SUVA (Pacnews) — Fiji’s interim government faces a daunting task in trying to contain the deficit, keep the machinery of government ticking, and ensuring the economy rebounds, says an economist.
Australian National University’s Satish Chand said “it was make-or-break time for the interim administration.”
Dr. Chand said the threat of suspension of the F$350 million ($208 million) adjustment support to the sugar industry from the European Union could hurt the economy dearly.
He said the revised 2007 budget has addressed only the one of the three major urgencies facing interim government.
“The priority of balancing the books so that public expenditure remained affordable has only been partly addressed. The bulk of the expenditure cuts have been made via salary reductions to public servants,” he said
Chand said revenue projections are overly optimistic, and even more so given the highly favorable projection of an economic contraction of only 2.5 percent.
“I think that it will be hard for the interim government to live within its stipulated net deficit of $100 million. Only time will tell.”
Chand said there are no concrete measures taken to revive exports and reviving the sugar industry will be difficult given the changing external conditions, the impending threat of suspension of EU-aid, the impasse on land tenure arrangements and the poor health of the Fiji Sugar Corp.
“What Fiji needs desperately is increased foreign direct investment, something that is unlikely to eventuate until the relationships with externals are sorted out,” said Chand.
He said the push towards import substitution is likely to do more harm than good as it will only make exports, particularly those that have large import content, uncompetitive.
Chand said the push toward foreign borrowings to replenish dwindling foreign reserves “is a quick fix and possibly an expensive one since the interest costs on these borrowings will be high, reflecting the prevailing political uncertainties. These borrowings will have to be paid in future and from export income, thus there is no escape from the need to grow exports.”
The deregulation of the telecommunications sector, privatization of public enterprises, and the establishment of an Independent Commission against Corruption and the Financial ombudsman are all great initiatives, Chand said.
“If action follows the rhetoric on each of the above, then we can expect growth over the medium to longer term,” he added.
He said the real test of economic and diplomatic credentials of the interim administration has just started.
“We need to put a complete stop to all human rights abuses immediately if diplomacy is to have any chance in restoring relationships with outsiders,” Chand said.