Mini (Revised) Budget tomorrow

[posted 1 July 2010, 1400]

On 15 June we had warned that a mini budget was likely in July because of the precarious state of government finances.

The administration has now announced that the Finance Minister will deliver a revised budget tomorrow (2 July).

Why a revised budget? The people want to know whatever has happened to the optimism expressed with so much confidence in the 2010 Budget address last November.

The simple truth is that the 2010 Budget was a product of miscalculation at its best. Managing state finances is not an easy job. Regrettably, the Prime Minister, who also holds the Finance Portfolio, relies for advice on people who keep him ill-informed.

The 2010 Budget was the handiwork of inexperienced advisers who, in turn, were guided by certain academics who profess to be seasoned economists but have really never managed anything beyond a university lecture room.

Surely, the claim by the Finance Ministry that national disasters (Mick & Tomas) resulted in around $30 million of unforeseen expenditure, thus necessitating a revised budget, cannot be taken seriously. We have had worst disasters in the past - costing much more in rehabilitation and reconstruction work than the $30 million claimed – but never was a revised budget brought in by the past governments.

Moreover, the so-called $30 million cannot be verified as details of State finances are no longer in the public domain. The regime has stopped publication/release of information on State finances.

We had warned in our 15 June story that VAT would likely go up from 12.5% - 15% with hikes in Customs Duty and fees and charges being a real possibility to rake in badly needed cash.

Reliable sources within the Finance Ministry have expressed concern that the State is borrowing heavily from the FNPF to meet its day to day operating expenditure and the situation has deteriorated to the level that prevailed under the Qarase administration.

FNFP sources reveal the following in terms of government borrowings under the Fiji Development Loan category:

        Year    No of Loans   Total Borrowing

       2006      35               $348m
       2007       9                $ 95m
       2008      15               $342m
       2009      31               $436m

The loans above are in addition to short-terms borrowings by the State. As can be seen, there was a significant rise in borrowings in 2009.

Fears have been expressed even by the International Monetary Fund (IMF) about the state’s ability to pay back its loans on time. FNPF is exposed to this risk as a good proportion of its loans are merely roll-over of previous loans. For how long will this cycle of borrow-more-to-pay-old debts continue is anybody’s guess!