reserves supported by the external Government borrowings helped increase liquidity which has played a key role in supporting a low-interest-rate environment which is critical for economic recovery. Imagine major spikes in interest rate.

“We carefully navigated these headwinds and thankfully calmer seas now lie ahead,” he said.

 

Government Debt

Debt to GDP ratio rose from 53.3 per cent in 2006 to 56.2 per cent in 2010.

Following this, the debt to GDP ratio was on a steady downward path declining to 43.5 per cent in FY2016-2017. This was a decline of close to 13 percentage points in just over six years.

Then we had TC Winston and the many other natural disasters that required additional borrowing with the debt to GDP ratio rising to 48.4 per cent in FY2018-2019 (still below the 50 per cent of GDP mark). See table 1 below.

Fast forward to the COVID-19 pandemic. Tax revenues fell by 50 per cent on average every month (12 month loss of over $1.4 billion).

The economy experienced the largest ever contraction of 15.2 per cent in 2020, loss of GDP equivalent to almost $2 billion.

Government had to increase its borrowings to sustain public expenditures and provide over $500 million in unemployment support and other relief measures. This lead to an increase in the level of debt.

Apart from the increased borrowing, the decline in nominal GDP induced a sharp increase in the debt to GDP ratio.

For FY2020-2021, the debt to GDP ratio would have been 14.4 per cent lower if we assume nominal GDP remained at 2018/2019 levels (pre-COVID) See table 2.

Therefore, once the economy recovers to pre-COVID levels, debt to GDP levels will fall.

The alternative of not borrowing and supporting the economy during the last 20 months would have meant the economic decline would have been much severe (thus a much lower nominal GDP) and our debt to GDP ratio would have been in a far worse position.

“This is apart from the devastating impact we would have seen on the socio-economic front,” Mr Sayed-Khaiyum said.

“It is clear that the countercyclical stance to support the economy with additional debt was appropriate and this is why our multilateral partners supported Fiji with additional external debt during this period.

“The alternative was mass destitution in Fiji. We avoided that.

“Our critic’s short-sighted suggestions would have let that socioeconomic crisis unfold unabated.”

Our largest foreign exchange earner tourism brings in about $2 billion in foreign exchange earnings annually.

“With tourism earning almost completely shut down for 18 months we ran a high risk of a large devaluation if Government had not sourced the external debt and budget support from the multilateral and bilateral partners and secured the foreign investment in Energy Fiji Limited.

“A devaluation in the middle of a crisis would have meant more uncertainty and would have made the crisis worse with many more severe socio-economic challenges.”

Government securing the external funds (borrowings, budget support and EFL divestment) not only supported foreign reserves but helped increase the liquidity in the domestic market which in turn reduced our interest costs on domestic borrowings.

It also helped keep the interest rate environment low which is critical for economic recovery.

“We secured over $700 million in highly concessional finance tagged to policy reforms with long lasting impact,” he said.

 

Income support to unemployed and vulnerable

“Throughout the pandemic, we provided almost $500 million provided in direct income support ($430m) and other relief measures (food, electricity subsidy, GP access, etc).”

“We started with the formal sector through FNPF and later extended the support to the informal sector,” Mr Sayed-Khaiyum said.

“The fight was a long one — at many points we had no idea how long it would last — so we had to ensure that the payout was sustainable.

“We stepped up efficiency in a big way by adopting a digital application and payout system. Applications were processed in less than three minutes and disbursement followed immediately after.

“We want to thank everyone who adopted these digital tools — we know it wasn’t what all of were used to.

“But because you did, we were able to distribute payments quickly and ride out a tough two years together.”

Feedbackranobab@fijisun.com.fj

 

 



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