There was no need for the Govt to borrow to avoid devaluation last year - Narube

Unity Fiji Leader and former Governor of the Reserve Bank of Fiji Savenaca Narube says there is no such thing as smart borrowing and there was no need whatsoever for the government to borrow to avoid devaluation last year.

Narube says the Acting Prime Minister and Minister for Economy, Aiyaz Sayed-Khaiyum is barking up the wrong tree and misleading the people.

He has made these comments following Sayed-Khaiyum’s response to questions by fijivillage where he had stated that if the government did not borrow the money, we would have had a devaluation of the Fijian dollar which would have caused enormous socio-economic issues.

Narube says the Fiji dollar is pegged to a basket of currencies and to maintain this basket peg, we must hold sufficient foreign reserves. He says if foreign reserves dropped to a critically low level, the peg comes under pressure, and we may have no choice but to devalue or even abandon the peg altogether.

He says Sayed-Khaiyum’s logic that he needed to borrow offshore last year to support our foreign reserves is pure propaganda.

Narube says foreign reserves are very high at 11 months of imports of goods and services, more than double the accepted benchmark for Fiji of 5 months of imports therefore, if the government did not borrow from offshore last year, foreign reserves would have remained at above 8 months of imports, well above the acceptable level.

Narube maintains there was no pressure at all for a devaluation.

He further says as incomes have dropped by $2 billion in the last two years, demand for imports are depressed and import payments had declined by 5% up to September last year.

Narube adds the higher remittances and the sale of shares of EFL also supported foreign reserves and therefore, there was no need at all to borrow to avoid devaluation.

He also says Sayed-Khaiyum went on to say that COVID had significantly reduced revenue and the Government had to borrow otherwise the economy would have been worse off.

He says this logic is flawed as the first thing that a smart government should have done in such a situation is to reduce the large wastage in the budget which would have avoided borrowing and save Fiji from interest payments and fees which are already costing the country $400 million a year.

Narube also states that the removal of wastage would have raised the impact of total government spending on the economy which would offset any impact of lower expenditure.

Narube says the most efficient strategy to sustain growth and avoid debt is for the government to revive the ailing resource-based industries.

The former Governor of the RBF also says it is unusual for a loan agreement to stipulate that down the line, the loan can become a grant however he is not aware what is in the loan agreement.

Narube was reacting to Sayed-Khaiyum’s comment that a part of some of the long term loans will in fact become a grant.