18 Nov 2013

Sustainability of Fiji's latest budget questioned

12:41 pm on 18 November 2013

A professor of economics in Fiji says the challenge for the country is spurring real growth in the economy for the long-term..

Professor Biman Prasad of the University of the South Pacific says the 3.6% growth rate the government has projected for Fiji this year is largely consumer driven.

Professor Prasad says the budget for 2014 revealed last week continues the government's populist and expansionary fiscal policies of the last two years.

BIMAN PRASAD: The real question, probably, is not how they'll fund it in 2014, but how they will be able to sustain the expenditure beyond 2014, and of course that is based on the fact that they're expecting high levels of economic growth. But these are unknowns that would have to be explained very carefully. Other than that, I think the commitment made with respect to national elections - $15 million for preparations for next year's January election, $7 million assigned for the first sitting of the elected parliament. These are indications of government's firm commitment to hold the elections and I think the expectation is that is going to be a positive one. One of the most significant expenditure locations is for the education sector, so initiatives for free education for schools and they have also brought out a tertiary education loan scheme. I think these policies focusing on the education sector is a very good one, but the caution that I would have is the effectiveness and the efficiency with which some of these large commitments would be implemented in 2014 and the government would have to make sure that people who are responsible for spending some of these commitments are actually doing it effectively and efficiently and making sure that the impact and where the money should finally ends up it actually end up.

SALLY ROUND: The capital works expenditure has gone up by nearly $300 million compared to last year, so $1 billion to be spent on capital works. Can Fiji afford this?

BP: Well, one thing I can say is that the infrastructure in the country over the last 25 years has been significant. When the government focused capital expenditure on roads last year and increased the deficit, some of us welcomed that because we felt that the borrowing for closing the infrastructure deficit, which is critical for economic growth, is a good investment. It is borrowing for productive expenditure. However, government will have to be careful that it does not go beyond its means. It should look at the debt level it already has and how any further loan is going to add to the debt burden and whether the servicing of the debt would be sustainable in the future.

SR: The sale of the state-owned assets, is that a good idea? This is divesting Fiji government's interests in Airports Fiji, Fiji Ports, Fiji Electricity.

BP: Yeah. I think that's a good question, and I think one could look at it from the point of view that these are critical assets, they're strategic assets. Electricity is a public utility and we are not in a situation where we can leave these things entirely in the hands of the private sector and private companies. So perhaps those are good questions and ones that should be [addressed] with proper debate and understanding of why it is being done and how that could impact on the delivery of the services from these sectors to the people of this country.