A recent report from the Asian Development Bank (ADB) highlights that any macroeconomic shocks causing a drop in Fiji’s Gross Domestic Product (GDP) could postpone the country’s fiscal consolidation efforts. The report outlines a target to reduce the fiscal deficit-to-GDP ratio from 4.5 percent in the fiscal year 2025 to 3.0 percent by 2030.
The ADB’s Pacific Economic Monitor indicates that potential macroeconomic risks pose a serious threat to these fiscal consolidation plans. The budget is designed to benefit from improved demand to enhance revenue collections and stimulate GDP growth, which in turn would help decrease the debt-to-GDP ratio.
Two scenarios were analyzed in the report. The baseline scenario aligns with the government’s fiscal plan stated in the FY2025 budget, aiming for the gradual reduction of the fiscal deficit-to-GDP ratio. Conversely, the alternative scenario considers a 3.0 percent decline in nominal GDP for FY2025, illustrating how such a shock can hinder progress on fiscal consolidation.
To bolster Fiji’s fiscal efforts, the International Monetary Fund (IMF) recommends a mix of revenue and expenditure adjustments. Suggested revenue-boosting measures include reducing tax exemptions, simplifying the personal income tax system, implementing a dividend tax, and harmonizing VAT rates while prioritizing assistance for vulnerable populations.
Additionally, the IMF urges for improved spending efficiency, particularly concerning transfers, supplies, and public sector size. The report emphasizes the importance of enhancing public investment management through better project planning and monitoring.
The IMF estimates that these reforms could yield over 3.5 percent of GDP in supplemental revenues and savings, ultimately lowering the debt-to-GDP ratio to under 67.0 percent by FY2029.