Australia leaves Fiji to flounder

Australia leaves Fiji to flounder
Long Beach, Fiji (Rob Chandler/CC BY 2.0)
Written by Stephen Howes

Fiji’s fiscal year begins in August, and the government brought down its 2020-21 budget in July. The most striking feature of that budget is that total expenditure in the coming year is budgeted to be virtually unchanged compared to the preceding two years. Adjusting for (mild) inflation, expenditure in 2020-21 is budgeted to be just 0.5% below expenditure in 2018-19, the year before COVID-19; in 2019-20, it was just 3% below the 2018-19 baseline. (You can see all the graphs in this blog or go straight to our Pacific Covid Economic Database.)

From one point of view, protecting total expenditure is an achievement. After all, Fiji has taken a massive hit to revenue, which fell by 16% (after inflation) in 2019-20, and is projected to fall by another 39% in 2020-21. What that means is that in the new year government revenue will be just a half of what it was two years earlier. This partly reflects some tax cuts given in the perhaps vain hope of stimulating the economy, but mainly the cessation of tourism. Fiji is projecting a 22% fall in GDP in the coming year.

Fiji gets minuscule amounts of foreign aid in the form of grants, so its only hope is to borrow, and that is what it is planning to do. In 2018-19, it had a deficit of 3.6% of GDP; in 2019-20, that increased to 8.2%, and in 2020/21 Fiji is projecting a whopping 20.2% deficit. This will be financed, it is planned, by a mix of domestic commercial and overseas official loans. The country is heading into uncharted territory with a projected debt/GDP ratio of 83%, and other problems – like having to bail out the country’s airline – adding to its fiscal stress.

It is instructive to compare Australia’s domestic response. Australia, with its July-June fiscal year, spent 14% more in 2019-20 than it did in 2018-19, and is budgeting to spend another 16% more in 2020-21. Australia’s total budgeted increase in expenditure by 33% (2020-21 relative to 2018-19) is in stark contrast to Fiji’s inability to budget for any increase at all.

Australian government revenue is also taking a hit, but nothing like the contraction Fiji is experiencing. Australian revenue in 2020-21 is budgeted to be at 93% of its pre-COVID 2018-19 level (compare Fiji’s 51%).

Australia, like Fiji, is also borrowing heavily. Our deficit is heading to 10% of GDP. We’re able to finance as much social protection as we want without having to cut expenditure at all.

These figures might seem abstract, but the implications are very practical. Fiji’s workforce has been badly hit by the collapse in tourism. The Fijian government estimates that 115,000 Fijians are unemployed or on reduced hours, which is one-third of the workforce. However, there is very little by way of a safety net to support these workers. Fiji is only budgeting $100 million in funding for unemployment assistance in 2020-21. That is 1% of GDP, one-quarter of the 4% of GDP that Australia will be spending on JobKeeper and other COVID-related income support.

The unemployed in Fiji are largely on their own. They are only eligible to receive government support once they have completely exhausted their own superannuation funds, and even then, will receive only FJD220 per fortnight. This is less than 20% of what an unemployed Australian will receive, even after the COVID-19 supplement is reduced in September. And if you didn’t have a formal superannuation-paying job to begin with, then you won’t get any support at all.

Could Fiji do more to help its poor, vulnerable and unemployed? It is cutting expenditure elsewhere in the budget. It has closed several embassies, and all politicians and heads of department are taking a salary cut. Even funds to pensioners, farmers and school kids were reduced in the new budget. Fiji’s government is borrowing as much as it can from all available sources. The country’s charities are certainly stepping up, providing school lunches and other support. But it is not enough.

Fiji needs more external support. Australia’s efforts so far have been tokenistic: $12 million in budget support is hardly going to make a difference. Offering to support the roll-out of a vaccine (out of existing aid funds) is good, but we can’t just sit back and wait while the people of Fiji suffer, perhaps for another year or more.

We can borrow as much as we want, and cheaply. We should offer some of that to Fiji, preferably at a concessional rate. Mat Tinkler of Save the Children has argued for a Pacific JobKeeper scheme. I agree. We should allow Pacific governments to set their own priorities, but make it clear that we will provide more funding in return for more assistance for households.

What we should not do is leave Fiji, and its thousands of unemployed, to flounder.

For more, see the Pacific Covid Economic Database and the other blogs in this series.

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Stephen Howes

Stephen Howes is the Director of the Development Policy Centre and a Professor of Economics at the Crawford School.

10 Comments

  • Article is written with a short term focus with not enough balance on how the economy needs to diversify. One only needs to drive through the previous farm lands to see it over grown or rather a bushland with trees ready to be milled.

    The current state of the country is the same as it is for most small tourism dependent countries. Yes I agree there is a need for the western countries that have exploited the colonial countries they managed to give back. Be it the banana import or the pineapple or sugar or gold or the intellectual capital and lastly not to mention the capital flight with every skilled migration. 12k people migrate every year with roughly $40k cash in hand or roughly 580 million dollars … 580 MILLION DOLLARS.

    What the country really needs to do is, reduce expenditure, re-establish farming, free trade agreement like the sugar cane EU scheme, establish an agreement of the Pacific nations on fishing rights, grant scheme that is a percentage of capital flight targeted purely for infrastructure with acquittal to say the least.

