An economic recovery needs to address the failures in the Fijian economy which were evident well before the pandemic.
It would be centred around a restructuring of the economy to make it more resilient to global shocks
like COVID and to generate meaningful growth that creates wealth for all
Fiji First has failed to do this, says Labour Leader Mahendra Chaudhry.
In this article which appeared in the Fiji Times on Saturday 25 June, he argues that in 2009, the government began to change the economic outlook for Fiji. It devalued the dollar, engaged in a pro-tourism agenda while reducing support for agriculture, boosted commercial bank lending and reduced trade taxes to increase imports. Their excessive borrowing has led to a debt and currency crisis.
Fiji is now ever reliant on foreign tourists, foreign investment and foreign currency – this has made the economy defenceless against shocks like COVID. Fijians are in a desperate state: the cost of living has sky-rocketed and poverty is on the rise, graduates cannot get jobs, decent and affordable housing is scarce, health is declining, personal debt levels are unprecedented, crime has escalated and most alarmingly, more people are attempting to take their own lives. Finding solutions to these problems will be the blueprint to an economic recovery.
Pro Services and Neglect of Agriculture
Fiji First devalued the dollar, offered tax breaks and holidays and suppressed wages to make Fiji cheap for investors. However, investment was directed predominately to the services sector while the local, grassroots economy – especially the agriculture sector – was neglected.
Disregard for agriculture has increased rural poverty and migration to urban squatter settlements. It has also threatened food security and more people are increasingly priced out and deprived of healthy food. Backyard farming, as a solution to food security, is regressive and a result of a neglected agricultural sector.
Despite hardship, though, agriculture was not restricted during COVID. If there was more attention given to it prior, the economy would have been resilient to the shutdown of international travel.
The biggest concern is for the sugar industry. Sugar production has decreased to the lowest levels for several decades. The sugar industry is responsible for the livelihoods of many farming households and has tremendous possibilities for the domestic market in biofuels, plastics, local juices etc. This is especially important at a time when the importation of petrol is causing unsustainable trade deficits and global fuel prices continue to be volatile.
Over Dependence on Commercial Banks
Fiji First’s economic growth policy is reliant on commercial bank credit. However, commercial banks alone cannot grow an economy. Like other private organisations, banks are geared to exploit the economy when times are good and are subdued when the economy is flat, let alone during a crisis. The high levels of liquidity in the banking sector is not a good thing. Rather, it reveals a disconnect between a government that is over-reliant on commercial bank credit for growth while banks have lost confidence in the economy.
Furthermore, commercial banks tend to lend to the overinflated property market; a select group of large companies in services, property development and construction; and general import consumption of such things as cars and white goods. Commercial banks do not lend to agriculture nor small businesses. Wider development requires state intervention. The decrease in agricultural productivity, and decrease in Fijian centred productivity in general, can be attributed to a lack of investment by FF.
Fiji First has allowed too many non-essential imports into Fiji. The outflow of foreign currency that arises from excessive imports and expatriated profits from foreign owned firms cannot be balanced in the short to medium term, if ever, by money coming in from exports and remittances alone. Therefore, there is a constant need for Aid and foreign currency debt. The conditionalities aligned to Aid and foreign debt (especially concessional loans) usually revolve around further increasing imports from the countries providing the assistance while also granting them access to local resources and contracts for large infrastructure projects. This creates a feedback loop of debt obligations and reliance on overseas help. This is what happened in Fiji under Fiji First. Aid from China, for example, is on the condition that Fiji opens its markets to Chinese exports while Chinese firms are given road construction contracts and the rights to gold, fishing, woodchips etc.
Fiji First raised a concerning amount of foreign debt. Although, loans may be ‘concessional’, the debt principal and repayments will increase with devaluations of the Fijian dollar, whether formal or incremental devaluations.
International agencies are concerned about Fiji’s foreign currency situation and have directed the RBF to hold above-average levels of foreign reserves. However, the reserves are a result of overseas borrowing, rather than diligently balancing trade. Excess liquidity in foreign reserves only indicates that the Fijian dollar is in trouble. As reserves are expected to decrease in the short term, there is the threat of devaluation.
Sri Lanka had adequate reserves over the last several years that unravelled rapidly due to unsustainable debts, excessive government spending and an over reliance on imports, coupled by the COVID crisis. This resembles the situation in Fiji. Fiji First’s capacity to borrow externally has diminished while foreign currency outflows continue to increase. If remittances simmer down after the drama of the pandemic, or if there is a natural disaster, or a global economic shock, Fiji, more vulnerable than ever, may see itself spiralling in the same way as Sri Lanka.
Poverty exists when there is a lack of monetary means to access one’s basic needs. In Fiji, poverty has risen due to a larger reliance on the formal economy where cost of living has dramatically increased. Ties to the traditional economy would normally provide basic needs through access to land, subsistence farming and supportive social networks, however, these ties are being stretched.
The cost of living has risen dramatically through a process of Fiji First planned events. Firstly, in 2009 they devalued the dollar. Then in 2012, they lowered interest rates to allow banks to lend more money, which alongside government spending, also financed through debt, increased the amount of money in the economy. While money supply increased, the level of domestic goods and services did not increase accordingly. The result was asset and consumer price inflation.
Many large firms in the services or manufacturing sector engage in highly competitive global markets with other developing countries – all competing to provide the lowest operating costs, including lowest wages.
Fiji First suppressed wages to allow these firms to remain competitive. However, low wages and a high cost of living has resulted in many finding it difficult to meet their weekly needs. According to the Household Income and Expenditure Survey 2019-2020 report and anecdotal evidence, around 60% of the population lived in actual poverty or near poverty before COVID.
FF’s attempt at import consumption and inflation based economic growth has benefited the wealthy while the majority has suffered. International funding, whether through commercial banks, multilateral or bilateral arrangements or international credit markets, carries risk and must be strategically administered – Fiji must live within its means and understand that global partners all have their own vested interests that may not align with those of Fiji.
There needs to be a balance between global integration and a level of self-reliance through local production and local finance. An economic recovery will focus on production not consumption, on improved standard of living not from continuous exploitation of labour, and on creating a resilient economy that is not dependant on overseas assistance.