FIJI’S borrowed money is not producing enough economic growth to bring the country’s debt burden down.
Senior economist Mahendra Reddy yesterday at the “State of the Fijian Economy Dialogue” said the key concern was not the nominal amount of debt, but whether borrowing was creating enough output in the economy to strengthen Fiji’s ability to repay it.
He said Fiji’s debt-to-GDP ratio had risen significantly over the past decade, from 48.3 per cent to 75.5 per cent, saying this showed that debt had been growing much faster than the country’s overall economic output.
“The growth rate of the debt pile-up has been much, much higher than the growth rate of GDP,” he said.
“When you have growth, the debt that you have created, it’s not translating into output. That is the issue.”
Mr Reddy said borrowing was not unusual for developing countries, but the important question was how that borrowed money was being used.
He said debt should be channelled towards areas that raised the productive capacity of the economy.
“Then you will see the private sector generating surplus, and that adds up to growth, and that’s how it should be.”
He said if GDP grew much faster than debt, the debt-to-GDP ratio would begin to fall.
However, he said Fiji’s current trend showed the opposite was happening.
“So if you have GDP growth rate much, much higher than the debt growth rate, you will see the debt to GDP ratio coming down.
“That’s the fundamental problem that we have.”
Mr Reddy said the concern was Fiji’s ability to grow the economy faster than the rate at which debt was increasing.
