A recent report from the Asian Development Bank (ADB) indicates that any macroeconomic shock resulting in a decrease in Fiji’s Gross Domestic Product (GDP) could postpone the country’s fiscal consolidation goals. The ADB projects that the fiscal deficit-to-GDP ratio, expected to be 4.5 percent in the financial year 2025, may not reach the targeted 3.0 percent by 2030.
The ADB’s Pacific Economic Monitor highlights macroeconomic risks as a primary challenge to Fiji’s fiscal consolidation efforts. The report explains that the government’s budget relies on improved demand to enhance revenue collection and GDP growth, thereby reducing the debt-to-GDP ratio.
To illustrate this, the report discusses two scenarios. The baseline scenario outlines the government’s intended fiscal consolidation path in its FY2025 budget, which aims for a gradual reduction of the fiscal deficit-to-GDP ratio from 4.5 percent in FY2025 to 3.0 percent by FY2030. Conversely, the alternative scenario introduces a 3.0 percent negative nominal GDP shock in FY2025, demonstrating that any decline in GDP would at least delay fiscal consolidation.
The ADB notes that the International Monetary Fund (IMF) has recommended a blend of revenue and expenditure measures to bolster Fiji’s fiscal consolidation. Key recommendations for increasing revenue include cutting exemptions and incentives, simplifying the personal income tax system, implementing a dividend tax, and standardizing VAT rates while providing better support for vulnerable populations.
Furthermore, the IMF has suggested enhancing the efficiency of public spending, particularly in areas such as transfers, supplies, consumables, and the public sector. In terms of capital investment, the report emphasizes the need for improved public investment management, project planning, prioritization, costing, and monitoring.
The IMF estimates that these proposed reforms could yield additional revenues and cost savings equivalent to at least 3.5 percent of GDP, potentially lowering the debt-to-GDP ratio below 67.0 percent by FY2029.