Fiji’s private sector ready to drive the economy

Dionisia Tabureguci
Despite heavy political dramatics in Fiji in the last few months, the government’s proposed 2007 national budget whizzed through the parliamentary grinder with a majority show of hands in support of its implementation.

The national accounts forecasted a revenue of F$1.4 billion and operating expense—including debt repayment of F$1.7 billion—and a resulting budget deficit of two percent of an expected F$5.1 billion Gross Domestic Product, a two percent growth from this year.

Fiji’s GDP growth had historically been driven by consumption and efforts have begun to turn this around to have it driven by more investments in resource-based sectors and ICT, and the generation of export activities. 

The country’s economy presently suffers from poor export sector performance, a debt level that is not justified by low productivity and financial mismanagement in the civil service and public sector, low investment activities in resource-based sectors as well as further stress put on import activities from the high cost of mineral fuel and consumption goods.

Among measures put in place—and which had cheesed off the Opposition as well as multiparty cabinet partner Fiji Labour Party (FLP)—is the increase in Value Added Tax (VAT) from 12.5 percent to 15 percent on goods and services, with the exception of edible oil, canned fish, rice, flour and sharp, tea, powdered milk and kerosene, considered as basic food items.

Opposition leader Mick Beddoes had labelled it a “lazy budget” but later voted for it, while the FLP—which partnered with Prime Minister Laisenia Qarase’s SDL (Soqosoqo ni Duavata ni Lewenivanua) Party to form a multiparty government—had vehemently argued against it as containing “little…that would provide the impetus needed to spur economic recovery, restore investor confidence or alleviate social distress,” in the words of party leader Mahendra Chaudhry.

As finance minister and Prime Minister in the short-lived FLP government in 2000, Chaudhry had been the main architect of that year’s Budget, which had been based on the removal of VAT, an increase in corporate tax and more stringent measures on revenue collection, including the reining in of debt owed to the state through non-payment of corporate tax by many companies. 

Chaudhry was critical of Budget 2007, saying the VAT increase as well as the increase in customs and excise duty on some food and essential household items would “escalate current levels of poverty, already standing at an alarming 34 percent and inflict even more hardship and suffering on poor and low income families.”

The obvious differences in political ideologies and methods of policy delivery between the two major parties in this political union, forced to exist by provisions in the country’s constitution, had been kept polarised with accusations from both sides of non-consultation, deliberate feet dragging, lack of consensus reached on major issues and lopsided decision- making and the alliance had been of late a rather turbulent marriage.  

Beneath the layer of shaky politics, Fiji now suffers an institutional anomaly created by an unprecedented critical stand taken by the state’s military. The resulting friction has been blamed for a drop in performance of Fiji’s tourism industry, so far the best performing sector in the country’s economy.  In the background of this, Fiji’s poor export performance had, over the years, increasingly pressured Fiji’s monetary authority to continuously sound out warning bells for the country to move away from a consumption-based growth to a more sustainable, resource-based one. In the government’s view, Budget 2007, as delivered by Fiji’s finance minister Ratu Jone Kubuabola, attempts to address this and other economic challenges. The budget is based on a new Strategic Development Plan, which Kubuabola said would guide the national development agenda in the next five years from 2007.

The plan, he said, was presented and endorsed in October’s National Economic Summit and was the result of extensive consultations amongst relevant stakeholders.  While little is known of the extent of FLP’s input into this “consultation”, Kubuabola said the central aim of the plan was to reach a target of economic growth of at least five percent per year.

“Investment is targeted to rise to 25 percent of GDP by the end of the plan period.  Reforms will be accelerated in areas of the civil service, Government finance and public enterprises. 

“The plan puts priority on reducing poverty and rural and outer island development.  It also calls for adequate resourcing of key sectors such as health, education, infrastructure and law and order,” said Kubuabola.

While the increases in VAT and customs and excise duty would no doubt increase government revenue and, as argued by Chaudhry tax the poor further, the Budget 2007 architects hope the measures would also dampen consumer demand and encourage import substitution. Customs and excise duty increases had been imposed on luxury goods and vehicles among other items, as well as on agricultural produce that could be produced locally.

This measure may be further assisted by an amendment made to the Foreign Investment Act announced by the government last month, where foreign investors interested in making large investments in the agricultural sector may do so without local equity partnership, as was previously required.

On the thorny subject of poverty, Kubuabola said the key to tackling it was to have sustained economic growth, a growth expected to be achieved through what he said was a Policy Support Programme, which comprises two key components: the undertaking of key reforms and the strengthening of net exports.  In particular, civil service reform has been put on the radar to begin in earnest next year with an aim to reduce the civil service cost from the present 14 percent of GDP to seven percent in 2011. To strengthen net exports, a National Export Strategy is now in place and administered by the country’s Ministry of Commerce.

The Fiji government also plans to rein in its budget deficit with the aim of maintaining it below two percent of GDP over the next five years, as outlined in its Strategic Development Plan.

“This will progressively reduce debt to 45 percent of GDP or below by 2011. With debt to GDP ratio falling below 45 percent in the next five years, we will consolidate our ability to service our debt while at the same time, allowing adequate resources to deliver essential services to our people,” said Kubuabola.

Fiji’s private sector, he added, was now ready to drive economic growth in the country.