Fiji’s current debt repayment totals more than $600 million annually, says Unity Fiji Party Leader Savenca Narube .

As a ratio of domestic taxes and revenues, the country uses 44 per cent of domestic revenue to repay debt.

Mr Narube said 56 per cent of domestic revenue was then spent on essentials such as infrastructure.

Mr Narube is also the former Governor of the Reserve Bank of Fiji (RBF).

The RBF’s supplement to the 2019-2020 Budget Address, published on the RBF’s website, indicates that around 85 per cent of domestic revenue is sourced from taxes.

Mr Narube was responding to questions on the coalition Government’s Medium Term Fiscal Strategy Report 2024 – 2026 that was tabled in Parliament on February 17, 2023.

The report carries a broad outline of the Government’s fiscal strategies, with emphasis on addressing the high public debt.

Fiji’s national debt accumulated over the past 10 years is nearing $10 billion. How can the Government maintain fiscal stability, at the same time ensure economic growth and effective delivery of essential services to the people?

Implementation is key in any strategic document, Mr Narube said.

He maintained the fiscal report failed to articulate how the Government would implement its fiscal strategies, especially debt servicing, for the next two financial years.

“In many Governments, including the past one, implementation was poor,” Mr Narube said.

He said one needed to only observe the level of poverty in Fiji to gauge the state of our economy.

The Unity Fiji Party estimated about 40 per cent or 400,000 people living in poverty in Fiji.

“This document does not show any priorities of this Government. I am asking them to put poverty right up there, through the expenses of the Government,” he said.

The fiscal document indicated that Government debt will fall to 82.6 per cent of GDP from 84.6 per cent of GDP estimated for financial year 2022-2023.

Mr Narube said the debt to GDP ratio of near 80 per cent was driven by bullish economic growth projections.

“If you are basing the debt to GDP ratio by a very optimistic forecast of growth, then if that does not happen, your debt will stay up there. That is more than 90 per cent or even close to 100 per cent of GDP.

“We are relying a lot on one industry, the tourism industry, which makes us very vulnerable to any unforeseen developments from around the world,” he said.

The tourism industry accounts for approximately 40 per cent of GDP. The RBF estimates the industry contributes around $1.0 billion in tax revenue.

Minister for Finance Biman Prasad said the fiscal strategy report would set the broad fiscal parameters that would guide the formulation of the upcoming National Budget.

“This includes debt and deficit targets, broad guidelines for expenditure and revenue policy formulation and timelines for budget preparations,” he said.

FISCAL STRATEGY

The overriding objective of the fiscal strategy is to bring back fiscal discipline, cut wastages and ensure a return to fiscal sustainability.

“There will be a delicate balance between ensuring fiscal sustainability and having the flexibility to manoeuvre fiscal policy to support economic growth and inclusive development and addressing challenges like cost of living, improving health service delivery, infrastructure improvements and social justice,” Mr Prasad said.

Further to this, the Government will focus on improving the ease of doing business.

Mr Prasad said the key area was supporting a private sector-led economic rejuvenation that could create employment and ensure improvements in overall living standards.

DEBT SITUATION

The 2021-2022 Annual Debt Report states that total external debt recorded an annual increase of 41.7 per cent to $2.4 billion and is equivalent to 25.2 per cent of GDP.

As outlined in the debt report, the Asian Development Bank dominates external debt composition (38.5 per cent), World Bank Group (26.8 per cent), EXIM China (18.4 per cent), Japan International Corporation Agency (12.0 per cent), Asian Infrastructure Investment Bank (4.3 per cent), and International Fund for Agriculture Development (0.03 per cent).

The total external debt recorded an annual increase of 41.7 per cent to $2.4 billion. This is equivalent to 25.2 per cent of GDP.

Total external debt servicing amounted to $0.5 billion, which comprises $452.1 million in loan repayments and $26.7 million in interest payments.

Fiji’s total domestic debt rose by 5.3 per cent to $5.2 billion and is equivalent to 54.6 per cent of GDP.

DEBT SERVICING

Mr Narube said the strategic document did not monitor the ratio between the Government’s revenue and debt servicing.

This ratio gives an idea and more understanding of the sustainability of debt.

“The previous Government has not monitored that ratio for many years. This document needs to show that the debt level is going to be brought back to some moderate level,” he said.

University of the South Pacific senior economics lecturer, Neelesh Gounder, said maintaining a lower level of debt was crucial for Fiji’s small open economy.

“It ensures the Government has the ability to respond to regional and global shocks to its financial position without necessitating a reduction in essential expenditure in future.”

FALLACIES OVER THE PAST 10 YEARS

Mr Narube also outlined four fallacies of the past Government. These are:

• Excessive spending;
• Wastages;
• Large operational and capital transfers to off-budget entities; and
• Abuse of tender processes.

The FijiFirst Government spent money quite lavishly in the false belief that Government spending will support economic growth, Mr Narube said.

“Government spending does support a lot of economic activity, but if you continue to rely on Government support, that means your expenses continue to rise, and if your revenue does not rise equally, then you are settled with a debt situation,” he said.

“In economic theory, that is wrong for a small economy like ours. That is not the right fiscal and economic strategy.”

On wastages, he said the opening of embassies in countries we did not share trade relations with were political expenses at taxpayers’ expense.

He also referenced the leasing of government vehicles. The budget for government vehicles runs into $32 million to $33 million a year.

Mr Narube said the results produced by off-budget entities that receive large sums of money were not what was expected.

He referenced organisations such as the Fiji Roads Authority, Water Authority of Fiji, and the Fijian Broadcasting Corporation.

“Where is the service that these organisations have produced for the people? There are no results that can justify the amount of money that has been pumped into them.”

Furthermore, he said the biggest risk in financial management was the tender process.

This is where the most risk lies because procurement picks up a lot of money in the budget.

“If you are not careful, a lot of bad governance, even corruption can enter into that process.”

STATE OF THE ECONOMY

There are projections of growth, but from a very low position, so it will take a bit of time to just recover lost grounds before there is actual growth.

The economy showed strong recovery with an estimated 15.6 per cent GDP growth in 2022. This was after three consecutive years of decline.

Mr Gounder said achieving growth rates higher than 3 per cent to 4 per cent would require sustaining high levels of investment, both foreign and domestic, across key sectors.

He added expenditure and public service commitments should be rationalized across the entire government machinery with the intention to avoid wastage and duplication of resources.

• READ MORE ABOUT THE GOVERNMENT’S FISCAL STRATEGY ON MONDAY. 

Story by: ivamere.nataro@fijisun.com.fj