Economist wary of Fiji’s debt servicing scenario

THIRTY-TWO cents in every dollar that government collects in revenue is going towards servicing debt and the State should be very concerned about this scenario, says University of the South Pacific senior economics lecturer Dr Neelesh Gounder.

“Now, debt in itself is not a bad thing,” he said.

“Economies everywhere borrow to spend on infrastructure and to fund public services, businesses do the same.

“But the real issue is when a debt continues to grow, but your income is not growing faster than your debt.

“So let’s take Fiji, for example.

“Our debt is slightly over 85 per cent of GDP and in the 20212022 fiscal year, 32 per cent of all the revenue the Government collected actually went into debt servicing.

So the remainder is then available for spending in public services and infrastructure.

“You can see that every dollar the Government collects, 32 cents of the dollar is going to a debt servicing. So the remainder of the 68 cents, then, is available for the government to spend.

“So if the economy isn’t expanding or growing, but debt servicing requirements continue to grow, then more and more revenue is going to go towards debt servicing payments, and less and less will be available for government to spend on public services and infrastructure.

“That, I think, is the real challenge.”

Dr Gounder claimed Fiji’s debt situation did not occur in the past two years and could not be attributed to the COVID-19 crisis alone.

“Yes, COVID exacerbated the situation, but the economy was already slowing down way back in 2019, so the economy was already slowing down pre-COVID.

“COVID just exposed the fault lines and exacerbated the economic scenario that Fiji was in.

“And it’s important for the next government to ensure that efforts and strategies are put in place to ensure that the debt does not continue to grow.

“One of the things that’s really important is to ensure that the economy is also growing relative to the debt size.

“If the economy isn’t growing, then the real challenge in the future will be, how do we meet debt servicing requirements compared to the revenue that we’re generating?”

While announcing the 20222023 National Budget in July this year, Economy Minister Aiyaz Sayed-Khaiyum said Government has forecast a total revenue for the 2022-2023 financial year at $2.94 billion and expenditure at $3.81 billion, resulting in a net deficit of $0.87 billion.

National debt was projected to be $9.98 billion or 85.2 per cent of GDP by the end of the fiscal year.