Doom predicted for Fiji’s economy

  • 16th June 2004
  • 2004
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Mr. Sukhdev Shah, a former International Monetary Fund economist and currently a lecturer in the Economics department at University of the South Pacific, has predicted an economic doom for Fiji over the next two years unless the Government cuts its spending and renews private sector confidence.

“I have no secrets to tell as to why investments levels in Fiji are so low (just about 12 percent of GDP) and the likelihood of this low level persisting-as far as my eyes can see”, Mr. Shah said.

Mr. Shah delivered this warning at the Economic Association Forum meeting, organized by the Reserve Bank of Fiji (RBF), on June 7, 2004 at the RBF Headquarters in Suva.

“Gross domestic investment as a percentage of GDP, comprising investments by Government, public enterprises, and the private sector, averaged about 25 percent during the decade of the 1970’s. This declined to about 20 percent in the 1980’s, sliding further to an average of 15 percent rate in the 1990’s. Estimates for recent years show a continuing downward trend, to average 12 percent of GDP per year during 2000- 03″, said Mr. Shah.

” Resource needs for this additional investment can be met by cutting back on capital transfers which in my view are serving no particular purpose other than keeping alive some inefficient enterprises and buying political influence. Beyond some savings of transfer expenditures, the major part of funding for government investment would need to come from its own resources, in the form of increased savings effort, to the tune of 5 to 7 percent of GDP. Therefore, the first layer of challenge facing the Government, assuming that it is serious about growth commitment of the Strategic Development Plan, is to implement policies that would help achieve this target rate of government savings”.

Mr. Shah predicted a long term annual growth of only 2-3 percent for Fiji and said that “long term good growth on a sustained basis, of 5 percent and above would require much superior government policies and robust institutions than is existing in Fiji or is likely to materialize in the presence of political and social divides and the ensuing weakness of country’s institutions”.

“There should be no doubt that Fijis current economic problems, in most part, are the consequence of political choices the country made following the 1987 coup, of which the drying up its private sector investment is probably the most significant, and also the most enduring, outcome”.

” Political reform and accommodation would certainly go a long way to convince the private sector to revise their risk perception and reassess profitability”.

According to Mr. Shah “Fiji’s economic outlook is grave, contrary to Government’s pronouncements of five percent and now eight percent GDP growth targets when realities on ground point that the economy would return to 2-3 percent or lower rate of long-term growth at the end of the current cycle, most likely in the next 2 years”.