A recent report from the Asian Development Bank highlights that any macroeconomic shock resulting in a decline in Fiji’s Gross Domestic Product (GDP) could hinder the country’s fiscal consolidation timeline. The current fiscal deficit-to-GDP ratio is projected to decrease from 4.5 percent in the financial year 2025 to 3.0 percent by 2030.
According to the report, macroeconomic risks are deemed the primary threat to Fiji’s fiscal consolidation efforts. The budget depends on rising demand to enhance revenue collections and GDP growth, which are essential for decreasing the debt-to-GDP ratio.
The report outlines two scenarios to illustrate the situation. The baseline scenario reflects the government’s outlined fiscal consolidation strategy in its FY2025 budget, anticipating a gradual reduction in the fiscal deficit-to-GDP ratio. Conversely, the alternative scenario anticipates a 3.0 percent negative nominal GDP shock in FY2025, suggesting that any macroeconomic downturn would at least delay fiscal consolidation progress.
The International Monetary Fund (IMF) has recommended a blend of revenue and expenditure strategies to support Fiji’s fiscal consolidation. Key recommendations include minimizing exemptions and incentives, streamlining the personal income tax system, introducing a dividend tax, and unifying VAT rates, with a focus on aiding vulnerable populations.
Moreover, the IMF emphasizes enhancing spending efficiency, particularly in transfers, supplies, and consumables, while also considering the right-sizing of the public sector. For capital investments, the focus should be on improving public investment management, planning, prioritization, costing, and monitoring.
According to the IMF, implementing these reforms could generate at least 3.5 percent of GDP in additional revenue and savings, potentially reducing the debt-to-GDP ratio to below 67.0 percent by FY2029.