In his pre-budget video message, Biman Prasad, Minister of Finance and Deputy Prime Minister, stressed the importance of managing national debt, stating that the country cannot keep borrowing without generating income to service the debt.
Signalling that managing national debt is a crucial task for those crafting the 2024-2025 National Budget, he highlighted the challenge of striking a balance between income, which mainly comes from taxes, and government expenditure. Given that historically the country’s income has not been enough to cover expenses, thus requiring continual borrowing, there is little margin for anything beyond necessities and debt payments.
Our total debt, based on the Government’s 2022-2023 Annual Debt Report, is at $9.7 billion, which equates to 80% of the Gross Domestic Product (GDP). This was revealed by the Ministry of Finance in October. The issue needs to be addressed, Prof Prasab noted, in particular, by growing the economy to reduce debt as a percentage of GDP, not just in absolute terms.
In his first budget last year, he tried to tackle the $10 billion debt issue. People and businesses would be the ones to ultimately pay the debt, he noted. Therefore, while the government raised some revenue last year, it also attempted to address the issue of expenditure, reducing the deficit to 4.8% and securing a debt-to-GDP ratio of under 80%.
“We brought it down to about 78-79% of GDP last year, maintaining a monthly debt repayment of almost $85-$90 million, which contains both the principal and interest,” he added.
Prof Prasad claimed that if the government continues to borrow without growing the economy, it will have to increase taxes, which would affect businesses and consumers, and probably affect services like healthcare and education.
He emphasised that for small countries like Fiji, it would be ideal to get the debt-to-GDP ratio down to around 50-60%. He also stated that this would require a consistent growth rate of 4.5-5% over the next decade. Additionally, he flagged the need to reduce wastage within the Government as another key focus area.