Putting Fiji's Economic Performance in Perspective

 Some facts and opinions by Croz Walsh

Part I. Governments, Food Prices and the Cost of Living

Opposition parties worldwide blame incumbent governments for everything that is wrong in a country and unless voters are very careful they can be easily misled. 

In a previous article, I compared Fiji and New Zealand food prices.  I did this  because Government opponents, most notably Mick Beddoes of the SODELPA party, were blaming Government, and government alone, for the high prices.  

 I was not comparing Fiji and NZ in any other way. The issue was the price of food, nothing else. I was certainly not claiming that Fijians were better off, as some readers commenting on the article claimed, and this was made quite clear in the article.The disparity in wages, social welfare and pensions is well known. The average Fijian is much worse off than their Kiwi cousins. 

But, like it or not,  the prices of almost all the nine basic food items sampled were cheaper in Fiji than in NZ. How could this be?  If the Fiji Opposition is claiming that the high food prices in Fiji are the result of mismanagement by the Bainimarama government, by the same logic, John Key’s Government must have mismanaged the NZ economy even more!

Such claims are obviously nonsense. Governments are limited in what they can do about food prices.  They can reduce tariffs and duties on imported food; offer incentives and training to farmers to grow more food;  they can reduce direct taxes on food (VAT in Fiji) or remove VAT entirely on certain basic food items; they can  stimulate competition among food retailers; and closely monitor food prices, making sure the prices are reasonable and  that gains from lowered tariffs and duty are passed on as lower prices to consumers.

The Bainimarama Government, and indeed all previous Fiji governments, have done at least some of these things. Tariffs and import duties were reduced in the 2013 National Budget.  Numerous Government  initiatives have been aimed at increasing local food production and improving  transport to markets. Some basic food items have been made VAT-free and the Fiji Commerce Commission has watched and placed limits on many prices.

Work of the Consumer Council

In addition, the watchdog Consumer Council of Fiji has not been slow to criticise retailers for unreasonable prices.  Every year it has made submissions on the annual budget, and in most years Government has adopted some of its recommendations. In its submission on the 2014  budget, for example, it made submissions on duty reductions, food price relief for the most vulnerable, and the need for stronger consumer protection.

It noted that despite the increase of the income tax threshold from $15,000 to $16,000

and reduced import duty on many food items, the cost of  living had got no better and food prices had increased.  It noted that some food, vehicle and smart phone retailers were not passing the lower duties on to consumers.

It requested Government to remove tariffs and duties on all essential food items, mentioning powdered milk and butter  in particular, and called for reduced duties on some non-food items such as clothing, school stationery, and adult sanitary diapers.

It wanted the  duty on energy drinks increased because they are unhealthy, more controls on credit card and insurance charges, and vitamin and other supplements removed from the control of pharmacies.

Government accepted three of the recommendations in full and a fourth one in part. The Council wanted restrictions on the sale of vitamins and supplements lifted. Government did not agree but it removed the 32% fiscal duty tax. 

Monitoring Task Force

The most important CCF recommendation accepted by Government has resulted in the setting up of a  Monitoring Task Force made up of the Ministries of Finance and Industry and Trades to monitor the price of duty-reduced goods and services.  A further development this week was the signing of a memorandum of understanding (MOU) between the Commerce Commission and Revenue and Customs.

There is no doubt that food prices have risen. The table below, taken from Consumer Council’s submission on the 2014 Budget,  shows Fiji increases between 2006 and 2013, but prices have risen worldwide and many factors are responsible. It is mischievous politics to hold the Bainimarama Government solely or even mainly responsible. They have done what they could to keep prices down.

Ultimately, relief from high prices and a better standard of living can only come from  a combination of improvements to the Fiji economy and more enlightened policies that benefit the average Fijian household, and not just the most advantaged.  

Improving situation
The Opposition claims that the Fiji economy has gone into free fall since the 2006 Coup and that Government policies have exacerbated a deteriorating situation.   It is true that on a number of economic indicators, the economy did briefly deteriorate after 2006 (and sugar has still not recovered) but Government critics have chosen to ignore current World Bank and Fiji Reserve Bank figures that show a generally improving situation. 

Taking just three examples:

• GDP is expected to be US$3.94 billion in the last quarter of this year, and US$6.04 billion next year.  
•  Inflation is expected to drop to 0.47% in the last quarter of this year and to 0.28% next year. 
• Unemployment, down from earlier levels, will remain constant at about 7.2%.

