The shrinking national “pie”

With Fiji facing its worst economic crisis ever, a lot of attention has focused on growth issues, in particular claims by the Fiji First government of its 9 years of unprecedented growth.

It exposed the government to a spate of comments mocking the claim as thousands of workers remain deprived of work and families cry out for food and other forms of assistance.

Labour’s policy has always been that  national growth must reflect in the well being of its people. Of what use is growth if it does not improve the living conditions of our people, Labour’s first Prime Minister Dr. Timoci Bavadra had pointed out 36 years ago?

“National development plans must ensure that the interests of our masses become paramount,” Bavadra emphasised.

Last week, Economy Minister Aiyaz Sayed Khaiyum retorted in Parliament that: “Any basic economist would tell you that when you talk about growth, it’s about growing the pie. ” (FT 2 June 2021).

“Growing the pie” in economic terms refers to increasing national wealth so that it leads to improved living standards for all.

One must ask Mr Sayed-Khaiyum whether his economic policies have in fact led to better and improved living standards for all? Or has it resulted in a disproportionate distribution of wealth, widening the gap between the rich and the poor? Have the poor become poorer and the rich richer?

Did the Pie grow?

More fundamentally, did the proverbial ‘pie’ grow at all under the Bainimarama government’s 15 years at the helm of the nation? I believe that his government’s elitist policies have not only failed to grow the ‘pie’ as the Minister claims, it  ensured that the greater share of the existing pie, went only to a small segment of society leaving the vast majority of our people impoverished and destitute.

Indeed, the pie had become much smaller under the Bainimarama administration if one considers the massive decline in the sugar industry and our other key export sectors since 2006. Sugar production fell from 310,000 tonnes in 2007 to 170,000 tonnes in 2019 – down by 140,000 tonnes – a loss of $100m at current prices.

Minister Sayed-Khaiyum keeps blaming Covid 19 for the dismal state of our economy today.  If he were honest, he would admit that the economy began to slide into deep recession some two years before the Covid pandemic hit our shores.

The signs of his government’s misguided economic policies and imprudent management of State finances, became visible around mid-2018.

Government revenues were declining to substantially below budget forecasts  creating large fiscal deficits which had to be funded by both internal and external borrowings (ref. table below).  There were no signs of recovery from this downward spiral as our exports plunged, tourism earnings peaked and investment levels remained stagnant.

Govt Revenue Decline 2014-2020 ($million)

Year Budgeted
$m
Actual
$m
Shortfall
$m

2014

       2722        2371           351
2015       3122       2800           322
2016        3129      2908          221
2016/17        3175       2837          338
2017/18        3857        3244            613
2018/19        4236        3183          1,053
2019/20       3492        2716            776
Total      23,733       20,059          3,674

At the same time, liquidity in our banking system fell and banks began to tighten up on lendings. Business and investor confidence in the Fiji economy fell as consumer demand slumped. There was a failure to generate new investment at a critical time.

The Pie Shrinks by a Third

 The most glaring example of economic contraction  was the huge cut to the  2019/20 Budget by one third – a massive $1 billion amid warnings from the international financial institutions that our debt level had to be contained and unnecessary spending curtailed to reduce fiscal deficits.

If the “pie” was actually growing as the Minister claims, why was such a massive cut to the Budget necessary?

In actual fact, the “pie” had shrunk quite drastically. The so-called ‘growth’ that Minister Sayed-Khaiyum refers to was not sustainable and did not last. It was propelled by consumption and public spending which in turn relied on borrowings. Instead of promoting our productive sectors which went into a worrying state of decline as evidenced by highly reduced export revenues, the Minister took the easy way out and began borrowing to sustain government expenditure.

He dragged the nation deeper and deeper into debt until today we face a debt burden of $8.1billion which is almost equivalent to our GDP. And he continues to borrow for “budget support” taking advantage of extremely favourable soft loans now available to developing countries to combat the devastating effects of the Covid pandemic.

Alarmingly, he borrows more to repay old debts, rather than for developmental purposes. He calls them “smart borrowings” but this ‘smartness’ comes at a great cost to the nation. If a large chunk of government revenue is taken up on repaying old debts, what will be left to grow the economy, provide infrastructure and improve social conditions?

He is thus misleading the nation when he claims that his borrowings are to grow the economy. He made a further blunder in Budget 2020/21 when he vastly eroded the revenue base through huge tax concessions at a time when the Covid crisis had already substantially reduced government revenue.

Worsening Social Conditions

Social indicators were also evidence of a shrinking “pie” or at least, that the pie was not being shared equitably.

Government’s anti worker and anti union policies suppressed wages for the ordinary worker even at a time when businesses were doing well. Wages did not keep pace with the ever-increasing cost of living. Consequently, living standards declined and poverty levels rose.

One of our major social problems is an acute shortage of affordable housing for low income families. The number of people living in informal settlements in squalid conditions has seen an exponential rise in the last 15 years because of the grossly inadequate investment in social or public housing programmes.

A couple of projects initiated with borrowed (foreign) funds failed amidst allegations of corrupt practices which benefitted the well-off rather than the low income families. The cost of land developed under these projects was well outside the reach of those it was supposed to benefit. Today, it is well nigh impossible for low income earners to even dream of owning their own homes.

Unemployment levels were high even before the Covid crisis. In 2018, youth unemployment stood at a high of 23% according to independent sources. The situation is much worse today.

While hundreds of millions of dollars were spent on a few highways and bridges using borrowed funds, the country’s roading system overall went into rapid decline with basic structural disintegration resulting in highly potholed and breaking roads in urban as well as rural areas.

Development of rural infrastructure was neglected impacting negatively on  agricultural output and adding to the rural-urban drift.

Our health care facilities have been deteriorating with chronic shortages of life-saving drugs as well as basic hospital supplies such as beds, bandages, syringes etc. Government’s much-lauded public-private sector hospital management policies have not come through in three years.

Setting aside debate on whether the pie has grown, one thing is clear – it is  certainly not being shared on an equitable or just basis. For example, our political masters have certainly grown their own personal pies – by threefold or more.

The Prime Minister’s salary has gone up from about $116,000 in 2006 to $328,750 for Voreqe Bainimarama. The Attorney General’s salary has escalated from about $85,000 to the current $235,000 for Sayed-Khaiyum.

Meanwhile, Citizen Joe Brown stays stuck on a base minimum wage of $2.68 an hour – or $5500 a year.
The Economy Minister’s attempt to create the illusion of a growing pie, turns out to be hollow inside.