SAKIUSA NABOU |   

The Minister for Finance delivered the National Budget Address on 28 June 2024 under the theme of “an Economically Stable, Secure and Sustainable Fiji”. This is the coalition government’s second budget in its current term.

This article will shed light on two aspects that I believe have not been discussed enough following the budget address: (1) Fiji’s debt history and composition, and (2) identifying and addressing wastage in the public service.

The highlights

  • Total expenditure of $4.5bn, against a revenue of $3.9bn and a net deficit of $0.6bn—4.5 percent of GDP
  • Education (17 percent), infrastructure (16 percent) and health (10 percent) get the bulk of the expenditure amount
  • Salary increases for civil servants and an increase in the minimum wage to $5/hr; this was at $2.68 around two years ago
  • Bolstering security with increased budget to the Fiji Police Force and partnerships with the Australian Federal Police
  • Support for indigenous businesses and resource owners through interest-free loans from two financial institutions. Interest to be paid by the government
  • Further support to the sugar industry through increased price per tonne—$120/tonne; this was at $85/tonne two years ago

Fiji’s debt history

One thing that should be made clear is that Fiji will eventually need to borrow every year to meet its current development responsibilities, repay its debt, and create economic activity. Fiji’s debt management strategy over the last decade has been quite questionable, to say the least. Since the 2013 constitution, the government began with a debt stock of $3.8 billion. In its first term, it added $1.2 billion, an increase of 32 percent to $5.0 billion at the end of 2018 (an average of 8 percent annually). In its second term, it almost doubled the current debt stock, piling on $4.1 billion, an increase of 85 percent – nearly half of which was borrowed during the pandemic ($1.8 billion in 2020-21). During the first 18 months in office, the government borrowed an additional $0.9 billion. At this rate, they will add around $1.8 billion by the end of their term, taking Fiji’s national debt across the $11 billion mark and effectively tripling the debt stock in 13 years.

During the same period, Fiji’s GDP grew by 27.3 percent or an average of 2.7 percent yearly. This includes the contraction of 21.9 percent during the pandemic (2020-21) and its recovery of 28 percent by the end of 2023. Whether this cumulative growth is a good return for the debt accumulated is a debate for another article. However, this backdrop must be clarified in the context of understanding what has brought us to the current debt situation.

While the debt to GDP ratio is now at 78 percent from the 92 percent inherited by the current government in December 2022, the absolute value of debt from these two periods increased from $9.1 billion in December 2022 to $10.0 billion in June 2024—an increase of nearly 10 percent. Right now, we can all agree that the debt is high. The ratio has decreased but is all driven by the recovery in GDP and not necessarily debt reduction.

Debt composition

Now, what is the composition of this debt? Fiji’s Medium Term Debt Strategy 2024-2026 focuses on finding cheaper debt options with international and multilateral organisations to refinance some of its external debt, maintaining the current stock of treasury bills and focusing on Government bonds with longer tenures.

Domestic debt accounts for nearly two-thirds of government’s total debt. What has not been discussed enough is that more than 60 percent of this total domestic debt is held by one institution, the Fiji National Provident Fund (FNPF). The Government securities balance with FNPF has continued to increase on an annual basis since 2013. In fact, it has more than doubled in a decade from a debt stock balance of $1.9 billion in 2013 to $3.9 billion in 2023 and is currently at $4.1 billion as of June 2024. This may not necessarily be bad and may be the only element of sustainability that appears to be happening in Fiji’s debt situation. A little bit of the right hand owing the left hand. Fiji’s debt situation should be sustainable as long as the FNPF continues to agree on a rollover of these government securities. Nonetheless, the continuous rollover of these debt instruments whether it is driven by the high returns from these investments to the FNPF or because the government simply cannot sustain paying back the principal and interest at maturity together with its responsibilities of development will ultimately become an expensive bill for the taxpayer to continue to pay in the long run.

The trend of the debt held by the main domestic institutions are illustrated below and FNPF’s dominance is quite clear:

This is not ideal, but it provides the government with some avenue to reason with its main domestic debt holders and plan its repayment while also considering its priorities. But over time, it will become a more expensive bill that the taxpayer will eventually have to pay as mentioned above; or, if, in the highly unlikely case, it defaults on some, then it could deplete the retirement pool of the Fijian workforce who are members of the FNPF.

The opex/capex split for the National Budget is at 73/27 percent. It is evident that the debt is now increasingly funding the shortfall of government operations and not to fund capital expenditure on infrastructure, health, renewable energy, etc.

Addressing wastage

So, debt is high, some of it is being used to fund the operations of government, but most of it is domestic and held by one institution; that’s good but can also be bad…nevertheless, the real focus should be on ensuring quality spending of borrowed money, which brings this article to its second issue—wastage.

There was a lot of talk and discussions during the campaign period and in the first few months of being elected that the coalition government was going to crack down on government wastage so that it can reduce spending, encourage more efficiency, accelerate approvals to improve service delivery and reduce pressure on the government to borrow for operational purposes. They have started this by removing certain rebates and grants, reallocating of some ministerial responsibilities, yet it is difficult to quantify whether notable improvements have been made in addressing wastage within the government’s machinery. In the meantime, the following list suggests that operational spending will increase or offset the savings made from the initial moves discussed above;

  • Increase in Ministers and parliamentarians’ salaries
  • Increase in civil service salaries
  • Cost of addressing mismanagement from previous administration
  • New taskforces and working groups
  • New grants and assistance programs for businesses, co-operatives, education and other developments

While we acknowledge that some initiatives were announced to target streamlining operations in the civil service and the Police Force, these projects commence this year so the fruits and hopefully savings the taxpayer will only see in the coming years.

Some suggestions…

With a financial model like this, Fiji will have to depend a lot more on foreign aid and budget support from Governments like Australia and New Zealand to carry out its responsibilities. If not, the pressure will add to the accumulation of more debt to fund its operations. In addition, it will become increasingly difficult to remove the stigma of freebies from its people when the government enjoys these practices. Maybe the upcoming National Development Plan will provide some remedies for this.

Three suggestions can be explored to help reduce the debt stock to a more sustainable level while simultaneously identifying and addressing wastage within the government machinery:

  • Prioritise the review of the civil service to streamline operations and increase efficiency. Integration of information systems, automation and change in culture must be a core part of the reform for improved service delivery.
  • Consider avenues to privatise government ownership in some of its public enterprises. Proceeds can be redirected to debt repayment and development, and the annual grant allocation to these public enterprises that forms a large part of the national budget can be reduced. Privatisation can also lead to more efficiency.
  • Explore reviewing the whole structure of the executive and the legislature to create more efficiencies. The number of seats in Parliament and the spending that emanates from it can be significantly streamlined. Government ministries can also be further consolidated to reflect the main contributors to the economy and sectors that need the most development.

AUTHOR

Sakiusa Nabou is a Research Assistant, at the Griffith Asia Institute and former Senior Analyst at the Reserve Bank of Fiji.The views expressed in this article are that of the author and do not necessarily represent the position of the above-mentioned institution. For more information about Pacific island economies, visit Pacific Island Centre for Development and Policy Research.