At its peak, Fiji’s unprecedented public debt is nearly the size of its entire economy, and has become the most pressing economic issue of the day, a report has found.
And Fijians are rightfully perturbed by the country’s sizeable debt burden because of its impact to the economy and livelihoods, Pacific Network in Globalization-commissioned report on Fiji’s debt crisis said.
“Fiji’s debt situation has been worsening a result of its persistent fiscal deficits,” according to the report titled Debt Dynamics in Fiji: Impacts, Challenges and Strategies for Sustainable Economic Development.
“It is now stuck with very elevated debt levels, which, if poorly managed, will continue to drain limited fiscal resources, amplify its susceptibility to shocks, and weaken macroeconomic variables and in turn, business outlook.
“Fiji’s total public debt has crept up over the decades, growing at an average rate of 4.85 per cent between 2006-16, driven primarily by persistent but modest fiscal deficits.”
Fiji’s national debt was FJ$9.88bn by the end of fiscal year 22/ 23, with debt to- GDP ratio breaching 70 per cent threshold by 2020, the report said.
At the start of the COVID-19 pandemic to reach an all-time high of 91.1 per cent by July 2022, which later climbed down to about 81.2 per cent by the middle of 2023, the report said.
Fiji is not a low-income country; it was reclassified in 2019 by the World Bank as a “Blend” country, granting it access.
A report said state-owned enterprises, including Fiji Airways were the biggest users of the guarantee facilities. to concessional financing having satisfied the small island economy exceptions.
“Nonetheless, it was treated by the IMF as a middle-income country in its most recent debt sustainability analysis using the framework for emerging market economies in the context of its Article IV consultation,” the report said.
“As such, there was no direct and explicit judgement by the IMF on Fiji’s debt sustainability, unlike other low income countries.”
‘STATE-OWNED ENTERPRISES SHOULD BE MONITORED
Fiji Sugar Corporation’s continuous net losses, cash overdraft and positive net debt over the past five years makes it high risk, says a report commissioned by Pacific Network in Globalisation.
The report titled Debt Dynamics in Fiji: Impacts, Challenges and Strategies for Sustainable Economic Development, said the Government had provided guarantees to a number of State owned enterprises, which included Fiji Airways, Fiji Sugar Corporation, and Fiji Development Bank, which were the biggest users of the guarantee facilities.
However, not all the guaranteed entities posed the same level of risk, the report said.
“Given the significance of contingent liabilities to overall debt sustainability, the performance of State-owned enterprises should be monitored; risk assessments should be made regularly and communicated to stakeholders and parliament. as part of the government’s public debt reporting,” the report said.
It said domestic borrowing was the main source of government debt financing, which now stood at about 51 per cent of the country’s gross domestic product.
“It started to pick up from 2016 and accelerated after that. more than doubling to FJS6.2bn by the end of July 2023.
“This comprises overwhelmingly of FJS5.92bn of longer term domestic bonds and FJS297.2m in short-term (less than a year) treasury bills.
“Between 2017-21. public domestic debt grew rapidly at an average annual rate of 12.2 per cent. compared to 3.6 per cent per annum from 2007-16.
“The cost of borrowing or the interest rate on these bonds, as reflected in their yields over this period of domestic debt expansion, was a lot higher across all tenures, long- and short term Government bonds, compared to their current rates.”
The report said 15 and 20-year bonds issued in 2018 and 2019 would have had to presumably pay an interest rate of 6.5 per cent or 7 per cent
respectively to the bondholder.
“By May 2022 and continuing into 2023, the interest rate is 4.25 per cent and 4.68 cent for similarly tenured bonds.
“As such, the Government. in its annual borrowing plans, is considering whether to ‘refinance or re-open Government securities in the market with lower yields’, given the more favourable financing conditions.”
Feedback: frederica.elbourne@fijisun.com.fj