Let’s heed the IMF’s advice
16 March, 2019, 9:46 am
The assessment of the International Monetary Fund (IMF) of the Fiji economy is the worst that I have ever read.
I have been part of these reports when I had worked in the IMF and led many Article IV discussions. I know that the IMF speaks with tact and euphemism.
But as I read the report, there is no doubt whatsoever in my mind that the IMF is extremely worried about the future of our economy. And so should we be.
This is the first of a series of articles that I hope will explain to the people of Fiji what the IMF has said.
I will try to put what they said into context and explain it in plain English, so the people understand.
Under Article IV of its establishment, the IMF is required to assess the economy of each of its member countries every year.
The aim is to identify risks and convince the authorities to take measures to reduce these risks.
In Fiji’s report, the risks are many.
Virtually every heading in the report points to a risk.
If we do not heed these risks, in my assessment, the economy will sail into the rocks. In this modern world, almost all our problems can be traced to an economic cause.
Virtually all risks that the IMF has identified can be traced to the root cause of excessive government spending and dictatorial decision-making.
Many Fiji economists have already pointed out almost everything that the IMF has highlighted in its report — the free spending of this government, the low quality of that spending, the high debt, the struggling export sector, the micro-management of politicians, and the deteriorating business environment.
The economy is made up of interconnecting sectors. What happens in one sector has ripple effects on the other sectors.
The sizes of these sectors are measured by their contribution to the economy — remember that radio debate on GDP?
The most influential sector in Fiji’s economy is the government sector because it is the biggest.
Government spending is about 35 per cent of GDP.
The revenue it collects makes up 30 per cent of GDP.
The companies that government owns are big. So, what the government does has a large impact on everything else.
The IMF noted that we have had nine years of consecutive growth.
But in the same breath, it warns that the growth has been built on unsustainable government spending.
This was the very same thing that I highlighted many times last year.
IMF pointed out that Fiji’s growth rate is low compared with other emerging economies.
The IMF’s report is urging government to slow down expenditure.
Why? Because they see this as the root cause of Fiji’s looming problems. You see, when government spends, a few things happen.
First, government buys imported goods.
This drains our foreign reserves.
Second, the government gives money to the people through grants or wages and in turn the people buy imported goods.
So again foreign reserves take a hit. After a period $US140 million ($F297.7m) last year.
This was not helped by the continuing dismal performances of our traditional exports like gold and sugar.
The IMF has said that the world economy is slowing, the oil price is rising and sugar prices are declining.
Therefore, the IMF is warning us that our foreign reserves are at risk if government does not reduce spending straight away.
More seriously, in my reading between the lines, the IMF does not believe that government is serious about cutting back on spending.
Therefore, the risks to our economy are real and serious.
When our foreign reserves are depleted, we cannot buy anything from abroad. Venezuela is a classic example.
The IMF further warns government to be more transparent and to strengthen the rule of law.
In my reading, this means that government scrutiny of its finances and operations.
The government continues to appoint one of its own parliamentarians as the chairman of the Public Accounts Committee which is the main forum for scrutinising government budgets and the Auditor-General’s report.
Government-owned companies are not adequately scrutinised — remember the case of a company whose CEO received bonuses
when the company was consistently making losses?
We can also remember the bonuses that were given out by a minister just before the 2018 election.
The IMF also stated that investment agencies must follow the rule of law in processing business proposals and government must follow the law in its procurement procedures.
The IMF does not make these statements lightly.
They would have evidence or indicators to support them.
In my next articles, I will analyse in detail what the IMF said on each sector of the economy.
We must listen to the IMF.
Our future, especially that of our children, will depend very much on our responses to IMF’s concerns.
- Savenaca Narube is the former Governor of the Reserve Bank of Fiji. The views expressed are the author’s and not of this newspaper.