The chickens are definitely coming home to roost for Economy Minister Aiyaz Sayed-Khaiyum.
The lavish spending of the past 12 years, growth based on unsustainable levels of borrowing and consumer spending, instead of the productive sector are now becoming evident through a high troubled economy and critical State finances.
As Khaiyum prepares to table the 2019/20 Budget this Friday, he is in deep trouble. Our current liquidity levels are down to a worrying $300m or so (April RBF review) and all commercial banks have clamped down on lending.
The move has further aggravated a sluggish economy facing a serious downturn in both consumption and investment levels. RBF’s April review shows the building and construction industry, the real estate market and vehicle sales all remain subdued.
Foreign Reserves have fallen to $1.9b – sufficient for just 4 months of imports. It is well known that State finances are quite critical with government drastically reducing budgetary expenditure.
At least two international banking and financial institutions have warned Fiji to take a critical look at where it’s headed economically.
An IMF report released in February this year, was critical of Fiji’s current debt levels at 50% of the GDP and has recommended fiscal consolidation measures targeting expenditure.
The report prompted Labour Leader Mahendra Chaudhry to question whether Khaiyum is able to “dismount the debt tiger” having got so used to taking the easy way out by borrowing indiscriminately and surviving on deficit budgets.
“This government is riding the debt tiger. It has borrowed irresponsibly over the years pushing the national debt to unsustainable heights and has thus put the economy in jeopardy.
“With the national debt nearing the $6 billion mark and Budget deficits remaining high at around 5-6% of GDP to meet debt repayments, dismounting the debt tiger will prove difficult for the fear of being eaten up by it, Mr Chaudhry warned.
A second report, the ANZ Bank’s Pacific Economic Outlook 2019, released late last month has also been critical of Fiji’s high debt level and has called for a “process of fiscal repair” through the unwinding of government stimulus programmes to reduce expenditure.
It has recommended a more responsible budget and better management of liquidity levels.
The ANZ report has warned that any further fall in liquidity levels from the current $300m could result in intense pressure on the Banks to hike interest rates .
Says Mr Chaudhry: Fiscal consolidation means living within our means . In the current situation it translates to:
- drastic cuts in expenditure both operating and capital;
- containing deficit to within 2% of GDP;
- reducing national debt to around 40% of GDP;
- eliminating corruption;
- enhancing accountability and transparency in governance
In the past 13 years the Bainimarama administration has been borrowing irresponsibly to fund its so-called growth programmes, pushing the national debt to unsustainable levels.
“Simultaneously, it kept imposing new taxes, charges and levies to pay for its sharply rising debt servicing commitments, putting pressure on businesses and individuals alike. Despite this, Budget deficits kept rising as no steps were taken to contain expenditure,” Mr Chaudhry said.
- In the 13 years, the Bainimarama administration did next to nothing to enhance productivity in our primary industries sector.
- It has virtually wrecked our sugar and dairy industries and permitted foreigners to benefit from our forestry and fisheries resources at the expense of our own people.
- It neglected, as a deliberate measure it seems, to build capacity amongst our managerial workforce, preferring instead, to rely on expatriates who would not be expected to question policy. It is estimated that in the past decade more than 60,000 of our people have left to settle abroad- at least 35,000 of them being skilled or semi- skilled workers.
- During the same period, social conditions worsened. Serious violation of human rights and the rights of workers, coupled with a declining agricultural sector, foreshadowed a rise in poverty levels and associated criminal activity.
- Wages were kept depressed with a national minimum wage set at well below the poverty line. Cost of living remained high because of a weak dollar which had been steadily depreciating against the currencies of our major trading partners.
We’ll see on Friday if, and how, Minister Sayed-Khaiyum deals with the critical challenges facing him this Budget.