Is an economic collapse imminent?

  • 6th March 2020
  • 2020
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We in Fiji must brace ourselves for some difficult times ahead as the full global impact of the COVID 19 virus hits our already troubled economy. There is no room for complacency.

So far we have been sheltered from an outbreak of the virus itself. But that is not our only fear. What we dread is the devastating effect this will have on an economy that is already in dire straits, with no ability to sustain further shocks, be it from the new coronavirus or the current drought conditions affecting the nation.

On a global scale, COVID 19 hit at the worst of times with a world in the throes of an economic slowdown. China where the virus originated, already faced a severe meltdown with growth rates cut from double digits to about 6%. The situation in China is expected to get much worse as factories close down and employees are cautioned to stay home.

LA International Airport looks deserted Thursday March 5 as air travel slumps

Panic is on the rise worldwide with 98,080 people currently affected, and mounting, while the death toll is at 3356. Most cases are in China. The major fear is whether countries, including the US, are equipped to deal with the crisis if it hits them.

The question for us in Fiji is not so much how well equipped we are to deal with a crisis if it hits ( by all standards we are not) , but whether our failing economy can sustain the impact of a pandemic, if it comes to that.

Our economy has over the past decade or so, become highly vulnerable to external shocks, dependent just on Tourism and consumption based growth fueled by huge government spendings funded through irresponsible borrowings.

And so years of financial mismanagement, misguided economic policies, reckless spending and corruption are finally coming home to roost for the Bainimarama/Khaiyum regime.

Stark evidence of this was the $1 billion slash in the 2019-20 Budget that the Economy Minister was forced to implement following recent warnings from the IMF.  We have already begun to feel the effects of such a huge cut in the Budget in the delivery of our social services – drastic reduction in the per child education grant, health care and in public work projects.

When the global effects of COVID19 hits our tourism industry, as it is bound to, the impact will likely be quite severe. The industry is facing its annual January to March low season. But it is bracing for the current low season to extend well beyond April due to the worldwide panic caused by the new coronavirus.

As it is, international airlines are cancelling/reducing flights, grounding planes and putting staff on redundancies as the aviation industry faces the grim reality of  a drastic drop in travelling passengers.

Australia and New Zealand, Fiji’s major source markets for tourism, have  already started witnessing signs of panic among its population and it will only be a matter of time before we start feeling the pinch.

The Fijian economy is heavily dependent on Tourism. It accounts for close to 40% of our GDP and contributes $1.8b in foreign earnings (Bureau of Stats). It provides 43,000 jobs directly, and an estimated 119,000 of our people (36% of total employment) rely indirectly on its well-being, according to official sources.

It is obvious that if the industry but sneezes, the already troubled Fijian economy will face a major crisis.

The Labour Party has been warning for years that the Bainimarama/Khaiyum administration was leaving the economy too vulnerable to “future shocks” by putting all its eggs in the one basket.

We have consistently warned that government was ignoring key sectors of the economy and putting too much reliance on tourism and infrastructure development, with growth based on consumption rather than the productive sectors of the economy.

Aside from Tourism, not much attention was paid to other sectors,  particularly the rural sector. Sugar production fell rapidly from 2008 and stands today at about 50% of its 2006 level.

Overall, all primary sectors have shown massive declines since 2007 – forestry, fisheries, gold etc.

The truth is that our economy has been failing gradually since 2011. We mounted the debt tiger that year prompting the IMF to make the following comment in its 2011 Article IV Consultation:

Political uncertainty and slow structural reforms have suppressed potential growth and this … has pushed Fiji’s public debt ratio to one of the highest levels in the region, leaving limited room to respond to future shocks…”

Despite this warning, the FF government continued to borrow heavily, ballooning the national debt from $3.5 billion in 2011to $6.5billion by the end of 2019.

Much of this money was borrowed from China on unfavourable terms and spent on poorly constructed infrastructure projects which were allegedly riddled with corrupt practices.

Hundreds of millions were spent on disaster relief operations following TC Winston in 2016, again without observing transparency and accountability requirements.

Allegations of massive corruption in the rebuilding programmes have surfaced but have not been properly investigated – they were mainly in the schools’ rebuilding,  HELP for Homes and HELP for Farms programmes.

Massive public expenditure was also incurred in the Vote Buying Schemes of the FF government in 2014 and 2018. These expenditures were funded largely from loans, raising the debt level to unsustainable heights, leading to high Budget deficits.

Investment levels remained depressed due to political uncertainty, absence of the rule of law and government interference in the policy sector.

Bad governance is the most serious issue facing the nation today. State institutions have been militarized or politicised to such a degree as to undermine their authority and independence.

Lack of respect for human rights and the civil liberties of citizens remain on-going concerns, both at the local and international level. The root cause of bad governance is the undemocratic Constitution which was forcibly imposed on the people by a decree of the military-backed administration in 2013 and has been strongly condemned by a working committee of the UN Human Rights Council which has called for it to be replaced by a constitution which reflects the wishes and aspirations of the people of Fiji.

Some 60,000 of our citizens have left our shores since 2007 to settle abroad. Political uncertainty, a failing economy, a government without ethics lacking accountability and transparency,  are cited as the major reasons by a number of those who have left their homeland for good.

All these factors have weakened the resilience of the Fijian economy, leaving it impotent to deal with shocks such as COVID19. We have said repeatedly, that unless these fundamentals are addressed first, the Fijian economy will not show any sustainable growth.

COVID 19 may well be the last nail on the coffin of the FF government. Its ill-effects will spread well beyond the tourism industry – impacting on every aspect of our social and economic life – imports, local production, food supplies etc etc.

The FF government is ill-equipped to deal with this disaster, if and when it fully strikes. As for the rest of us, we must prepare for an extended period of hardship ahead.