A decline in Fiji’s Gross Domestic Product (GDP) due to any macroeconomic shock will hinder the country’s fiscal consolidation efforts, delaying the target of reducing the fiscal deficit-to-GDP ratio from 4.5 percent in the financial year 2025 to 3.0 percent by 2030. This claim was made in the recent Pacific Economic Monitor report published by the Asian Development Bank (ADB).
The ADB notes that macroeconomic risks pose the most significant threat to Fiji’s fiscal consolidation strategy. The budget is contingent on an improved demand that would help enhance revenue collections and stimulate GDP growth, ultimately aiming to lower the debt-to-GDP ratio.
The report outlines two scenarios regarding Fiji’s fiscal trajectory. The baseline scenario reflects the government’s current consolidation strategy, which includes a gradual reduction of the fiscal deficit-to-GDP ratio as planned. In contrast, the alternative scenario predicts a 3.0 percent drop in nominal GDP for the financial year 2025, indicating that any such economic shock will delay fiscal progress.
Additionally, the International Monetary Fund (IMF) has recommended various revenue and expenditure measures to aid in Fiji’s fiscal consolidation. Key proposals from the IMF include eliminating exemptions and incentives, simplifying the personal income tax structure, creating a dividend tax, and unifying VAT rates to better support vulnerable populations.
The IMF has also advised improvements in spending efficiency, especially concerning transfers, supplies, and consumables, alongside an assessment of the public sector size. For capital investment, the report stresses the importance of enhancing public investment management, project planning, and monitoring.
These proposed reforms are projected by the IMF to generate at least 3.5 percent of GDP in additional revenues and cost savings, potentially reducing the debt-to-GDP ratio to below 67.0 percent by the financial year 2029.