Debt Dynamics in Fiji:
Impacts, Challenges and Strategies for Sustainable Economic Development
Fiji is grappling with a profound and complex public debt burden. Political turbulence, anaemic growth, natural calamities, and external economic shocks have all played their part. The global financial meltdown in 2008 and catastrophic events like Cyclone Winston in 2016 wreaked havoc on Fiji's infrastructure and decimated its primary revenue channels, particularly in the tourism sector. The advent of the Covid-19 pandemic in 2020 only intensified these economic tribulations.
Already, Fijians are feeling the weight of this debt burden through new fiscal measures such as increased taxation and constraints on government spending, which were recently introduced in the country’s latest budget. An increasing and higher incidence of limited fiscal revenue is also being spent on debt servicing than on essential social sectors, threatening to channel funds away from investing in long-term economic development and the UN’s Sustainable Development Goals (SDGs).
The way Fiji manages its debt, strikes a balance between basic needs and developmental aspirations, and aligns its debt management strategy with long-term goals can significantly influence its economic trajectory.
This paper, building off consultations in 2023, aims to situate the country’s public debt burden within the context of its economic performance and fiscal policies, and attempts to highlight the complexities and challenges inherent in balancing growth aspirations with fiscal responsibilities. It also tries to reveal the significance of Fiji’s public debt burden not merely as a reflection of numerical indicators but as an issue that is deeply intertwined with the nation’s socio-economic well-being, policy frameworks, and strategic priorities.
Chapter 1 – Fiji’s Debt Profile and Dynamics
Fiji’s debt situation has been worsening ever so slightly over the years as a result of its persistent fiscal deficits. However, like many other developing countries, its debt skyrocketed and its economy virtually collapsed because of the Covid-19 pandemic. It is now stuck with very elevated debt levels, which, if poorly managed, will continue to drain limited fiscal resources, amplify its susceptibility to shocks, and weaken macroeconomic variables and in turn, business outlook.
This chapter lays the technical groundwork to understand Fiji’s debt profile and composition. It details standard attributes, such as the breakdown between domestic and external debt, its servicing schedule, and contingent liabilities, and touches on the government's strategies for debt management, such as refinancing plans, bond issuances, and efforts to balance domestic and external borrowing.
Chapter 2 – Debt and Fiscal Sustainability
Fiji has not run a net fiscal surplus in the last 20 years. The chapter examines the various fiscal targets proposed to bring debt levels down to a more sustainable trajectory, and what that might entail. The chapter also takes a nuanced view of debt, not just as a financial burden but as a tool for productive investment. Fiji will continue to face difficult trade-offs between maintaining fiscal sustainability and investing in structural transformation, including productive investment, climate action and SDGs.
Chapter 3 – Growth, Debt and External Sustainability
It is important to see and understand where economic growth in Fiji is headed in order to anticipate and consequently steer its debt levels towards sustainability. This chapter serves as a critical and analytical exploration of Fiji's economic landscape and structure in order to identify the underlying causes of debt. It analyses the nation's economic growth patterns, emphasising the erratic and volatile nature of this growth over the last four decades.
It proposes a strategic approach to economic development, advocating for the modernisation, diversification, and commercialisation of key sectors. It underscores the necessity of transitioning from a reliance on low-value-added activities to embracing high-value-added industries, which could significantly contribute to sustainable economic growth.
Chapter 4 – Debt Management and Good Governance
Fiji's public debt management has been assessed, with positive marks for debt management and reporting however its absence of an endorsed debt management strategy was scored low.
Fiji's dispersed legal framework for debt management, spread across various laws, directives, and circulars, may pose challenges in terms of transparency, accountability, and efficiency. A consolidated public debt management law can help in this regard and strengthen the implementation of integrated strategies, risk assessment frameworks, and debt sustainability assessments.
Chapter 5 – Climate Finance and Debt
Fiji, like other debt-burdened developing countries, is at a crossroads between dealing with climate change, fiscal health and economic development. Fiji’s vulnerability to climate change, which necessitates significant investments in adaptation and mitigation measures, have been captured in a swathe of documents.
However, the chapter contends that a comprehensive financing strategy is still lacking, pointing out the need for a clearer understanding of the economic impact of these actions, including on development, fiscal health, and debt sustainability
It recommends a strategic approach that balances the need for climate action with fiscal and debt sustainability, emphasising the importance of developed countries fulfilling their international commitments to provide the necessary financing.
Chapter 6 – Conclusion and Recommendations
This chapter summarises key conclusions from the White Paper, providing a range of opportunities for Fiji to shore up and improve on its current debt position, strengthen its legal frameworks and institutions to enhance debt management and governance, and implement a climate financing framework to ensure that climate-related investments reinforce the nation’s broader objectives