A recent report by the Asian Development Bank highlights that any macroeconomic shock resulting in a decline in Fiji’s Gross Domestic Product (GDP) will postpone the country’s intended fiscal consolidation plan. This plan aims to reduce the fiscal deficit-to-GDP ratio from 4.5 percent in the financial year 2025 to 3.0 percent by 2030.
The Pacific Economic Monitor, released last week, emphasizes that the new budget recognizes macroeconomic risks as a major challenge to Fiji’s fiscal consolidation efforts. The report indicates that the budget is contingent upon a continued improvement in demand, which is necessary to boost revenue collections and GDP growth in order to diminish the debt-to-GDP ratio.
The study examined two scenarios. The baseline scenario outlines the government’s current fiscal strategy as described in its FY2025 budget, projecting 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 foresees a 3.0 percent negative nominal GDP shock in FY2025, illustrating that any downturn in GDP could hinder fiscal consolidation.
Additionally, the International Monetary Fund (IMF) suggests that a mix of revenue and expenditure measures could facilitate Fiji’s fiscal consolidation. Recommended revenue strategies include reducing exemptions and incentives, streamlining the personal income tax structure, introducing a dividend tax, and harmonizing VAT rates while targeting assistance to vulnerable populations more effectively.
The IMF also underscores the importance of enhancing spending efficiency, particularly regarding transfers, supplies, consumables, and optimizing the public sector size. When it comes to capital investments, the report advocates for improved public investment management, project planning, prioritization, cost assessments, and monitoring.
The IMF estimates that the implementation of these reforms could yield an additional 3.5 percent of GDP in revenues and savings, which would lower the debt-to-GDP ratio to below 67.0 percent by FY2029.