 Part II. A Longer View of the Fiji Economy

". Fiji is tittering on the brink of stagflation and bankruptcy!”  -- Singh Rahul in the blog FijiToday
 

By selecting 2006 as their base line the critics  have also chosen to take a rather short term look at the Fiji economy.  Had they gone back earlier, to say 2001 after the 2000 coup or even to 1989 before the coup, the picture would have less suited their argument. 

We will take a longer view  of the economy, using   World Bank and Fiji Reserve Bank figures (see Footnote 1)  to look at pre- and post-2006 coup figures and from this see whether the Fiji economy is in as bad a shape as Singh Rahul and other Government opponents claim.

1. Fiji GDP. Gross domestic product  (GDP) is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time.  Fiji's GDP averaged US$1.39 billion from 1960 until 2012, reaching an all time high of US$3.88 billion in 2012  and a record low of US$0.11 billion  in 1960.

The graph shows GDP from 2004 to 2013. Note that in most years it continued to increase after the December 2006 coup and in 2013 was significantly higher than the Qarase Government years of  2004 or 2006.  

2. GDP Annual Growth Rate  averaged 2.4%  from 1971 until 2013, reaching an all time high of 12.7% in 1973 and a record low of -6.4%  in  1987.  

Figure 2 shows marked fluctuations in the GDP growth  after the December 2006 coup when growth was adversely affected by sanctions imposed  by international sanctions and a loss of local business confidence.  The coup also resulted in a sharp increase in emigration causing a loss of critical skilled manpower and problems attracting foreign capital.  However, growth rates have been positive and increased since 2011.

3. Fiji Government Debt to GDP

Generally, Government debt as a percent of GDP is used by investors to measure a country's ability to make future payments on its debt,  thus affecting the country borrowing costs and government bond yields

Government Debt To GDP in  Fiji averaged 44.02%  from 1980 until 2013, reaching an all time high of 56.2%  in 2010 and a record low of 33.69% in 1981. In 2013 it was  52.8%, approximately the same as in 2006 before the coup (see x in the graph.)

4. Fiji Government Budget. Fiji recorded a Government Budget deficit for most years before and after the 2006 Coup. Government Budget deficits  averaged -2.55%  of GDP from 1992 until 2013, reaching an all time high of  5% in 1998 and a record low of - 6.5%  in 2001.  The deficit was  in 2013 was -2.6%, far less than 2003 and 2004 when Qarase’s SDL party was in government. The only year during this period when there was a government surplus was in 2009, under the Bainimarama Government.  

5. Unemployment.   Much has been made by the Opposition of Fiji’s high unemployment rate, the primary causes being attributed to the Bainimarama Government,  but the World Bank figures in Figure 5 show that significantly higher rates occurred before the 2006 Coup. 

The Unemployment Rate (the number of people actively looking for a job as a percentage of the labour force)  averaged 7.67%  from 1986 until 2011, reaching an all time high of 12%  in 1988 and a record low of 3.7%  in 1996.  

In 2003 it was 8.5% dropping to 5.6% in 2005. By 2006 it started to rise again and this rise continued after the coup. The rate had increased to 8.5% by 2008 but since then has been dropping.  It has remained unchanged at 7% since 2010.

6. Fiji Inflation Rate

The inflation rate (broad rises or falls in prices that consumers pay for a standard basket of goods) averaged 4.38% from 2003 until  2014, reaching an all time high of 10.5%  in April 2010  and a record low of -0.30%  in April  2009.  Post-coup inflation was generally higher than in the pre-coup period but the rate has been steadily declining since 2012. The rate at May 2014 was 0.8%, lower than in any year since 2004.

Summary

In Part I,  I argued that many factors, many of them outside government control,  were responsible for the increasing price of food, and noted a number of measures taken by Government and the Commerce Commission to contain increases. I also noted the work of the Fiji Consumer Council in persuading Government to accept four of its submissions to the 2014 National Budget.

In Part II, World Bank and Fiji Reserve Bank data were used to show  that some economic measures were no worse, and in some cases much better, than before the December 2006 coup.

In sum, some things are better and some worse, but the worst of the worse seems to be over and most indicators are positive for 2015 and beyond. The argument that Fiji is on the verge of bankruptcy —and its attendant argument, that the Bainimarama Government is solely responsible for this dire condition—  are just not true.   

The Opposition would be well advised to focus on what they will do to improve Fiji’s living standards (things they did not do when they were last in government) rather than playing on false fears to win votes.

Footnotes 
1. To see the graphs used in this article, and others, click on the graph icons at the right of the table. I am indebted to TradingEconomics for the graphs and explanations used in this article.  
2. For another opinion, see  Prof Biman's article written in September last year before he became a politician. He highlights the increase in poverty, that is not covered in my article, and he thinks the recent positive trends tenuous, but he also supports some Bainimarama Government measures.