Fiji faces an immediate budget financing crisis that could leave the government struggling to fund its operations unless urgent expenditure reforms are implemented.
Ministry of Finance permanent secretary Shiri Gounder made the warning at the launch of the inaugural Fiji Economic Update report at the University of the South Pacific on Wednesday.
“We have a more immediate issue in terms of financing,” Mr Gounder said during the panel discussion.
“We have had a significant build-up in government expenditures in the last few years, growing almost by 40 per cent, of which significant growth in expenditures is coming from the increase in operating expenditures.
“This has caused a structural fiscal deficit of, I mean, this year we have 7 per cent, if we don’t change anything and we stay on this path, we have a situation where government will struggle to finance its budget.”
Mr Gounder said the high debt levels were actively diverting funds away from essential public infrastructure and social services.
“The debt servicing cost for government has significantly increased, which means that the taxpayer resources that’s available to build our roads, build hospitals, provide for education, is getting smaller and smaller because we need to channel more and more of the available budget for servicing the debt.
“We cannot continue on this path.”
Mr Gounder said the State’s financial vulnerability was further compounded by massive exposure to State-owned entities, most notably the Fiji Sugar Corporation (FSC).
“Unfortunately, Fiji Sugar Corporation is in an extremely serious financial issue, which will mean that the entire fiscal exposure of the debt will fall into government.
“Government has guaranteed over $300 million in debt, plus they have a structural cash flow deficit, and we’ve been meeting them recently.”
Mr Gounder noted that similar financial risks applied to other State entities and warned that those deficits were spilling over into the broader economy.
“We are now seeing a situation where the increased fiscal deficit is leading to increased current account deficit and balance of payment pressures.”
To mitigate the crisis, Mr Gounder said while expanding the economy was the preferred path, the Government must immediately freeze spending growth and review public sector size, subsidies, and social spending.
“But the easiest way out of this crisis, or the least painful way, is growing the economy,” Gounder said.
“Otherwise, the choices are going to be painful.”
