This you can believe: Prasad now a politician
Critical indicators show economy much better than he wants you to think
Our economist turned politician Dr Biman Prasad (pictured) has had a lot to say on the economy. How much of that is true?
The former academic is now talking and acting like a negative attack politician in his role as leader of the National Federation Party. His attempts to loudly dominate TV debates smack of the desperation of a leader whose party is not polling well.
So what are the facts on the economy?
Finding about a country’s economic stability is relatively easy. Everything is provided for and one just needs to research well and not necessarily be an economist.
The Fijian economy is forecast to expand by 3.8 per cent this year following a 3.6 per cent expansion last year. This will be the fifth consecutive year of positive growth, averaging 3.0 per cent (2010-14) which is above Fiji’s historical average of around 2.8 per cent (1970-2009). The major sectors contributing to the 2014 growth are construction; manufacturing, wholesale and retail trade, financial intermediation, agriculture and information and communication.
Overall growth over the last two years has been supported by robust consumption and investment expenditure by households, businesses as well as Government.
Major consumption indicators noted significant growth over the last two years and so far this year. Net VAT collections increased by 6.4 per cent in the year to May after an 11.1 per cent increase in 2013. Similarly, imports of consumption related goods were higher by 15.6 per cent up to May. A major turnaround has been noted in new lending for consumption purposes by the financial sector.
New consumption loans increased by 28 per cent (or around $316m) in the first half of the year following a massive 90 per cent increase in 2013 ($468m). Consumption activity has been supported by higher disposable incomes (lower income tax, higher social transfers, higher income tax threshold, and increase in civil service wages), higher inward remittances and overall improved consumer confidence.
Investor confidence has also shot up over the last two years as the domestic economy started showing signs of solid recovery and generous incentives by the Government. Investment expenditure was around 29 per cent of GDP in 2013, beating the Government target of 25 per cent for the first time since 1998. This year, investment expenditure is forecast around 26 per cent of GDP with the major contribution coming from the private sector ( 15 per cent) followed by Government at 6.0 per cent and Statutory bodies at 5.0 per cent. Latest investment related indicators support the forecast. New lending for investment purposes rose by 6.9 per cent (or $133m) in the first half of 2014 after increasing by a massive 109 per cent in 2013 ($251m). Domestic cement sales were also higher by 15.2 per cent in the first half of the year, supporting the forecast of higher contribution of the construction sector to GDP this year. In line with these developments, imports of investment related goods were higher by 15.2 percent during the same period.
Going forward, given that the investment outlook is expected to be driven by tourism and infrastructure related projects.
Government Spending and Debt
The Bainimarama Government had a more prudent fiscal policy with a much lower deficit of 1.7 per cent of GDP during the period 2007 – 2013. However, the deficit was much higher at 4.3 per cent of GDP in the comparable 7 year period between 2000–2006. Therefore, debt under the Bainimarama Government rose by less than $1 billion compared to $1.5 billion in the period 2000-2006. More importantly, had the Bainimarama Government spent $1.4 billion in capital expenditure as was spent between 2000-2006, his Government would have repaid debt by around $400 million. This means that it would not have to borrow any money but actually repay the debt taken by previous governments.
The improved appetite from consumers and investors has been well reflected in the surge in lending by the banks. Credit to the private sector increased by 12.6 per cent in June 2014 following a 9.2 per cent increase in 2013. Interest rates have also fallen to historical low levels supported by accommodative monetary policy by the Reserve Bank and ample liquidity in the banking system.
Inflation has been on a downward trajectory this year after the introduction of the free education policy by the Government which has eased some burden from the consumers. Inflation was registered at 0.8 per cent in July. Indications are that inflation will continue to be on the lower side throughout the year.
Balance of Payments
Fiji’s balance of payments position remains healthy and stable. Foreign reserves held at the Reserve Bank are just under $1.7 billion and sufficient to cover above 4 months of imports. The Government, the FNPF and other institutions also hold significant reserves of close to $750 million offshore, bringing the total reserves to around $2.5 billion. The healthy level of reserves provides confidence in Fiji’s financial system and her ability to withstand external shocks.
It is almost among the critical indicators that we are in a far better place economically than Dr Prasad would have people believe.