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Growth must result in more jobs for us

Dr Biman Prasad
Saturday, September 12, 2015

The Fiji Bureau of Statistics has recorded the growth rate for the Fiji economy at 5.3 per cent for 2014. The Government and the private sector are, of course, pleased.

It is nice to be the finance minister when economic growth is good, so you can take the credit (when growth is not good, you just blame the global economy). But one or two years of growth are not enough.

Are the right policies in place to keep it going? And, most importantly, who is getting the benefit? Has growth created jobs? Have wages and salaries of workers gone up? And do we have the whole picture of the economy?

Often what is not revealed can be revealing. The Bureau of Statistics has not released the information from its household income expenditure survey of two years ago, including the number of households now living in poverty. The information is available but we are not being told.

After the 2006 military coup, Fiji recorded dismal economic growth. Economic growth between 2008 and 2012 was a meagre 1.5 per cent. In 2013, the economy grew by 4.6 per cent. Many, including the Minister for Finance, talk about this plus-5 per cent growth as though it has never happened before. In fact, average growth in the 1970s — before military coups — was around 5 per cent. In 1999, it was 9 per cent.

Even before the 2006 coup, growth rates were heading to the 5 per cent target. It was the 2006 coup that stopped the trend. We are only now getting back to it. So the question is not how well Fiji is doing now. It is how much economic growth did we lose after the 2006 coup?

Figures do not tell the whole story. In 2014 Papua New Guinea achieved massive 21 per cent growth. Nauru and Timor Leste each grew by 8 per cent. But these remain poor countries with high rates of poverty and unemployment. What is Fiji's story on these indicators? We do not know, because the Government is not telling us.

Sources of

economic growth

Fiji's economic growth in the past three years has largely been driven by consumption expenditure. Offshore remittances, low interest rates and easy credit (for hire purchase and car loans) have been the main drivers. So has high government spending (much of it borrowed).

Few people understand the importance to our economy of remittances from our people working and living overseas — rugby players, security guards, nurses, and caregivers. Remittances kept the Fiji economy going in the low years of 2007-2010. Today much family expenditure for funerals, marriages, church and religious activities and school and university expenses are funded by our overseas relatives.

Official estimates record remittances at more than $300 million per year. However a lot of it is not recorded in the banking system (it just comes in as cash) so we could be looking at a number closer to $400m. Remittances are our second largest source of foreign exchange income, ahead of sugar and behind only tourism.

But remittances fund only consumption expenditure. They do not multiply growth and jobs in the way proper investment does.

Production in the real goods sectors, such as gold, fish, and garments actually fell in 2014. Agriculture as a whole fell by about 2.4 per cent in 2014.

Tourism receipts increased in 2014 but tourism is fickle. It depends on the economies of other countries. Our million-tourist target is still a long way distant. And what percentage of the tourist dollar stays in Fiji is highly questionable. The Governor of the Reserve Bank estimated in June this year that 60 per cent of money earned from the tourism in past years leaves the country.

Tourism industry receipts for 2014 were recorded at $875.2m — 4.8 per cent up from 2013, creating only 168 more jobs. If the RBF is right only $350m of the total tourist dollar stayed in Fiji.

So this may mean that our highest revenue comes from remittances. These remittances are not used to invest and create jobs. They are used in consumer spending. So our economic and growth fundamentals are perhaps not as solid as the Government believes or says.

Spending our

way to growth

The other source of growth is massive government spending last year. Governments should spend on health and education. This is good for everybody and improves our productivity. But we are spending money we do not have. In 2015 we will spend $600m on capital expenditure.

To pay for this spending we will have to borrow this money until we achieve the asset sales the Government has promised. This is supposed to raise $500m this year. But it is now September and we have not collected any of that.

Meanwhile, our interest bill is growing. Interest must be paid from higher taxes or reduced spending. So it is Fiji's people who will be shackled by the burden of this debt, the largest that Fiji has ever had.

In fact, this is already happening. Between 2009 and 2013 Government has increasingly relied on indirect taxes such as VAT. Increasing VAT to 15 per cent in 2011 put a greater burden on the poor.

Income taxes have fallen, but only the middle class and the rich pay income tax. Everybody pays VAT, including the poor. So when VAT goes up, the burden of this tax falls more heavily on the poor.

From 2010 Government also increased fees, fines and charges and import duties. The burden of these again fall more heavily on the poor. Low wages and high food and utility prices have put many families under extreme hardship. But we do not know about this. The information on poverty is not available.

