In his recent pre-Budget video message, Biman Prasad, the Minister of Finance and Deputy Prime Minister, emphasized the need to manage and repay debts. Key to the formulation of the 2024-2025 National Budget is ensuring sustainable national debt levels, he stated. This involves finding the right balance between earning – predominantly from taxes – and maintaining government operations.
Due to historical borrowing to cover expenses, creating a significant debt mountain, things could get difficult. This financial burden restricts plans for improving infrastructure, such as building new roads, repairing hospitals, and addressing water issues.
According to the Government’s 2022-2023 Annual Debt Report, the country’s total debt was around $9.7 billion at the end of FY July 2023, which is approximately 80% of the Gross Domestic Product (GDP). Prasad highlighted the importance of addressing not just the amount but also its percentage to GDP, which requires economic growth.
In the first budget last year, efforts were made to address the massive $10 billion debt. Despite increasing revenue, there was also focus on managing expenditure, which helped reduce the deficit to 4.8 percent and debt-to-GDP ratio at below 80 percent.
Prasad noted that despite an increase in nominal debt, the key measure of economic health is the debt-to-GDP ratio. Currently, this ratio is slightly below 80%, and the monthly debt repayment is between $85-$90 million.
Prasad stressed the need for responsible fiscal policies from the government. A continual borrowing trend without economic growth could force higher taxes, creating significant burdens on both businesses and consumers, and could necessitate cutbacks in services like education and healthcare.
Reducing wastage in government and growing the economy at an average of 4.5-5% over the next decade is crucial, Prasad said. This would help to bring the debt-to-GDP ratio down to a more comfortable 50-60%, similar to many small countries like Fiji.