Review examines Fiji’s debt levels

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A NEW review by the Asian Development Bank has suggested that the Fijian Government reconsider its limit on external borrowing at 30 per cent of total borrowings.

This is on account of liquidity and interest rate movements in the domestic market.

Government intends to maintain foreign-sourced debt at no more than 30.0 per cent of total borrowings.

The latest issue of the Asian Development Bank’s (ADB) Pacific Economic Monitor noted that reconsidering the limit on external borrowings will facilitate continued favourable interest conditions for private sector investment.

Demand deposits in the banking system in September 2018 were 41.1 per cent lower than a year ago, although no significant shift was seen in interest rates.

Currently Fiji’s external borrowings are from the EXIM Bank of China, the Asian Development Bank, the World Bank, and others including bonds issued in external markets.

The monitor also noted Fiji successful reduction in debt burden from 56.2 per cent of GDP in 2010 to 46.2 per cent of GDP in 2015.

This provided sufficient buffer to respond to shocks such as Tropical Cyclone Winston in 2016.

The monitor also examined how natural disasters have compromised Fiji’s efforts to consolidate and remain within its targeted debt levels.

Damage and losses caused by Tropical Cyclone Winston were equivalent to 29.2 per cent of GDP, which necessitated significant fiscal outlays for emergency response, rehabilitation, and reconstruction.

Bilateral partners provided support on grant terms. However, multilateral financial institutions supported Fiji with its financing needs through loans, given that Fiji is an upper middle-income country and has access to ordinary resources only.

This increased post-disaster debt has risen to 50.0 per cent of GDP in fiscal year 2018, which is the ceiling set by the government.

The government plans to reduce total debt to 45.0 per cent of GDP by 2026 in line with targets set in the National Development Plan, 2017–2036.

Fiji’s debt stock trends are reflective of large shocks faced by the economy as a result of political events (2006), global economic shocks (2008–2009), and natural disasters (2016).

With debt at 44.8 per cent of GDP in 2005 events in 2006 and 2008 contributed to increase in debt to 56.2 per cent of GDP in 2010. Continued economic growth and low deficits contributed to reduction in debt levels to 46.2 per cent of GDP in 2015.

Fiscal responses to Tropical Cyclone Winston led to increases in debt to 50.0 per cent of GDP by the end of FY2018.

The December 2018 Pacific Economic Monitor is the latest issue of ADB’s bi-annual review of economic developments and policy issues in ADB’s 14 developing member countries in the Pacific. In combination with the Asian Development Outlook series, ADB provides quarterly reports on economic trends and policy developments in the Pacific.

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