Fiji budget preview: expansionary budget anticipated to stimulate spending

Fiji’s Minister for Economy will deliver the government’s 2020-21 budget today, just 4 months after an emergency F$1 billion ‘Covid mini-budget’.

It comes as the Reserve Bank of Fiji has projected a contraction of Fiji’s economy by 21.7% this year, driven largely by a 75% decline in tourism.

“This has culminated in a spike in unemployment as many businesses have scaled back or shut down operations. The retrenchment in consumption and investment activities along with the plunge in external trade will place additional downward pressure on Government’s tax collections,” the RBF said.

“Investment spending is also forecast to fall to around 12.8% of GDP, from an average of around 20% in the preceding three years. Private investment projects are likely to be halted or delayed given the uncertainty surrounding the economic outlook and resumption of global travel while there will be challenges on Government funded capital projects due to limited fiscal space.”

The ANZ bank’s research unit expects the government to announce additional stimulus measures tonight. It observes that “an overwhelmingly expansionary budget and government expenditures of close to $FJ3.8 billion would support jobs and demand in the near- to short-term while tourism is in abeyance. Further, it will underwrite future growth.”

The ANZ suggests a targeted stimulus package, “that includes a combination of cash handouts, small and local projects as well as large national infrastructure development  and education and health building would help create jobs and keep the economy in shape until tourism comes back and takes over as the driver of growth from late next year.”

For the 2020-21 financial year, ANZ Research believes revenue will fall further to $FJ1.9 billion due to ongoing weakness of the economy.

ANZ Research says a deficit of $FJ1.8 billion can be financed through an International Monetary Fund (IMF) loan under its Rapid Credit Facility and domestic borrowings through issuance of government bonds.

Other submissions

The Fiji Hotel and Tourism Association (FHTA) says targeted relief from import and excise duties and tax structures on top-line revenue for tourism operators would “go a long way to reducing overhead costs and enable better packaging options to offer real value for money that will in turn make Fiji more attractive when the borders reopen.”

FHTA adds: “Any efforts that the budget addresses that directly contributes to the ease of doing business, the cost of doing business, that incentivises growth, renovation and development would be welcomed.”

Fiji’s political parties have weighed in prior to today’s budget. Unity Party leader Savenaca Narube has proposed that the RBF print $500 million and lend it to the Government, so it in turn can offer cash incentives to micro, small and medium sized enterprises although Sayed-Khaiyum has already rejected this idea, saying it will be looking to borrow offshore.

Others speculate there will be another devaluation of the Fiji dollar, a move Narube resisted in 2009 as then-Governor of the Reserve Bank.

National Federation Party leader Professor Biman Prasad says the current COVID-19 induced crisis requires an economic summit, writing: “The Government has got to stop pretending that they are the only people with ideas” and says while no all solutions to the crisis require spending, they do need consultation and creative thinking.

In a statement released yesterday, the Pacific Conference of Churches called on all Pacific Island countries to ensure that any national budget puts people at the centre.

PCC General Secretary Reverend James Bhagwan says: “The people have a right also to full and comprehensive consultation on the budget and how it will affect them – including a just wage and representation by unions.

“The issue of representation has become glaringly obvious in the case of ATS workers (before and after COVID19), the treatment of hotel and Fiji Airways staff, the arbitrary dismissal of civil servants and the failure of the Ministry of Education over the last three years to address the review of conditions for teachers.”

A number of government ministers have already conceded that they will likely receive reduced ministry budgets this financial year. Minister for Local Government Premila Kumar says her ministry didn’t make any submissions for new capital projects, although they have requested allocations to continue with the First Home Buyers Grant, First Land Purchases Grant and Social Housing Grant.Fiji