Where’s the money

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Fijian currency. Picture: FILE PHOTO

Like a voice in the wilderness, I was calling on the Government over three years ago to be financially responsible, cut wastage and raise the quality of its spending.

The COVID-19 crisis has exposed for everyone to see the financial cliff that I was warning about.

Recently, the Minister for the Economy conceded what many of us have predicted — that he would not collect 70 per cent of the revenue he budgeted for in this financial year.

The magnitude validates my projection that the economy is in a worse state than the official estimate of a 4.5 per cent decline in GDP.

Many people have asked me, “where is the money that you say that Government can save?” In this article, I will identify potential areas where I believe Government can save money.

But before I show you the money, I repeat my proposal that the Government announces a three-phase roadmap;

  •  first phase — immediate responses to protect lives and ease the suffering of the people;
  • second phase — medium term responses over the next 12-24 months to create more fiscal space to fund the rescue package to stabilise the economy; and
  • final phase — long term measures to pull the economy up again sustainably as soon as possible.

I have been urging Government to immediately execute two measures in the first phase. First, now that Fiji is COVID-19 free, it is time for Government to strengthen the capacity of the Ministry of Health to fight a possible second or third wave of the disease as is happening in China, South Korea and Japan.

Secondly, Government must do something now to ease the suffering of the people who had lost their incomes.

I had proposed a cash injection of $1 billion directly to those affected to be paid monthly directly into their bank accounts. The advantages of a cash injection are;

  • It is targeted at the people that are most severely affected by the crisis;
  • It reduces the growing financial uncertainty and provide families of an assured source of income for at least the next 9 months;
  • It will ease the social impact of the crisis which includes depression and suicides;
  • It helps small businesses stay afloat which will help economic recovery and provide jobs;
  • It circulates cash throughout the entire economy to small businesses, retailers and ultimately to producers, distributors and wholesalers; and
  • The borrowing from the RBF injects new money into the financial system and raises the speed of circulation of money. This will catalyse economic activity.

I estimate that $200 million of this will flow back to Government though taxes and fees.

Several people have chosen to focus, not on the aims of the cash injection, but on its financing, perhaps intrigue by my proposal to “print money”.

“Printing money” is a term used when the central bank (Reserve Bank of Fiji) lends to Government. It is not new.

As a former RBF Governor, I know that the RBF has lent to Government on many occasions in the past. The only differences this time are the magnitude and my proposal that the RBF lends at a negative interest rate to avoid Government paying interest.

The main concern about RBF lending money is inflation and possible pressure on foreign reserves. But with the current negative rate of inflation and low domestic demand, the inflationary risk of borrowing from the RBF is manageable.

In addition, the low global fuel prices and the decline in demand for imports will reduce the risk to foreign reserves. Many Governments around the world, big and small, are using this instrument now to fight the COVID-19 crisis.  We should do the same. Unprecedented times call for innovative solutions.

To people who say that we should avoid handouts, I remind them that it is not these workers’ fault that they lost their jobs. In this devastating national crisis, they deserve Government support.

Where is the money?

I had suggested that Government save $500 million to help pay for the cash injection. Many have asked me: “Where is the money?” Let me reveal where the money is;

  • Grants to State Owned Enterprises (SOEs) — Government grants to SOEs and statutory bodies have exploded and now stand at over $1.6 billion per year. The major grants are $245 million to Water Authority of Fiji and $320 million to Fiji Roads Authority (FRA). I suggest that the FRA concentrates solely on properly fixing potholes and reducing their overheads. Obviously, some of these allocations are essential, but I can bet my last dollar that at least half is of low priority and about a third are not needed at all;
  • Miscellaneous — There is an allocation of $200 million in Miscellaneous (Head 50). Based on my experience as a former permanent secretary for Finance, we can easily reduce this by half;
  • Special expenditures — This ambiguous group of spending items has more than doubled in the last ten years to $119 million. The largest allocation in 2020 is for the Public Private Partnership (PPP) in Health.  I do not know the specifics of this PPP. But what I know is the serious deterioration of the state of our hospitals and health centers across the country. We could save at least half of special expenditures;
  • Vehicles — Government spends an average of $32 million a year in leasing vehicles and buying new ones. In the good old days, the amount was less than $10 million. We can see the indicator of this spending in the number of flash government vehicles on our roads and the long ministerial car convoys around Fiji. We should reduce this by half;
  • Embassies — There is a $10 million operating expenses for embassies. I suggest we close the ineffective ones and save half of this amount; and
  • Consultancy payments — There was a $2 million allocation to consultancy in the 2019 budget which I am guessing was for the services of the international public relations company QORVIS. This is a political luxury which we cannot afford.

The potential savings of over $1 billion confirm that the money is there. And there is more. If Government re-examines the programs and activities of each ministry, the savings could increase to $1.5 billion. I suggest that $500 million of these savings be allocated to fund the proposed cash injection, $500 million to the economic rescue package, and $500 million to reduce the deficit. This is a time for decisive action to bring expenditure in line with revenue.

Zero-based budgeting

In such a crisis as this, the best tool for Government to use is zero-based budgeting. Normally for each budget, government ministries look at their existing programs and activities and ask for more or less money to continue them in the coming year.

But zero-based budgeting requires each ministry to rebase all programs and activities under each Standard Expenditure Group (SEG) to zero and provide justifications for any allocation.

Using this approach, the Government will be able to;

  • weed out wastage;
  • defer non-essential spending including capital spending;
  • increase the quality of expenditures across the board; and
  • allow more allocation to essential areas of health, education and welfare support.

Optimism will not save us

I am concerned at the Government’s casual attitude to the greatest crisis of our lives. This was again reflected in a minister’s comment that the rural communities are not affected by the impact of COVID-19.

I remind the minister that this is a crisis of incomes for those that were earning them. The crisis will not directly affect those that were not earning any income. But please mark my words, over time, the impact will be felt country wide.

In my neck of the woods in Nadroga, most hotel workers who have lost their jobs are surviving from the land and the sea. But their cash contributions to the community have dried up. Many are finding it difficult to pay for cash expenses. Parents will struggle for cash when school starts. The demand for cash will deepen as the crisis continues.

We will not overcome the crisis by optimism. We will not overcome the crisis by political promises. We will not heal this crisis by applying Band-Aid solutions to gaping wounds.

We will only beat this crisis by executing a credible program with bold and innovative measures now.

  • Savenaca Narube is the leader of the Unity Party, an economic consultant and former Governor of the Reserve Bank of Fiji. The views expressed are his and not necessarily the views of this newspaper.
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