Fiji Economy at Breaking Point

It’s crisis time as wages fall and inflation soars.

FIJI is today facing the worst eco nomic crisis in its history. The country’s foreign reserve is running low with internal revenue declining to an all-time low. A 15 per cent cut has been implemented for civil servants and severe cuts have been ordered in capital and op erating expenditure.

The Fiji Government had budgeted, pre coup, for an overall deficit of $77 million for 1987. The Reserve Bank of Fiji says the Government’s estimated deficit for June was $l3 million, with the overall deficit for the first half of 1987 standing at $5O mil lion. The bank says unless budgeted ex penditures were substantially reduced the overall deficit at the end of the year was likely to stand at around $lOO million.

The civil servant salary cut was part of the plan to reduce expenses, the 15 per cent pay cut became effective from the first pay in September and a 10 per cent cut was proposed for later in the month.

The Army also has taken a pay cutfor on a sliding scale; from 18 per cent for pri vates up to 25 per cent ranks above war rant officer class one and second lieutenants. The Army also has decided to cut back on manpower and take a further payout if necessary to save the Govern ment $4 million.

The economic downturn in Fiji also is reflected in trade figures released for the first six months of this year. The trade gap for the period was $B2 million which was $34 million less than the figure for the same

period last year. Fiji’s imports for the first six months stood at $229 million, while exports and re-exports were valued at $147.5 million. Since the coup there has been a drastic reduction in imports. The Customs Department, which contributes about 34 per cent of the national income, has reported a marked decline in revenue from taxes and duty.

The forecast revenue for 1987 was $156 million but it’s now likely to be around $l3O million. Similarly, the Inland Revenue Department, which provided 42 per cent national revenue, because of the pay cuts is now likely to receive only around $l3O million, $22 million less than the expected revenue pre-coup of $152 million.

Many companies have been forced to lay-off employees or introduce a shorter working week, which means less pay and less tax for the Government.

Fiji’s inflation rate is now forecast to stand at 6 per cent at the end of the year.

The figure will be a more than three-fold increase over the 1.8 per cent recorded in December last year. The annual inflation rate to August this year was 3.4 per cent, an increase of 0.5 per cent over July’s fig ure of 2.9 per cent.

Sugar, Fiji’s main export earner, has suffered a drastic reduction in production since the coup. Because of the late crush ing and harvesting due partly to the re luctance by Indian cane farmers to harvest their crop as a protest against the ousting of the Bavadra Government the figure of

production has been revised from 480,000 tonnes to 350,000 tonnes.

Tourism, Fiji’s other major foreign ex change earner, has also been hit. At the end of April,Fiji had had 85,000 visitors. Dur ing June there were 5,000.

Fiji’s foreign reserves have also de clined sharply since the coup. The figure fell by $19.5 million in May and a further $38.1 million in June. At the end of June reserves stood at $119.7 million. To con serve Fiji foreign exchange the Reserve Bank restricted the amount of money mi grating Fiji citizens could take with them.

It also devalued the Fiji dollar by 17.75 per cent to prop up the foreign reserves, dis courage imports and encourage exports.

With massive flight of capital abroad and withdrawals of money by locals the liquidity position of the banks has tight ened. Commercial interest rates rose by up to 20 per cent after the Reserve Bank lifted restrictions on interest rates.

The tight liquidity problem facing the country was clearly demonstrated when the Reserve Bank and the Fiji Electricity Authority failed to attract investors for their bond issue. The RBF got only $1.5 million towards its $lO million bond issue and the FEA could only attract $1.2 mil lion for a $5 million loan. Previously such bond issues were oversubscribed. The RBF, to ease the problem, released $2O million to commercial banks at rates be tween 16 to 25 per cent. Foreign reserves in August were at $125 million. □