In November last year the Asian Development Bank quietly changed its mind about Fiji, re-classifying its member status from “C” to “B”.
At university this might be regarded as a good thing. At the ADB, not so much. It means Fiji is a country going in the wrong economic direction.
For the ADB, the 21-page policy paper is pretty ordinary stuff – and I am sure that Fiji is not the only one of its “developing member countries” (as it calls its borrowers) to have taken a classification hit two years into the COVID-19 pandemic.
But Fiji is the country we are worried about, not Bangladesh or Kazakhstan. And amid a fortnight of hype about lasulasu and jhoot there are, in this document, some sobering economic truths.
Like all such papers, it’s tough reading if you prefer a Mills & Boon. Development bankers, after all, are not journalists or politicians. They write in sober, logical terms under headings like “sovereign borrowing” and “quantitative variables”.
But it is because they are not journalists or politicians that the report is important. This is a (for the most part, I think), clear-eyed and unbiased picture of the Fiji economy in real time, shorn of political rhetoric or pretence.
The essence of the paper (and you can read it yourself by just searching “ADB Fiji Country Classification 2021” on Google is that the Fiji economy is not in good shape.
Self-evidently Fiji is a Small Island Developing State (a “SIDS”) vulnerable to climate change and COVID-19 has had a severe impact. Well, you don’t need to be a highly-paid ADB economist to know that.
But it is the other factors in the mix that are more damning of the way Fiji’s economy has been managed in the last 10 years. And commenting on that, the paper pulls few punches.
Public debt
Professor Wadan Narsey wrote a clear article last Saturday on the growth of Fiji’s public debt and I have (shamelessly) stolen one of his graphs. ADB is making the same point as Professor Narsey.
Fiji’s ability to manage its public debt has gone through “substantial and sustained deterioration”, says ADB. In shorter words – it has gotten quite a lot worse.
And, no this is not just because of the pandemic, says the ADB. The problem was that Government debt was in trouble before COVID-19 came along.
“Even before the pandemic, Fiji’s public debt-to-GDP ratio was higher than other SIDS (small island developing states),” ADB said, noting that it had risen from 43 per cent in 2014 to 48 per cent in 2019.
The Government’s own forecast was that the number would hit a massive 91.6 per cent by the middle of this year.
The paper reported the International Monetary Fund (IMF) saying that, even before the COVID pandemic, Fiji’s debt profile “already showed moderate, but rising risk of debt distress”.
And what that means is that when you really do have to go into debt – when there is a major cyclone, or an earthquake – very predictable things – or a pandemic, maybe less predictable – our ability to borrow has been squeezed tight by imprudent borrowing and spending when we didn’t need to do it.
There could still be a major cyclone. We are overdue for an earthquake. Where will the money from for the Government to deal with these things?
As the policy paper reports, a technical assessment of Fiji’s public debt position scored Fiji a “B” for the quality of its debt management and an “A” for recording and reporting it – but gave it a “D” grade for “an endorsed debt management strategy”.
So in other words, the Government knows where the debt is and it knows how to tell the public about the debt – it just doesn’t have any idea how to manage it.
Growth, poverty and national income
We are constantly reminded about our “unprecedented” nine-year streak of uninterrupted economic growth. We used to talk about the “Bainimarama Boom” but there is a lot less talk about that now.
According to the ADB, our average annual economic growth for the 10 years to 2019 was (an unspectacular) 3.3 per cent. The economy contracted by 0.4 per cent – that is, before COVID – largely, says ADB, because of lower public spending, coinciding with a global downswing.
That tends to support the opposition’s criticism of the “Bainimarama Boom” as fueled basically by Government borrowing and spending.
As ADB notes, foreign investment, at 6.9 per cent of GDP for the five years to 2019, was also modest, a lot of it spent on high-end tourism (and many high-end tourism investors – rich people – tend to invest for fun, not for profit).
ADB notes overall that Fiji’s low level of private investment – and past reliance instead on public investment (that is, Government borrowing and spending) is one of Fiji’s “major obstacles to sustained and inclusive growth”.
So, perhaps Fiji is not the quite the foreign investment miracle that our Government suggests it might have been.
But all that, too, is history. The ADB report notes, soberingly, that per capital Gross National Income has crashed by a quarter – 24 per cent – since 2018.
“Even if a recovery does start in the coming one to two years,” it says, “the depth of Fiji’s depression means that it will take many years to return to pre-pandemic income levels.”
ADB notes, as most economic commentators have been saying, that Fiji’s poverty rate has been rising – “even before the impact of the COVID-19 pandemic”. It quotes the most recent household income and expenditure survey (that is, the one that got the Government Statistician sacked) showing that “Fiji’s cost-of-basic-needs poverty rate” had reached 30 per cent by 2020.
“With modest economic growth rates (averaging 3.1 per cent from 2015 to 2019) Fiji has found it challenging to significantly reduce remaining poverty,” the paper says.
“At current rates, Fiji is unlikely to meet its 2030 Sustainable Development Goals poverty reduction target, which requires halving poverty in all its dimensions according to national definitions.”
Is there any good news?
Well, it depends what you call good news.
Fiji is now eligible for $128 million in “concessional OCR resources” (in simple English, this means “cheap loans”).
We qualify for cheaper loans because, in simple terms, we have been economically downgraded.
That may be a good thing – or not. Taxpayers should remember that “D” grade for debt management strategy.
So I guess we have to wonder if the Government, which seems to feed on debt, can actually spend it effectively – or just add it to the debt pile by spending on some shiny new project whose main purpose is to look good.
Apparently, according to World Bank World Governance Indicators (WGIs), Fiji lags behind its peers on the indicators for “voice and accountability” – no surprises there. But it is said to be ahead of its peers on “government effectiveness, regulatory quality, rule of law and control of corruption”.
Most people in my professional circle would read that last sentence with some incredulity. The idea that the government is effective at what it does, or that its regulation is of any quality, might come as a surprise. And I don’t give it many marks for rule of law either.
Perhaps this can be explained by the fact that this grade is relative – it depends on how good or bad your peers are. So it may just be possible that, no matter how hopeless Fiji is, other countries are worse.
With a government in election mode and with a firm grip on up to half of Fiji’s mainstream news media and a long history of repeatedly telling us how transparent it is, how great its economic management has been, and how many lies its critics are telling us about the economy, the ADB’s November 2021 policy paper is worth reading to bring us all back to earth.
There are some serious challenges ahead for us. Things will not just spring back to where they were as the pandemic recedes – because our basic economic problems were with us long before the pandemic was.
- RICHARD NAIDU is a Suva lawyer who is more used to reading court judgments than economic ones. The views in this article are not necessarily those of The Fiji Times
