Fiji economist Wadan Narsey analyses 2014 budget

Transcript

A Fiji economist Professor Wadan Narsey expects the Fiji economy to grow by more than four percent for the next five years if a transparent, accountable government is elected next year and investor confidence is restored.

The budget for 2014 was notable for its promise of free education, a salary hike for civil servants, continued large spending on infrastructure and the sale of some government assets.

Professor Narsey begins his analysis with the budget's good points. He spoke to Sally Round.

WADAN NARSEY: We have got elections coming on in about ten month's time and I think there are very, very many good elements in this budget -the public will be very happy about. For instance, there is a guarantee of students who get places in secondary and tertiary education being able to be totally financed by fees paid by government at the secondary level. At the tertiary level, all students will be able to get loans which they can repay after they've graduated and started employment. But this is an excellent guarantee that all people who are able to reach tertiary education are able to do so. There are a number of tax incentives for small and medium enterprises, which is good. The extension of tax holidays to some areas where investors are normally very reluctant to invest, like the outer islands and in Vanua Levu and some of the rural areas. So these are all fairly good elements of the budget which will be good for the future. The infrastructure spending, as well - extending roads in rural areas, which hopefully will have long-term benefits once the investment comes into place.

SALLY ROUND: These will have to be funded, and the government plans to fund these mostly by the sale of government assets. This is very significant. Has there ever been such a sell-off like this in the past?

WN: To put it into perspective, the government plans to increase recurrent and capital expenditure by FJ$1 billion, comparing 2012 to 2014. And only about FJ$300 million of that can come from taxes, from direct and indirect taxes and direct taxes have been going down, so the only real avenue for government is to either borrow and increase the public debt, which is already at a very high level, or do what they're planning to do now, which is just to sell off shares in government enterprises and raise about FJ$500 million, which is a huge sum of money for Fiji, given the largest previous public asset sale was in 1998 and that covered FJ$250 million all of which was bought by our Fiji pension fund at a grossly inflated price.

SR: How critical are these state assets that the government is planning to sell?

WN: We have no idea at all which shares they're going to sell, because in the budget estimate document there are about 15 or 20 public enterprises which are listed there, including the Ports Authority of Fiji, the Airports Limited ... a lot of these are very, very critical government assets dealing with entry and exit into the country, and one wonders why you would give ownership of these things over to private companies. Many of them are also monopolies, which if they're going into the hands of the private sector will mean that consumers might end up being very, very heavily exploited. And we already have the experience in Fiji where you have two very large monopolies - one is the mobile network and our domestic airline which are complete monopolies and they're charging exorbitant prices and our Commerce Commission of Fiji, despite its wish to do so, has been prevented from imposing any kind of price control on them. So our worry is if government does go ahead with its asset sale shares the private sector will, of course, cherry-pick. They will take all the assets which are already well-paying or very profitable, or which they think they can squeeze more money out of, given government support, and they will leave, essentially, all the loss-making enterprises in public hands. While on the one hand, the government will balance its books this year because they're planning these massive expenditures on roads and all that all in one year, which is astonishing because the economy has the capacity to absorb only a certain amount, they'll balance the books for this year by asset sales, which is not particularly a great thing. And of course the future for Fiji will be much more bleak because you'll be stuck with all the loss-making public enterprises.

SR: And what if the government estimates are not achieved by the sale of these assets - what happens then to Fiji's debt situation?

WN: If it's not achieved, what will happen is they'll have to borrow more and increase public debt. The problem is they've made these promises hoping that it will sway voters by the September 14 elections. So they're likely to carry through with their expenditure plans, although there are some worries about that, as well. But if they do carry on with their expenditure then they have to make a shortfall and will simply end up borrowing more money and the public debt will, of course, rise. The trouble is if the economy grows healthily... for instance, let's look at a positive scenario - if the elections are held in September next year and an accountable, transparent parliamentary government does come into place, then I myself would expect the economy will grow in excess of 4% per year for the next 4, 5 years. And if that happens then many of these infrastructure decisions and public debt decisions may turn out to be justified. If, on the other hand, the election outcome is not good and there's all kinds of scenarios which people are thinking about for instance if Bainimarama's party does not win control of government what is he likely to do? And that will create investor uncertainty in Fiji. The private sector investment is already very low. Whatever growth rate we've got for the last two years has come through public expenditure. If the private sector investment does not come into place then the Fiji economy is in very, very deep trouble.