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Budget with a pinch

Sitiveni Rabuka
Saturday, August 12, 2017

AS the new budget measures came into force on August 1, 2017, the Social Democratic Liberal Party (SODELPA) commiserates with the people of Fiji contending with the pinch and punch of the 2017/18 budget.

The 2017/18 Budget is irresponsible because the Bainimarama Government ignores the fundamental realities of Fiji as a small island vulnerable state. Fiji is vulnerable to both domestic and international shocks, in addition to natural disasters.

Our economy is narrow based and depends on limited exports which are subject to a high price volatility in the international market. Fiji's economy is consumption driven with narrow investment opportunities and the country is highly dependent on remittances.

Government's expansionary budget approach adopted in the last couple of years evidenced by the increase in our debt stock is evident of an irresponsible government.

Successive budgets have deceived the people of Fiji because they failed to implement many budgetary promises. The budget announcements give our people a temporary "feel good" for those who will benefit from the promised development, but then disappointment as they wait in vain for the promised development to eventuate.

The 2017/18 Budget promised inclusiveness and the empowerment of the people of Fiji. Having reviewed the allocation of funds, we clearly see it will not meet the basic needs of the majority of Fijians but will only benefit the select few who support the Government.

A review of the budget estimates for the last financial year, the 2016/17 budget clearly indicates the deceptive and inconsistent approach of the Bainimarama Government. It was estimated that the deficit will be around 4.7 per cent. In reality, the actual deficit is only 2 per cent a difference of $267 million which is over 2 per cent of GDP. The variation in the deficit figures clearly suggest that the Bainimarama Government did not utilise all funds allocated, either due to lack of capacity or because of a shortage in collected revenue to cover all expenditures.

The actual figures for 2016/17 indicate a shortfall of revenue collected by $324m from both operation and investment revenue. The bulk of the shortfall is from the projected sale of government assets which was supposed to rake in around $255m but only $6.2m was realised as revenue.

The variation is so large and the margin is too high and unrealistic. This is a clear indication of the lack of visionary leadership, poor anticipated cash flow and Government's deception.

I believe the 2017/18 Budget is a vote buying ploy because it gives out a lot of freebees and handouts rather then proper targeting to empower people to help them to realise their aspirations to become self-reliant. This approach is unsustainable in the medium and long term.

The budget is unimaginative because of the many inconsistencies that will create distortions rather than an environment of confidence to the private sector and to individuals, to support investment and encourage sustainable economic growth. Instead of moving forward, the unimaginative approach will leave us behind compared with our Pacific neighbours who continue to progress.

Budget overview

The announcement of the $4.35b budget for the 2017/18 fiscal year was shocking because the proposed expenditure is so high and unrealistic in view of capacity and the absorption rate of the past couple of years. This amount is to cover operating expenditure of $2.52b with $1.78b in capital expenditure and the balance of $499m as value added tax.

Anticipated revenue will be around $3.85b with a shortfall of almost $500m which will be borrowed to finance the difference. This means that we will have a deficit of 4.7 per cent of GDP.

Having reviewed the budget in its totality and the trends in the past couple of years, SODELPA is of the strong view that government programs, funded by this budget, will not redistribute nor will it achieve a more equitable and empowered society as announced by the Minister for Economy.

Inflation

The excessively high cost of living faced by ordinary Fijians is unbearable despite the claim that Fiji's inflation rates are quite low. The Minister for Economy estimates the average inflation rate will be hovering around 3 per cent by year end, but the current monthly inflation rates do not bear out this prediction.

High inflation rates were recorded in January 2017 which was 6.8 per cent, 5.5 per cent in February, 5.6 per cent in March and 5.2 per cent in April. It is anticipated that inflation will continue to increase in the next couple of months before it stabilises. We project that the end of the year inflation rate will be much higher in light of present trends.

Inflation is not only influenced by monetary conditions because change in supply and demand can also lead to price changes. For example, a supply shock caused by disruption in production (such as natural disaster, which is a common event, or a problem in the shortage of supply eg the shortage of cement supply) or the high production cost (increase in wages, rent or oil/fuel prices) will surely lead to "cost push inflation" as these factors limit the supply of goods and services. The expansionary approach by government will surely increase prices because there will be more demand than supply and it takes time for our "capacity" to make the necessary adjustment. Therefore, the 3 per cent inflation rate estimated at the end of the year is unrealistic and not sound.

Debt

In 2012, our total debt was only around $3.6b. The 2017/18 Budget increases that to almost $5b. Every citizen carries an average debt of $6000 if it's broken down to per capita basis.

All this debt has to be paid. Under the Constitution, debt has to be first serviced before any other expenditure is paid, such as salary of civil servants, ministers and any services provided by Government.

Our total foreign debt stock has increased from 25.4 per cent to 31 per cent of the total debt. The increase in foreign debt means increase of outflow. But the biggest challenge that we will face is placing the burden on our younger and future generation to pay these debts because of poor management of government finances and the bullish expenditure trend.

Although the Minister for Economy claims our debt level is sustainable according to multilateral institutions like the World Bank, ADB, IMF and Moody the rating agency, the minister ignores the recommendation by these institutions that we need to address structural challenges in the economy.

Liquidity

Fiji's liquidity position remains high and hovered around $735.8m in June. The review by the Reserve Bank of Fiji in June indicated liquidity had increased by 27 per cent ($152.6m) to $717.6 million from May.

This trend is anticipated to increase further because the lack of confidence in the economy despite the low average lending interest rate which has decreased to 5.8 per cent from 5.93 per cent in May.

This is a clear indication that there is a lack of confidence because of inconsistency of government policies which make investors nervous. In addition, the limited three-year contracts to public servants and the environment of fear limits their opportunity to invest in residential homes despite the increase in demands for housing in urban centres.

Conclusion

Having assessed the 2017/18 Budget, we can conclude that it is an irresponsible, unimaginative, deceptive and a vote buying ploy.

The Bainimarama Government since 2007 has been taking an expansionary approach in managing the economy with no due consideration of Fiji's vulnerable position as a small island nation. No effort has been directed at consolidating public finance to achieve a balanced budget which is a pre-requisite for sustainable growth in the medium and long-term.

There are many inconsistencies in the allocation of resources due to poor targeting and direct handouts which are unsustainable in the medium and long-term. Priority sectors such as non-sugar agriculture, tourism among others have been marginalised.

It is interesting to note that 53 per cent of the total budget is directly controlled by the Minister for the Economy. This comprises 14 per cent of the budget being under Requisition in head 50, another 9 per cent from his various portfolios and 30 per cent under requisition to incur expenditure (RIE) in other ministries. This demonstrates the lack of transparency and accountability in the management of government finance, a contradiction of what FijiFirst is preaching.

* Sitiveni Rabuka is the leader of the Social Democratic Liberal Party (SODELPA) leader. The views expressed are his and not of this newspaper.








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