  • Fiji needs all the support especially from Australia at this difficult time. As our Pacific neighbor we rely on them at this difficult time.

  • Sir, I think your argument is misplaced. If you carefully peruse Fiji’s national budget, you’ll find glaring ‘unwarranted allocations’ which can be slashed to free-up resources for badly needed unemployment support and other social services (allowances) for the poor and underprivileged. Budgets for the military and infrastructure works (roads) are still exorbitantly high and not absolutely urgent. Furthermore, the PM has decided to construct a new office for himself in the midst of this crisis. This $7 million construction is not exactly meniscal as right now the country needs every cent it can fathom to weather the current economic downturn. The government budget in its entirety is riddled with non-priority programmes and policies which can be scaled-down and rechanneled to other priorities.

    Fiji still has spare capacity to effectively address the socio-economic fallout of COVID 19, and not necessary elevate its debt levels to such extremes. All the country needs right now is a strategy to prudently manage and re-prioritize its scarce resources, whilst balancing this with efforts to secure productive and sustainable borrowings. Unfortunately, the Fiji government has forged forward with a bloated budget (relative to its fragile revenue capacity), stuffed mainly with ambitious budget programmes/policies which are either misaligned or insufficient to resolve current socio-economic woes. Debt levels has spiraled to its highest in the country’s history and a large part of this is being earmarked for recurrent spending such as salaries and wages; and not so much for livelihood support for affected families and households.

    Bearing this in mind, I believe the critique of Australia’s limited intervention in Fiji as purported in this article is (to a large extent) miscalculated and misjudged. Getting a firm grip on real context is critical, otherwise, Australian taxpayers will be footing bills for a government that’s reluctant to accept current COVID 19 realities and align its budget response accordingly.

    It’s true that Fiji is absorbing a harsher blow in this crisis compared to Australia and other Pacific neighbors. However, one must also appreciate that Fiji’s current predicament is partially the result of government’s gross fiscal mismanagement in recent years, which has limited its financial capacity to deal with the crisis effectively. However, what’s more perplexing though is that the government has shown in the 2020/2021 Budget that it will not budge and continue to travel down the same destructive path its been on in recent years, even in this unprecedented times.

    I don’t think its fair for Australian taxpayers to be churning out millions for such profound and blatant (financial) irresponsibly – don’t you think so too.

  • A good summary of the economic situation in Fiji Stephen – I would have been interested in some linkages between the development policy alignment with overall foreign affairs strategies for Australia. It’s all about political will to offer integrated solutions that will benefit both Fiji and Australia. The Pacific JobKeeping proposal makes sense – to get a workforce from countries like Fiji with zero COVID-19, like Australia currently does with Vanuatu. These are workers from English-speaking countries with a genuine desire and passion for work – that’s something you can’t teach people, it has to be inherently within their psyche, and is clearly difficult in Australia for locals who are not willing to relocate from their urban homes to work in regional farms and rural industrial zones. Why should they, when on Job Seeker, it is just easier to look for 8 jobs a month and get paid for it, right? If Australia doesn’t want to give more funds to Fiji, they can still help through areas like trade – Put an offer on the table to import vegetables or other agricultural goods from Fiji. The loss of many tourism jobs has driven thousands of hotel workers back to farming in their villages. Locals have taken on initiatives like the Barter Fiji facebook platform where goods are exchanged. The will to adapt and survive is there in the people, but the Fiji government needs external support to push for stronger agricultural empowerment among the Fijians. They have land going to waste because culturally, Fijians have only really done subsistence farming. A guarantee of export markets could be the change they need – like back into those pre-coup days when the port of Levuka thrived as the gateway for island copra exports, and even in the early 1990s when PAFCO worked to get European Union trade harmonisation for Fiji tuna access to EU markets. Australia can offer harmonisation / technical assistance to ensure agricultural exports are up to Australian standards, and include more agricultural goods in the bi-lateral trade agreement. This is Australia’s second chance to make up for its foreign policy faux pas since the Rudd Government era, where they let their guard down with Fiji and the Pacific Islands in general – and in stepped China, offering to help the floundering Pacific Islands…at a huge price of course – we only have to see what China is doing in countries like Samoa to realise that Australian foreign affairs policies in the Pacific really need a revamp pronto! If Australia doesn’t do more to help build the capabilities of their neighbours, they are leaving them wide open to be slaves of the big giant from far across the Orient…and that will be a bigger threat for Australia in future with serious implications for security and sovereignty in the Pacific region. Looking forward to your next article, Stephen.

  • Last time Australia gave 12 million. What’s the break down of it, and where it was used? Poor people left begging, no aid reaches people in villages due to corruption.

  • A lot of help is coming from Australia in the form of hampers to the staff of a lot of the resorts on the island that goes a long way at least.

  • Yes. Truly a sad situation. People are as it is, poor. No other source of income. However, the entire world community is in the same doldrum. What is the solution. There needs to be an international fund that these countries can draw from in these trying times. The UN should have set this up long time ago.

  • I just read that article and it is a sad situation for the people of Fiji especially the elderly and the unemployed with no available funds just to purchase the basic needs of food and services.

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