Between 2006 and 2014 government debt rose by $1.136 billion — nearly 40 per cent. Debt as a percentage of GDP has fluctuated between 48 and 53 per cent during the same period.

This does not include government guarantees for statutory bodies and government companies. These are contingent liabilities. They are not budgeted and accounted for. If any of these guarantees were called on, government debt would again go up. These liabilities were $2.4 billion in June 2014 — that is, another 30 per cent of GDP.

When are we going to pay back this debt? In 2014, the Government said it would raise $415m in revenue by selling government assets. But most of this has not been achieved, because no-one wants to buy these assets at the price Government wants.

So what is the government's back-up plan if it cannot raise the money from asset sales? It is already September, and there are no significant government asset sales in sight.



Another notable trend is the steady increase in Fiji's overseas borrowings. We borrow in US dollars, meaning we have to pay the debt back in US dollars. If our currency falls against the US dollar, we must find even more Fiji dollars to repay the same debt.

In 2006, under the SDL Government the global bond of $US150m ($F326m) was a standby facility at 6 per cent interest. The military government used it. When it was time to pay it back in 2011, they went and borrowed more money — $US250m ($F543m). But now they were paying interest at 9 per cent. Everybody in the finance sector knows that other institutions offered loans at lower interest rates. But these loans were offered on conditions requiring the Government to manage the economy prudently. The Government would not accept these conditions.

This bond repayment is due in 2016. By 2016, the Government would have paid about $200m in interest alone. This is $200m that could have gone towards state services such as education and health, or welfare payments. We did not get these because we had to pay interest. This is why we all pay for government borrowing.

Government's own projections show that in 2016 more than $500m will be needed to repay borrowing, and on average $400m per year until 2020.

It is the people of this country who will pay for this. Based on 2013 figures, each woman, man and child in Fiji have a debt burden of about $4440, which the Government has borrowed on their behalf.

Each household would have a debt burden of more than $20,000. This will have to be repaid in increased taxes or fewer government services to them.

Employment, wages

and salaries and poverty

While economic growth is important it cannot resolve all social ills such as unemployment and poverty. We do not have the poverty figures for 2013/2014. But we should not expect much difference in the poverty rate compared with the 2008/2009 survey. So all of this economic growth has not helped the poor.

It is likely that 30 per cent of our people live in poverty, possibly more. Rural poverty has probably increased, because of the declining agricultural sector and the sugar industry.

Unemployment is becoming a serious concern. Between 2010 and June 2015 about 46,277 people registered at the National Employment Centre (NEC) looking for jobs — an increase of 13,000 in one year. Only about 5600 were able to find permanent jobs.

These alarming figures mean that 5.3 per cent economic growth in 2014 did not create meaningful employment. In June, Employment Minister Jioje Konrote advised unemployed youth through The Fiji Times to "go back to the village and plant cassava to make money". He is the employment minister! Has he given up?

For many young people coming out from universities, technical institutes and schools, finding employment is a grim prospect. Those that do find jobs are faced with low wages and salaries. Take the volunteer scheme for teachers, who are paid $12,000 a year.

Poverty Alleviation Minister Rosy Akbar, like Mr Konrote, admitted during the workshop on development agenda on children and youth in the Pacific that "majority of the (unemployed) are university and tertiary institution graduates".

So while Government is (wrongly) claiming that economic growth is at unprecedented levels, our unemployment level is also skyrocketing. If the economy was growing in a sustainable way, it would be creating jobs. Where are they?

Can we keep

growth going?

Economic growth is necessary for extra jobs. Continued consumption-driven demand can help for a while, but not in the long term. We need to ensure that productive sectors such as agriculture, mining, fisheries, forestry and manufacturing pick up. For this we need to address supply side constraints.

This can only happen with reforms that can create production and improve the efficiency and effectiveness of public spending. We are extremely inefficient at promoting growth and investment. The latest World Bank figures show that our world rankings for ease of doing business have fallen sharply since 2009, from 56 to 82. We are ranked a dismal 160 out of 189 for ease of starting a business.

Small and medium enterprises are suffering. We all know that throughout the world, small and medium enterprises create the largest number of jobs. We need to ensure that our process and policies do not put extra costs on our small businesses.

Growth of the type we are seeing in Fiji is not sustainable and will not distribute income fairly. It will lead to further inequality where large businesses and certain services sector operators will benefit and the low income people will become poorer.

* Dr Biman Prasad is the leader of the National Federation Party. The views expressed are not necessarily shared by this newspaper.

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