Despite claims by the FijiFirst government of rising GDP, why has poverty increased in Fiji? COVID is usually used as the reason.
However, one must remember that poverty was rising before COVID. We have also had a number of equally devastating economic shocks such as the global recession in the 1970s, military coups, the Asian crisis of 1997 and the combination of the 2006 coup, international sanctions and the 2007 global financial crisis.
The reason the COVID economic crisis in Fiji was so devastating was due to the “house of cards” economy that was set up by the FijiFirst government prior to the pandemic. FijiFirst’s “nine years of GDP growth” is not as it seems.
What is GDP?
Gross domestic product (GDP) is an accounting measurement of the value of final goods and services carried out within a country.
To measure GDP, statisticians calculate the level of consumption, government spending, investment and trade. GDP was established to measure national income during the global depression in the 1930s.
It became the established indicator for economic growth following the World War II and continues to be an important tool to measure economies.
The Labour Government of 1999 had an unprecedented record of GDP growth. The original figure for real GDP growth in 1999 was 9.6 per cent.
It has since been revised to 8.8 per cent by the Bureau of Statistics.
This is, however, the nature of GDP. It is in the hands of statisticians who not only have a momentous task in calculating something that is extremely difficult to measure, but also revise and re-revise the data.
The GDP data on offer by the RBF and Bureau of Statistics are varied and sometimes contradict each other.
The growth in 1999 is undeniable though, because it consisted of increased production in both the sugar and tourism sectors simultaneously.
It was also growth that was not affected by inflation – inflation in 1999 was very low. Furthermore, the Fijian dollar was strong which is the sign of a healthy and growing economy.
The increase in GDP was a result of the Fiji Labour Party turning the economy around after years of economic mismanagement by the SVT government.
It was economic growth due to the hard work of the workers of Fiji aided by a government that understood the importance of supporting all sectors of the economy from the grassroots farmers to big businesses.
This was reflected by the well-received budget of the same year.
GDP under FijiFirst
GDP under FijiFirst However, GDP growth under FijiFirst is somewhat misleading.
While there has been an upsurge in tourism activity, production in the agricultural sector, especially with respect to sugar, has dramatically declined.
Under FijiFirst, GDP strongly correlates with commercial bank lending, debt and increases in the money supply which are the primary triggers for inflation.
It is common knowledge that inflation and the resulting increase in the cost of living have been unparalleled under the FijiFirst government.
GDP growth over the last ten years is a reflection of inflation, the rise in prices Under FijiFirst, GDP strongly correlates with commercial bank lending, debt and increases in the money supply which are the primary triggers for inflation.
It is common knowledge that inflation and the resulting increase in the cost of living have been unparalleled under the FijiFirst government. of goods and services, rather than an increase in production.
GDP figures do not adequately reveal how much the figures are affected by inflation.
To adjust for inflation and to determine what is called the “real” GDP, statisticians use a standard set of prices for goods and services that do not change.
In this way if prices increase, they should not affect the GDP calculation. Statisticians use a “base year” to set prices.
For example, Labour’s 1999 real GDP was calculated using the prices of goods and services from 1995.
In this case, 1995 was the base year and any increases in prices from 1995 to 1999, including Rabuka’s devaluation of the dollar in 1998, did not affect the calculation of the real GDP in 1999.
However, using different “base years” can change the figures. FijiFirst have used three base years: 2008, 2011 and 2014.
Each time the base year is changed, there is a dramatic increase in real GDP as prior inflation – Mahendra Chaudhry is disregarded.
Real GDP calculated since 2011 does not reflect the inflation created by the devaluation of the dollar in 2009.
Furthermore, GDP does not tell us who has benefited from growth; whether wealth was distributed efficiently; whether funds were being used effectively; whether growth was a result of debt, which carries a burden for future generations; or whether growth had detrimental side effects such as environmental degradation.
For example, GDP growth under FijiFirst has benefited the wealthy while the poor have got poorer.
While GDP has increased, so has the cost of living, our dependence on imports and debt while wages have not increased enough. GDP measures the increase in formal economic activity.
GDP does not measure the informal and traditional economies.
Under FijiFirst, while GDP has increased, productivity in the informal and traditional economies have considerably decreased.
For example, people have been pulled out of traditional farming, have moved to urban squatter settlements and found work in low-paid jobs in the formal economy.
GDP growth under FijiFirst does not tell the whole story, that of urbanisation and decreased output in the traditional economy.
In this way, not only has GDP under FijiFirst been overvalued by inflation, but also because it only measured the formal economy and not the large informal and traditional sectors where production has decreased.
In, 1999, however, under Labour, formal economic growth increased while the traditional and informal economies remained unchanged. GDP growth under Labour in 1999 was a genuine representation of the increase in productivity across the entire economy.
This is backed up by employment data.
Under Fiji- First, unemployment has increased (especially youth unemployment) as workers were predominately being taken from the informal and traditional economies and moved to low paid jobs in the formal economy and not necessarily from the pool of unemployed in the formal economy.
By contrast, unemployment decreased in 1999 under Labour.
GDP is not a stand-alone indicator
GDP cannot be used as a stand-alone indicator and must be used alongside other well-being measures. Other standards of living indicators can clarify economic growth alongside GDP.
Despite GDP increasing under FijiFirst, almost all indicators of standards of living have decreased. Indicators such as reduced access to adequate housing and nutritious food and declining health and investment in health care. Savings have decreased and debt has increased as workers’ wages have not risen in line with the escalating cost of living.
Education investment has stagnated, crime rates have grown, and contrary to FijiFirst’s rhetoric, pollution and greenhouse gas emissions have also increased.
Most of all, under FijiFirst poverty and wealth disparity have also increased.
Labour stands by its record 9.6 per cent real GDP growth in 1999 because it was the right kind of GDP.
It represented production from all facets of the economy.
Economic growth did not draw away from the traditional economy and did not cause the cost of living to rise.
Standard of living indicators showed increased wellbeing throughout the wider population under a Labour government.
GDP is an important indicator, however, it cannot be a stand-alone measure of economic growth and wellbeing.
When GDP goes up, you have to ask – what kind of GDP?
• MAHENDRA CHAUDHRY is the leader of the Fiji Labour Party. The views expressed in this article are the author’s and are not necessarily shared by this newspaper.
