17 Jul 2020

Fiji's NFP slams Reserve Bank's economic projection

12:41 pm on 17 July 2020

Fiji's opposition National Federation Party has criticised the Reserve Bank's revised figure this week of a negative 1.3 percent growth for the economy.

The government - set to deliver the National Budget today - has projected that the economy will contract severely this year mainly due to the pandemic-induced decline in tourism.

Leader of the National Federation Party Biman Prasad

Leader of the National Federation Party Biman Prasad Photo: VNP / Daniela Maoate-Cox

Governor Ariff Ali said the decision to revise the rate from 0.5 percent to a negative 1.3 percent was not due to the Covid-19 pandemic.

According to him, it was "in line with the synchronised global slowdown and weakness in domestic demand from the second half of last year".

He said the pandemic's effect was reflected only in the 2020 contraction of 21.7 percent.

But NFP leader Biman Prasad said the economy was in a "slowdown and contractionary mode well before the Covid-19 outbreak", and that the government's economic management has not been "in line and in tune with the reality on the ground".

"We had always suspected that the GDP that the government was trying to put out over the last few years, in our view, was inflated," Mr Prasad said.

"And we believe that the Reserve Bank was not putting out a very, very realistic projection of the economy with respect to GDP."

Biman Prasad said the government's growth rate revision this week proved the Reserve Bank's projection was unreliable.

The NFP said given the "credibility" of the government's GDP figures and revenue figures, the expenditure was in question even before the Covid-19 pandemic.

He said government continued to "borrow and spend recklessly", and the real sectors of the economy did not show signs of growth and development.

The country continues to rely on the tourism sector, which contributes 40 percent of the GDP, but the sector has been decimated in the short-term due to the pandemic.

Bank hits back at Fiji's NFP

In a statement, the Reserve Bank said the 2019 growth rate was revised downwards due to availability of actual data and information for the year that was collated and analysed by the Macroeconomic Committee in March and April of this year.

However, the governor said because the national budget for fiscal year 2020-21 was delayed to July, the committee had met in early July instead of the usual May or early June.

Ariff Ali said it was important to note that the Fiji Bureau of Statistics (FBOS), as the official compiler of Fiji's national statistics, would release the final gross domestic product (GDP) estimate for 2019.

"Since their process is independent of the MC process, the FBOS estimate may very well differ from the -1.3 per cent arrived at by the MC," he said.

"This has been the case previously and is a normal part of forecasting and monitoring macroeconomic developments."

Poor economic management

Prasad said the lack of good management in the past did not leave any room or physical space for the government to respond aggressively to the impact of the Covid-19 pandemic.

He argued that this was reflected in the government's $US400 million response budget unveiled in March to address the pandemic.

Prasad said there wasn't much nor any proper manner in which the state has reponded to the difficulties faced by the people in Fiji.

"The government doesn't have the physical space or was not in a position to respond in a way to provide a stimulus package, social welfare and relief, to provide unemployment, relief to thousands of workers who have lost their jobs," he said.

"In 2019, the economy was already heading to the hospital.

"With the Covid-19 this year, we are still in hospital but in the ICU Unit."

Mr Prasad said the previous management of the economy has not left much room where there's a need to look at specific sectors to support them so that "they - over the next two or three years - can come out of this crisis in a sustainable manner".

"This military government has been in power from 2007 and then the elected Fiji First government's a continuation of that military government since 2014."

He said over the last four years, the Frank Bainimarama-led government had been "bragging" about the "boom, the bainimarama boom" and how there was unprecedented growth in the economy.

But the NFP leader said what "we see today is a piling of debt and unfortunately we have to borrow more".

He said the debt to GDP ratio could go well over 80 percent if the government had to borrow another $US46 million ($FJ1billion) for the 2020-2021 Budget.

Budgetary options

Mr Prasad said the Budget should concentrate on specific sectors such as health and education.

He said health services should have proper budgets, proper facilities, hospitals and people should not be affected by the lack of medical services.

The government, he said, must ensure that it continues to fund the education system and ensure that all children are in school and their education is not affected.

"We also need to cut unproductive and unnecessary expenditure. Government operational expenditure needs to be carefully looked at so that whatever savings we can make there can be used in sectors like education and health.

"We need to relook at our taxation system, our economic policy agenda so we can support our businesses especially micro, small and medium enterprises which creates the largest number of jobs.

"With the borrowing, government must be very clear on where that lending is from and it will need to come up with a three-year definite plan as to how those debt levels - which would be reaching likely more than 80 of GDP - can be paid over a longer period of time."