WELL designed reforms should be carried out in the civil service to allow an increase in expenses on capital works, the International Monetary Fund said.
IMF Fiji mission chief Ray Brooks said the reforms should be wider to include the military and police forces.
He advised that fiscal consolidation was needed to reduce central government debt to the government's target of 45 per cent of Gross Domestic Product over the medium term. "Limiting the 2010 budget deficit to about two per cent of GDP, excluding costs associated with civil service reforms would begin to reduce the debt-to-GDP ratio.
"In the medium term, expenditure can be contained through a well-designed civil service reform and revenue can be strengthened by rationalising tax incentives. Transparency in fiscal reporting should be improved by widening the coverage of the budget and publishing quarterly reports on the fiscal outcome.
"Monetary policy should be tightened to contain inflation, protect the reserve position, and lock in the competitive gain from the devaluation. Inflation is projected to rise to seven to eight per cent by early 2010 and any further upward pressure on prices could lead to higher wage demands and macroeconomic instability.
"Given the risks, the increase in statutory reserve deposit ratio is a welcome step but further measures are needed to absorb excess liquidity and utilise more market-based instruments."