Fiji Opposition Raises Concern About Government Debt

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Pacific Islands Development Program, East-West Center With Support From Center for Pacific Islands Studies, University of Hawai‘i

50% of GDP worries Shadow Minister for Finance

By Losalini Rasoqosoqo

SUVA, Fiji (Fiji Times, Nov. 17, 2015) – The Shadow Minister for Finance, Professor Biman Prasaid, said our debt level means that for every $3 earned, $1 was paid to our creditors for interest and debt repayments.

He made the comment in Parliament during the 2016 National Budget debate yesterday.

Our debt level of around 50 per cent of the gross domestic product worried the economist who said Government debt rose by $1.136 billion from 2006 to 2014.

"This does not include government guarantees for statutory bodies and government companies. These are contingent liabilities. They are not budgeted and accounted for. If any of these guarantees were called on, government debt would again go up. These liabilities were $2.4 billion in June 2014 — that is, another 30 per cent of GDP. These contingent liabilities are real exposures," Prof Biman said.

"Government debt is now around 50 per cent of GDP. This is about 10 per cent higher than it should be in a well-ordered economy.

"Total debt increased from $3.7b to an estimated $4.4b. This means that every year we could be paying more than 30 per cent our total revenue for debt repayment. For every $3 we raise in revenue, we pay $1 to our creditors in interest and debt repayments. That is money that is denied to the people for health, education and other services."

In his budget address, Minister for Finance Aiyaz Sayed-Khaiyum said the International Monetary Fund (IMF) team that visited Fiji expressed remarkable confidence in the economy, and the IMF's forecasts were more positive than ours.

He said the IMF remarked that our debt-to-GDP ratio was healthy and that we were using debt prudently to build infrastructure that would generate income and build the economy.

"Our overall debt is going down, which is one factor that allows us to reform our taxation system. Economic growth has also resulted predictably in increased revenues. Government revenue has risen from $1.4 billion in 2006 to a projected $2.6 billion in 2015 (apart from asset sales)," Mr Sayed-Khaiyum said.

However, Prof Biman was also concerned with the steady increase in Fiji's overseas borrowings.

He said while we borrow in US dollars, it was almost certain that our currency would fall against the US dollar in the next five years.

This meant that we would be finding more Fiji dollars to repay the same debt, he said.

He explained that in 2006, under the SDL Government, the global bond of $US150m ($F326m) was raised at a 6.8 per cent interest rate which was used by the Government.

Government went ahead and borrowed more money - US$250m ($543m) in 2011 -when it was time for repayment in which Fiji paid a 9 per cent interest rate.

"Everybody in the finance sector knows that other institutions offered loans at lower interest rates. But these loans were offered on conditions requiring the Government to manage the economy prudently. The Government would not accept these conditions," he said.

"Government has now refinanced its $US250 million global bond through another international bond with a coupon rate of 6.625 per cent. The Government has made a big deal of its reduced coupon rate but this interest rate is payable in rising US dollars. It is more expensive than borrowing in Fiji."

Prof Biman said Government had not told mention the payment of about $200 million interest on this bond in the last 5 years and that interest could have gone towards state services such as education and health, or welfare payments.

He said Government was spending hundreds of millions of dollars on roads but his main concern was that no-one knew how well the money was being used.

In the 2015 budget a total of $653 million was allocated. Actual expenditure to date is only about $237 million.

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