We do not have the financial headroom to respond to shocks - Naidu

If we continue as we are, based on World Bank and International Monetary Fund numbers, Fiji will hit a debt to GDP ratio at 100 percent in 10 years.

While speaking at the National Economic Summit, the Chairman of the Fiscal Review Committee, Richard Naidu says the current fiscal consolidation measures that the government is taking will not decrease the debt to GDP ratio.

Naidu says the high debt to GDP ratio will constrain our borrowing but we must still invest in physical and human capital.

He says if this is not done, our quality of life and long term economic growth is threatened.

Naidu sounded the warning bells and said that even the assumptions that we make today about our road and bridge network surviving, about there being water in the taps, are things we assume will continue, and those are at risk unless we invest significantly.

He says we do not have the financial headroom to respond to shocks.

He says economic growth is good for everybody, but we need to be careful when we are trying to cut government expenditure.

Naidu says an example is the Department of Environment, which is a source of a lot of complaints from private sector investors, and yet over the last four years its budget has been cut from $10 million to $3 million just as demand for its work increases.

He highlights that the department has real resource constraints as a result.

Naidu adds that the government is simply under-funded.

He says VAT used to be 15 percent, corporate tax used to be 28 percent, the income tax threshold used to be $16,000, and the government took a whole lot of growth gambles by reducing the tax take and against increasing government spending.

He says in essence that gamble in the committee’s view has not paid off.

Naidu says generally they think the quality of government spending has been poor and possibly politically driven.

He says obviously the rising debt to GDP levels before COVID were evident.

Naidu says with the COVID driven economic contraction, Fiji suffered the fourth highest contraction in the world behind Afghanistan, Lebanon and Palau.