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Two months ahead of Fiji’s national Budget being handed down, the governor of the country’s central bank has proposed a broad set of ambitious fiscal and economic growth measures that could well become Budget 2010.
Delivering a headline presentation at a major public-private sector pre-Budget consultation in Suva yesterday, Sada Reddy, deputy governor of the Reserve Bank of Fiji (RBF) until the constitutional abrogation in April, said Fiji needed to raise growth to five percent by raising investment to 25 percent of GDP - the required benchmark for developing countries.
This, however, would not happen unless the current account deficit is brought down from 17 percent to below five percent in the next three years, he said.
Reddy said the RBF would push the adequacy level of foreign reserves to five months of imports until the economy was fully diversified and would be looking at legislating the import cover within a band of four to five months of imports.
“Because of economic and non-economic shocks to Fiji’s economy, the three month cover on which past policies were based is no longer adequate,” he told the consultative forum.
These measures would be part of the drive to address what he said was Fiji’s biggest macroeconomic challenge - its $2 billion trade deficit.
Fiscal policy should focus on this priority by speeding efforts at growing exports, substituting imports and fiscal consolidation.
While tourism, Reddy said, had the greatest foreign exchange earning potential, with visitor arrivals to increase three-fold to 1.5 million by 2012, he made a strong pitch for reviving the lagging sugar industry.
Production, once at a high of 516,000 tonnes in 1994 and down to an all-time forecast low of 209,000 tonnes this year, could be raised to 300,000 tonnes in three years through a series of measures.
These included land reforms, increasing mill capacity and miller efficiency, reduced transportation costs, improved productivity through rationalisation and mechanisation, and, diversification into ethanol and co-generation.
Other existing exports such as gold (where prices are at a record high of US$996), forestry, fish and garments all had potential for increase.
Fuel imports, which made up 25 percent of total imports in 2008, should be reduced by $100 million annually in the next three years, Reddy proposed, by promoting renewable energy and encouraging energy conservation practices.
Renewable energy initiatives could include a 10-year tax holiday to producers, tax rebates for companies that invest in this area and special RBF financing to banks for renewable energy.
Import substitution and reduction measures could include the reduction in the next three years of:
- rice from $40 million per annum to $5 million;
- potato from $19 million per annum to $3 million;
- dairy from $60 million per annum to $10 million;
- sheep meat from $28m per annum to $10m, and;
- beef from $7m per annum to zero.
Fiscal discipline would help achieve a sustainable balance of payments, Reddy said, suggesting government continue to target a budget deficit of within three percent of GDP.
“Deficit should only be allowed to increase if it is for capital expenditure,” he said.
Capital expenditure should be increased from 18 to 30 percent in the next thee years while the total operating expenditure of the civil service and statutory bodies should be reduced through continued public sector reforms.
