www.fijilive.com - November 27, 2009
Measures aimed at lifting Fiji’s economic growth from its currently stagnant levels to 2.5 percent and beyond are expected to be a key focus of the national Budget 2010 to be announced in Suva today.
While Budget 2009 was pro-poor and pro-growth, a clearer agenda set by the Bainimarama government this year, entailing further steps towards public service reform from next year, will mean his government will have to come up with a Budget today that will have to provide for the reform, while trying to maintain a deficit of around three percent.
The call by some economists to increase government spending to help revive a sluggish economy will mean further pressure to widen the deficit gap, kept in check through a record tightening of the government purse this year.
Some of the savings from these efforts have been passed on to the general populace in the form of bus fare subsidies for school children, a measure that is likely to continue next year and extended to older, special needs sections of the public.
Other pro-poor measures such as last year’s record jump in the income tax threshold from $9000 to $15000 are unlikely to be matched this year.
In the face of the obvious challenge of quickly growing the economy and more so to offset the fallout from public sector reform redundancies next year, it may be time for stronger pro-business measures in the area of corporate and withholding tax and other initiatives.
That, if recent utterances by acting Finance Minister and Attorney General Aiyaz Sayed-Khaiyum on the need to be more “pro-business” are an indication of government sentiment in this area.
Long-standing differences between government and major manufacturers over import duty and protection for local industry are also likely to be addressed in the same vein.
Stimulating the private sector, particularly exporters, to help raise growth levels to 2.5 percent from next year, against a projected 1.7 percent and a negative 0.3 percent this year, may see a stronger package of incentives such as the ones announced last year to promote investment in the stagnant Northern Division through the setting up of tax free zones in the region.
Reserve Bank of Fiji Governor Sada Reddy’s input at the pre-Budget consultative forum two months ago was taken as providing much of the general outline for next year’s Budget.
That being the case and given his emphasis on the need to grow exports, further pro-export incentives to promote the fisheries, forestry and mineral resources sector including gold, the best performing of these, are likely.
The declining sugar industry, which Reddy said can be boosted from its current annual production level of 250,000 tonnes to previous record levels of 500,000 tonnes, may receive a bigger allocation than last year’s record low as part of the overall thrust to boost exports.
Legislating the import cover at five months of imports up from the previous norm of three months can also be expected.
Fiji’s macro-economic challenge remains the lowering of its massive $2 billion trade deficit, which Reddy has said can be achieved through a combination of boosting exports and import-substitution.
There may be measures to reduce fuel imports, which made up 25 percent of total imports in 2008, such as promoting renewable energy and encouraging energy conservation practices.
Reddy has proposed renewable energy initiatives such as a 10-year tax holiday to producers, tax rebates for companies that invest in this area and special RBF financing to banks for renewable energy.
This is apart from import substitution and reduction measures to reduce imports of rice ($40 million per annum); potato ($19 million per annum); dairy ($60 million per annum); and meat imports.
Prime Minister Commodore Voreqe Bainimarama has said he wants to “leapfrog” economic growth.
But given the discipline his team has demonstrated so far with government finances and with this week’s International Monetary Fund warning to reduce deficit-financing reliance on the Fiji National Provident Fund, the end result may have to be a not too ambitious Budget.
If the obvious constraints are to be respected, then a mixture of creative efforts to enhance private sector participation and government stimulus - while focusing on the immediate goals of step-by-step definitive moves towards growth - may have to do for now.
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