Opinion: A long and hard struggle
15 July, 2020, 7:00 pm
In this article, I will review the government’s actions against my suggestions. Before I do that, for context, I would like to quickly outline the impact of the COVID-19.
- Jobs: We estimate that more than 130,000 workers have either lost their jobs, on reduced pay or on leave without pay. This is more than one third of the formal work force. Furthermore, this number does not include those in casual employment. This number is will continue to rise.
- Businesses: Most businesses are suffering very tight cashflows. Many micro and small businesses are expected to collapse and never rise again;
- Government revenue: Government cannot collect 70 per cent or $1.5 billion of its budgeted revenue;
- Debt: We expect the national debt to rise to over 80 per cent of GDP before the crisis is over;
- Economic growth: The Reserve Bank of Fiji expects the economy to decline by 21.7% this year;
- Poverty: We estimate that poverty will rise to 50 per cent of the population. This will push an additional 200,000 of our people below the poverty line; and
- Social impact: Serious social issues like domestic violence and suicide have increased reflecting the financial stress and tension in families.
Government responses to COVID-19
The actual cash that Government was giving to the people was only $150 million or 15 per cent of the total package announced in the COVID-19 budget.
- Instead of directly supporting the people, the Government has chosen to do two things;
- Direct workers to withdraw their life savings from the Fiji National Provident Fund (FNPF). I believe that this FNPF assistance is unfair to the workers for being asked to deplete their retirement balances while Government supports businesses through the budget; and
- Chosen to use the instrument of the law to be used to justify laying off workers due to COVID-19 being defined as an “Act of God”. We will remember this period as the lowest point in Fiji’s history of labour and employment relations.
Unity Budget response to COVID-19
Unity Budget proposes a three-phased approach: First Phase: Save lives and ease suffering I believe that our immediate responses should focus on saving lives and easing the suffering of the people:
- Keep Fiji COVID-19 free: The discovery of another 8 cases recently emphasizes our vulnerability to opening our borders. The biggest threat to lives will come from overseas. This would require a cautious approach to opening our borders and ensuring that all precautions are in place. In addition, we should take this time to prepare our health services to be able to cater for a possible second wave. The Unity budget allocates an additional $100m to Health;
- Ease the suffering of the people and support small businesses: I believe that a direct income support is the best and most effective solution to easing the suffering of the families and supporting small businesses. We propose that a cash injection of $1 billion is required to make up 40 per cent of the $2.5b decline in incomes. The assistance to be paid monthly for the next nine months, would be debited directly to workers bank accounts whose incomes have been affected including the owners of small businesses. Considering the weak financial status of Government, we propose that the $1b income support be funded by $500m in savings from Government expenditure and $500m in borrowing from the RBF at a negative rate of interest. With the current negative rate of inflation, the inflationary risk of borrowing from the RBF is manageable. The low global fuel prices and the decline in demand for imports will reduce the risk to foreign reserves.
- Welfare support: The Ministry of Social Welfare should be allocated more funds to address
mental health and other social issues that are becoming more prevalent with increased poverty as well expanding its range of programs of assistance for the poor and needy.
- Reduce wastage and defer non-essential government spending: When revenue is declining by 70 per cent, the only immediate choice left to Government is to seriously cut spending. The Unity Budget identifies huge potential to cut non-essential spending by over $1.5b by reducing wastage and deferring some capital expenditures until Fiji’s economic situation recovers.
Second Phase: Reposition government’s fiscal position
I propose that the second phase is to reset the government’s budget to give the Government more room to provide the fiscal stimulus that we need to lift the economy as soon as possible. The Unity Budget proposes the following measures to be implemented in the next financial year:
- Equitable burden sharing: The Unity Budget introduces new revenue measures aimed primarily at sharing the financial load of the crisis amongst the people who can afford to do so. One third of the taxpayers who pay the salaries of ministers, members of Parliament and salaries of civil servants are suffering. It is therefore only fair that ministers, members of Parliament and civil servants carry their share of the load based on their ability to pay.
- Zero-based budget: We will apply the concept of zero-based budgeting to all Heads of Expenditures (HOE) which we expect to identify savings of $500 million.
- Improve health services: The funding of the Ministry of Health should be increased to ensure Fiji meets the standards required by Australia and New Zealand to enter their travel “bubble” and also to prepare for the possibility of a second and third wave of the COVID-19 pandemic by purchasing more PPEs and equipment like ventilators. Urgent attention is needed to improve health facilities and services. The Unity Budget will allocate $100m to health; and
- Diversify the economy: The COVID-19 has taught us the painful lesson of over relying on tourism. Agriculture has been allowed to slump badly in the last thirty years. Initiatives that have been attempted in the past have failed miserably. Other resource based industries like sugar, timber, fishing and mining have all been allowed to decline over a long time. We must diversify immediately into resource based industries and tertiary industries. It is not about giving more money to the
Agriculture Ministry. It is about changing the model which Government has been using up to now.
Third Phase: Build a resilient economy
The Unity Budget’s third and fi nal phase is to reset the economy aimed at pulling the economy up sustainably as soon as possible.
We propose that this phase commence from the 2021/2022 fiscal year. In this third phase, the focus should be to:
- Reduce government intervention in the private sector: We all recognise the important role of the private sector in generating incomes and jobs. Government must only intervene in the private sector to set standards and remove market bottlenecks;
- Create the right environment for foreign and domestic investment: Investment is a prerequisite for sustained economic growth. I believe that there are a lot of investment incentives already in place. What investors consider more important now is certainty in policies and restoring financial and economic stability;
- Improve competitiveness: Our costs of doing businesses are rising rapidly. Strategies should be considered to improve domestic cost competitiveness; and
- Review taxes and their administration: Fiji needs to review its taxes to avoid cascading taxes and simplify tax administration.
- Our struggle will be long and hard: The RBF has released its projection to a whopping 21.7 per cent hole in the economy. That is the biggest decline in our history. The financial hardship will get worse for a lot longer. As our safety nets wear thin, the impact on our daily lives will become more and more visible. I do not share the optimism of the RBF of a quick 14 per cent rebound of the economy next year.
There are just too many uncertainties to be able to make an optimistic call.
The discovery, production, and distribution of a vaccine is an important factor in the revival of global tourist travel.
The 14 day quarantine periods at both ends of an overseas trip will result only in travelers to Fiji being those for long term stay.
It is very likely that the short stay tourism that Fiji is used to may be a long way away. We therefore predict that we will not restore our tourist numbers until 3 or 4 years’ time.
Without tourism, there is no other economic sectors that will take up the slack.
We therefore project the economy to register a modest growth of 3 per cent next year, increasing to 5 per cent in 2022.
That means that it will take five years to get back to where we
were before the crisis.
- Savenaca Narube is the leader of Unity Fiji and former governor of the Reserve Bank of Fiji. The views expressed in this article are his own and does not reflect the views of this newspaper.