Reserve Bank of Fiji Governor, Ariff Ali says if Fiji is not careful of the measures and focus on fiscal consolidation or revenue, we may end up digging a bigger hole, and adds that if we do not grow then we will be creating more debt.
While speaking during a panel discussion at the National Economic Summit, Ali says we all agree that our debt is relatively high which means we are spending a lot of money servicing it and it is not going into productive expenditure.
He says given that our debt level is high, in the event if we have another catastrophe, then the room to borrow will not be there.
He says the trend in our debt level should be downwards.
Ali says Fiji’s debt to GDP ratio up until July 2019 was below 50 percent but in the last four years, it peaked at just above 90 percent and has now come to about 80 percent.
The Governor says one of the things that the multilateral institutions have said is that Fiji should increase interest rates to neutral level which is 3 percent.
Ali says in a period when they want the private sector to grow and government’s debt servicing to fall, if the central bank increases interest rates by 3 percent, government will end up paying more in debt servicing and the private sector will also end up paying more in interest and therefore the incentive for private sector to lead growth will not be there.
He says because of base effect last year, we had a very strong growth of an initial estimate of 15.6 percent but the revised numbers are looking closer to 17 or 18 percent.
Ali says this year, based on the trend in the first quarter, visitor arrivals may get close to the 2019 levels so growth this year will be revised upwards.
He says however, it will be very difficult for Fiji to get out of this debt so the key challenge for the country is working together and see if growth can be raised to somewhere around 5 percent.
Ali says if we can grow at the rate of 5 percent then there are chances of reducing the debt to GDP ratio.
