Fiji Budget 2014: Don’t mention the deficit

The Fiji Government last week released the 2014 budget. We will be featuring budget commentary on the Devpolicy Blog in the coming fortnight. In the meantime, here are some initial thoughts.

Big spending government

The 2014 budget solidifies the Bainimarama Government’s reputation as a big spending government. Bainimarama has delivered budget deficits year after year since taking power in late 2006, with the exception of a very small (and accidental) surplus in 2008, which has only been identified in the revised estimates. Granted, the poor economic climate in Fiji has been a contributing factor to these fiscal outcomes. Sluggish growth linked to political instability has kept revenues low and pushed the Fiji government to stimulate the economy through greater spending. I wrote in support of this approach with regards to the 2012 budget (although others were more critical). Times have changed, however. The economy is gradually improving, both increasing government revenue and reducing the need for fiscal stimulus. This requires a more cautious fiscal strategy on the part of the Fiji government, which we are yet to see.

One-off asset sales mask a poor fiscal outcome

On paper, the deficit of 1.9 percent of GDP doesn’t look bad, and is an improvement on the 2.6 percent figure recorded in 2013. What is different in 2014 is the $475.2 million in asset sales recorded in the budget. These include partial privatisation of the Fiji Electricity Authority, divestment of shares in Airports Fiji Limited & Fiji Ports Corporation Limited, sale of foreign mission properties and privatisation of the government printery. These one-off asset sales are what enable the government to record a lower deficit in 2014. If we exclude them from the analysis – and there is a strong argument that we should, given that they are ‘one-off’ revenue windfalls – the fiscal outcome is the worst on record for the Bainimarama Government (a very large 7.5 percent of GDP). The various calculations are shown in the figure below.

Fiji budget: defecits and asset sales

 Spending priorities

What of the spending priorities of government? Spending has increased across a range of areas, funding salary increases for civil servants (described as vote buying by one government critic), as well as investments in infrastructure and education. In general it is fair to say that this government has focused on capital rather than operational expenditure. ‘Investing activities’ will comprise 36 percent of government spending – an increase on last year’s figure of 32 percent, and a significant increase on that of earlier budgets. This is a positive development. Last year, the government chose to invest in the neglected roads sector, both through increased funding and reform of road maintenance arrangements. That focus continues in this budget. Road spending will increase to $454.8 million from $422 million in 2013 (itself a $180 million increase on 2012). The 2014 budget broadens the scope of capital expenditure, with more money committed to education in the form of grants to schools and loans for tertiary education. Again, these developments are welcome, although the ongoing lack of transparency regarding how such funds are spent remains an issue. The question of how this spending can be funded over the long run also remains unanswered.

Don’t mention the deficit

What is most concerning is the lack of a serious discussion about how the government will consolidate its fiscal position (the one page dedicated to reform in the budget supplement [pdf] is hardly comforting). The assumption to date has been that economic growth will raise revenue, thereby funding the expanded level of spending to which government has become accustomed. This may occur in the longer term, but the fiscal troubles of the Fiji Government are more immediate. Better roads and an educated workforce will help Fiji’s economy grow in the long run, but they will not solve the government’s fiscal problems in 2015 or 2016. The issue deserves more attention given that government debt remains at almost 50 percent of GDP.

The Fiji Government has continued to shrug off such concerns in the 2014 budget. Bainimarama mentioned the deficit just once in his budget speech, under the heading “Responsible Economic Management”. The budget supplement states that government is “gradually consolidating finances over the medium term” (‘gradually’ being the operative word). It will be interesting to see the extent to which the newly elected government reduces spending in 2015. What is certain is that the government will not be able to plug the budget hole with another $475 million in asset sales.

Matthew Dornan

Matthew Dornan is Deputy Director of the Development Policy Centre. He heads our program of research into Pacific development. His research focuses on aid flows, regional integration, energy, and broader infrastructure challenges in the Pacific islands region. Matthew has a PhD from ANU, and previously worked for the Australian aid program in the Pacific.

2 Comments

  • Interesting observations Kolinio Meo considering the article had been written towards the end of 2013.
    It is now November, 2014 Post Fiji 2014 Election. The recent outcome of Fiji Auditor-General’s 2007-2013 Report just released gives us an inside view of what transpired Post 2006 coup up to 2013. The budget presented in 2013 for 2014 appears not to be included in the 2007-2013 Fiji Auditor Genral’s report. The report is now showing clear evidence of alleged mis-spending and mis-appropriation of funds as per the Auditor General’s report. I have attached some prelimiray links for your information below this comment as attachments.

    A Committee now tasked to look into this is led by Dr Biman Prasad M.P.. His comments alone is adequate to tell Fiji taxpayers and those with vested interests of the financial state of affairs Fiji has had post 2006 coup – 2014. It does not look promising for 2015 and beyond.

    Elisapeci Samanunu

    Links:

    Khaiym’s aunty milked taxpayers to the last drop: Regime paid Nur Bano Ali’s Aliz Pacific over HALF A MILLION DOLLARS to re-structure Rewa Dairy Company Ltd!~Fiji Leak 4/11/2014

    Fiji Government ministers’ salaries were paid through chartered accounting firm Aliz Pacific Limited from 2010 – Shalveen Chand

    Fiji Public Accounts Committee to sit for the first time to scrutinize report – By NASIK SWAMI

  • A very precise analysis of the 2014 Budget, easy to understand by lay person like me but what is of great concern are the many uncertainities posed throughout the narrative. Will the government be able to sustain itself from 2015 onwards? Is there any contingencies should the country be struck by natural disasters? or Are we going to be dependent on the goodwill of other countries? Will the revenue collection machinery achieve its target? or is the government too overconfident on its strategies? Will the election go smoothly as anticipated? or will the current rumblings of political parties explode into civil unrests should suspicions of vote rigging come to the fore? These are pertinent questions which everyone hope will be amicably addressed by the authority. God save Fiji.

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