Any macroeconomic shock that leads to a decrease in Gross Domestic Product (GDP) is expected to postpone Fiji’s fiscal consolidation trajectory, shifting the fiscal deficit-to-GDP ratio from 4.5 percent in the financial year 2025 to 3.0 percent by 2030. This information is highlighted in the Asian Development Bank’s (ADB) recently published Pacific Economic Monitor.
The ADB report identifies macroeconomic risks as the primary challenge confronting Fiji’s fiscal consolidation endeavors. It notes that the government’s budget depends on sustained demand growth to enhance revenue collections and GDP growth, which will help reduce the debt-to-GDP ratio.
Two scenarios were analyzed to illustrate the potential impacts. In the baseline scenario, the government’s existing fiscal consolidation strategy, as laid out in the FY2025 budget, indicates a gradual decrease in the fiscal deficit-to-GDP ratio from 4.5 percent in FY2025 to 3.0 percent by FY2030. Conversely, the alternative scenario posits a 3.0 percent negative nominal GDP shock in FY2025, demonstrating that any GDP decline caused by macroeconomic disturbances would inevitably delay the fiscal consolidation timeline.
The report also cites recommendations from the International Monetary Fund (IMF), which advises implementing a mix of revenue and expenditure measures to bolster Fiji’s fiscal consolidation efforts. Suggested revenue enhancements include the reduction of exemptions and incentives, a streamlined personal income tax system, the introduction of a dividend tax, and a unified VAT rate that targets vulnerable populations more effectively.
Furthermore, the IMF recommends improving spending efficiency, especially in areas concerning transfers, supplies, consumables, and reorganizing the public sector structure. For capital investments, the report underscores the importance of robust public investment management, including project planning, prioritization, cost assessment, and monitoring.
The IMF estimates that these proposed reforms could produce at least 3.5 percent of GDP in additional revenue and cost savings, which would reduce the debt-to-GDP ratio to below 67.0 percent by FY2029.