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Bainimarama Refutes Rabuka's Allegation on High Debt Levels
The three issues most raised by opponents to the Bainimarama government other, of course, than the statement that his coup was illegal, are, first, actual and alleged abuses of civil rights, most particularly limits placed on media freedom, freedom of assembly and restrictions on trade union activities; secondly, failure to disclose government expenditure, particularly the absence of public audits and alleged hyper-salaries paid to Bainimarama and Attorney-General Aiyaz Sayed-Khaiyum; and , thirdly, the assumed cripplingly high level of debt that will need to be repaid by future generations. In the following article published in the Fiji Sun, PM Bainimarama takes Fiji's first coup ledader, Sitiveni Rabuka, to task on the debt issue, and he has some words to say also on expenditure on education. -- Croz
n Claims on education policy and debt management refuted n Questions on management of public funds by Rabuka Govt
Prime Minister Commodore Voreqe Bainimarama brought smiles to those sheltering in evacuation centres during his tour of flood hit West areas yesterday. Photo: MINFO NEWS
By ROSI DOVIVERATA
Prime Minister Commodore Voreqe Bainimarama yesterday rubbished claims made by the former Prime Minister and Social Democratic Liberal Party (SOLDELPA) leadership candidate Sitiveni Rabuka. These were in regard to education policies and debt management.. The Prime Minister detailed how the Government is managing debt and how Fiji is doing much better than a range of similar size economies. He also pointed out debts included those accumulated from borrowing by previous governments such as the SVT government Mr Rabuka had led. Mr Rabuka had said that while he was happy with the developments taking place across the country he was concerned “about how we are going to pay for it.” He called it the “debt burden.” In reply, Commodore Bainimarama said that whilst his Government had borrowed to finance capital for infrastructure development, they have also reduced the income and corporate tax rates. He said the reduction in taxes increases the disposable income of workers and supports investment plans of private businesses. Commodore Bainimarama said the borrowing was supported by the IMF Article IV Mission assessment of Fiji. “Therefore, one can deduce from Mr Rabuka’s statement that he will either reduce borrowing, thus affecting development of much needed infrastructure in Fiji that will support the private sector, small and medium enterprises and improve standards of living, or he will raise taxes again to finance development thus increasing the financial burdens of workers who currently enjoy more take home pay as a result of the current Government’s tax adjustments. “The positive spinoffs from the tax rate reductions has been witnessed in the economy through higher sales by businesses and investment levels, and evidenced in the high revenue collection by the Fiji Revenue and Customs Authority (FRCA), a level that has never been achieved before.” He said to reach the record level of revenue collection as such, $1.86 billion in 2013 despite the tax cuts, was commendable. “In fact it has been hovering around $1.7b for the last three months.”
Free Education Mr Rabuka had also stated that the free education implemented by the Bainimarama Government was a hand-out. The Prime Minister responded: “With regards to free education as a hand-out Rabuka obviously does not understand the big picture. “Education is the greatest investment a nation can make in its future. “My Government wants an educated society; it brings social and economic development. “Free education provides a level playing fi eld for everyone, in particular the poor and the disadvantaged. “By giving free education and scholarships, students and families from these disadvantaged groups can now say we have a chance in life. “So if that’s a handout then it’s certainly a benefi cial one.” Below is the full response regarding Mr Rabuka’s comments on debt: Debt Position This is the Fijian Government’s response to Mr Rabuka’s comments in the Fiji Sun (30/1) regarding Government Debt. As the former Prime Minister may be aware, Government’s debt position reflects not only the existing Government undertakings but comprises of borrowings undertaken by the previous government over the years. To only state that future debt burden is a result of the loans borrowed by current Bainimarama Government is completely erred, considering that the portfolios of existing stock were taken in the last 15 to 20 years. These debts were accumulated from previous governments including the SVT government led by Mr Rabuka. Though loans acquired over the years has grown marginally, the Bainimarama Government has maintained its credibility by ensuring that the loans are serviced as per the loan repayment schedules. The recent improvement in the Fiji Government rating by S&P is a testament to this. When this government came in 2007, Fiji’s Debt to GDP ratio was around 52 per cent compared with 49 per cent as at December 2013. For the period 2002 to 2006, the borrowings undertaken previously were as follows:
Majority of borrowings above were for loans with term of 15 years. The Qarase led government’s borrowing recorded the highest with $891 million in 2006, of which US$150 million relates to the 1st global bond issuance. In 2007 when the current government came into power, we reduced the total outstanding debt from $2.86 billion to $2.73 billion, as Government introduced stringent expenditure measures. From 2007 todate, we have maintained tight fiscal policy which resulted in the reduction of Debt to GDP ratio to 49 percent in 2013. These fiscal policy measures has enable the current government to withstand the financial crisis in 2008 and the debt crisis that affected the Euro zone and other developed countries of the world. Tabulated below is the debt position of the current government It should also be noted that between 2001 to 2006, Public Debt increased from $1.68 billion in 2001 to $2.86 billion in 2006. This accounts to an average net debt financing of $197.2 million on an annualized basis. On the same note, Public Debt stands at $3.81 billion as at 31st December, 2013 which equates to an average net borrowing of $154.1 million over the last eight years (2007 to 2013). This not only reflects prudent borrowing but targeted borrowing specifically confined towards capital projects.
Comparison with Similar Size Economies Fiji has maintained prudent public financial management ever since the Bainimarama Government came into power. The table below reflects Fiji’s debt level when compared to other economies of similar size. Objective of borrowing Unlike the previous governments where borrowings were mostly to meet operational expenditure, the Bainimarama government has mandated that all borrowing are for capital and infrastructure projects. As part of this exercise, the government changed its bond title from Fiji Development loans to Fiji Infrastructure Bonds. This is noted in the improvement in infrastructure and public utilities in Fiji today.
Developments in Capital Market Not only have there been improvements in the debt position, the current Government has introduced more initiatives to develop the primary and secondary market. This includes more tax benefits for those willing to list their companies with SPSE, a new Viti Bond to target retail investors and reducing short term debt level. The easing of monetary policy together with a more accommodative fiscal program brought about more demand for government securities. Furthermore, interest rates fell significantly and government was able to borrow at low rates. The US$150 million first raised by the Qarase government in 2006 was successfully settled by this government in 2011. Part of the success was the opening of Sinking Fund account abroad where surplus funds could be deposited to assist in future repayments of our debt. With the new loan of US$250 million contracted in 2011 (through Global Bonds), the current Government already has US$140 million in the sinking fund account, in readiness for the full settlement of loan in 2016. Improvement in capital and infrastructure around Fiji is moving at a much faster pace. To name a few, the Nabouwalu/Dreketi Roads, Moto Roads, Raiwai Low Cost Housing are some of the projects that this government is pursuing to improve livelihoods of the people of this country. The improvement in rural roads has other benefits like establishment of business, hotels, eco-tourism and more developments in the rural area. Developments have created market access for people in the rural areas, something that they have been deprived of, in the past. This is in contrast to loans contracted by the previous governments, where bulk is diverted for operational expenses, and majority of the capital projects not realizing their full potential. Had the Rabuka Government ensured soundness in the management of public funds, this government wouldn’t be carrying out all this initiatives.
Refinancing of Expensive Loans Other initiatives undertaken by the current Government, includes the prepayments of expensive loans. This is done, in conjunction with Government’s intention to continue to reduce the Debt to GDP ratio in the medium term to 45 per cent, and below 40 per cent in the longer term.