NEWS

40% Debt to GDP Unrealistic

“They need to understand that. The amount of money that we borrowed, we will only pay back 40 per cent. They need to understand and grasp that. The World Bank and JICA have lent to Fiji at 40-year terms, 10-year grace period and almost zero interest rates.”
29 Jul 2022 11:13
40% Debt to  GDP Unrealistic
Member of Parliament Inosi Kuridrani.

Social Democratic Liberal Party (SODELPA) Member of Parliament Inosi Kuridrani told Parliament that Fiji exceeded the benchmark 40 per cent debt-to-GDP ratio.

While responding to him, Attorney General and Minister for Economy Aiyaz Sayed-Khaiyum explained that 40 per cent debt-to-GDP is not a realistic benchmark for developing countries in a post-pandemic world.

“Every single country in the world has increased debt post-COVID.”

This will eventually come down as the economy recovers. Had we not borrowed during COVID-19, the economy would have collapsed.

We would have had large devaluation which they do not acknowledge, social challenge would have increased and price levels would have skyrocketed and our reputation internationally would have been tarnished.

 

“Through our decisive leadership and various hard measures, we have come out of the COVID-19 crisis successfully. To really understand that, Sir, we have to look at various factors like:

  •  the cost of debt, the ability to refinance debt when it falls due;
  •  the exposure to foreign exchange and interest rate fluctuations; n the availability of foreign exchange when an external debt has to be paid;
  •   the profile; n the quantity of debt repayments of the upcoming years; n the level of Government revenues to service the debt;
  •  the purpose of the debt, understanding who are the lenders and what are the lending terms and conditions;
  •  what is the state of the economy and the outlook; n what are the consequences if Government decides not to borrow and many other factors.

 

“We are sure the critics are not telling any of this to the public. The FijiFirst Government has always been borrowing for capital expenditure investments which will generate future returns to repay this debt.”

When the critics claimed that the future generations will pay the debt, they do not tell you that the future generations will also benefit from the roads we are building today, the communities we are connecting to electricity today, the schools we are building, the new hospitals we are building today and other infrastructure that we are investing in and indeed planning for the future.

“The cost of debt as we know, Sir, the cost of building something today is far cheaper than building it 10 years down the track.

“The cost of debt has also significantly come down, sir. We have borrowed over $900 million, more than 10 per cent of our debt portfolio at highly concessional terms equating to over 60 per cent grant element.”

 

“They need to understand that. The amount of money that we borrowed, we will only pay back 40 per cent. They need to understand and grasp that. The World Bank and JICA have lent to Fiji at 40-year terms, 10-year grace period and almost zero interest rates.”

“Grace Period, of course, Mr Speaker, sir, and I need to spell this out for Honourable (Mitieli) Bulanauca, we do not have to make the principal repayments for the first 10 years. Again, this $900 million cannot be compared to $900 million in the past, borrowed at over 7 percent to 10 percent at 10 or 15-year terms.”

“In 2006, the SDL Government then borrowed over $320 million through the issuance of global bond with the coupon of 6.875 per cent with the entire $320 million, to be paid a lump sum after five years. “Imagine that! Paying interest rate of 6.875 per cent and you have to pay the entire sum at the end of five years. This risk profile of the five-year bond was far riskier compared to the JICA debt, we have borrowed with payments spread over 40 years and interest cost at 0.01 per cent and our ability to service debt has increased significantly. We have over 10 times more revenue than what is needed to service the debt every year.”

 

Feedback: josefa.babitu@fijisun.com.fj



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