SUVA, 06 AUGUST 2020 (WANSOLWARA ONLINE NEWS) — COVID -19 is having a ‘devastating’ impact on Pacific economies affecting the tourism and fisheries industries and employment in particular.
That is the assessment of Denton Rarawa, senior economic adviser to the Pacific Islands Forum Secretariat, one of the experts advising Pacific Islands Forum Economic officials who are meeting this week ahead of next weeks’ Economic ministers meeting (FEMM).
The unprecedented economic conditions are putting pressure on government budgets as tax and other revenue plummets and the need for spending – to protect the health and people’s businesses and economic livelihoods – increases.
As government look to new sources of funding, the question is what types of finance will countries in the Pacific going turn to and how will they avoid future debt distress.
Speaking to journalists ahead of next week’s FEMM meeting Rarawa said, the financing landscape has been changing due to the pandemic and this has been an issue for member countries.
With many countries short on savings and already in debt Rarawa recommended grant financing to avoid future problems with debt.
Senior Economics Lecturer University of the South Pacific, Neelesh Gounder said desperation will lead some countries to accept loans which will become future burden to repay.
“Fiji for instance this fiscal year 2020-2021 is going to take FJD$1.5 billion (US$704 million) debt. In 2019-2020 fiscal year they took on a billion dollars debt. By July 2021, Fiji’s debt will be somewhere around $8 billion (US$4 billion which will be, at the current GDP rate, will be around 80 percent of GDP.
“Regardless of that to GDP ratio, that $8 billion (US$4 billion) of GDP of debt is really huge.
Dr Gounder said this year alone principal payments and interest payments for Fiji will amount to $1.1 billion (US$516 million) out of a total forecast revenue of just $1.6 billion (US$751 million).
“This is huge and I don’t see how Fiji will be able to pay off its debt in the future unless there is debt cancelling,” he said.
With recommended debt level/ceiling at 35 percent of GDP and Annual Borrowing Limit for 2020 at $300 million (US$150 million).
Solomon Islands government has also been warned about the risks of too much borrowing.
Alison Stuart of International Monetary Fund (IMF) during her visit to Solomon Islands late last year, cautioned Solomon Islands that loans with interest rates below those available on the market and significant grace periods must be identified to avoid future debt distress.
And she suggests government spending based on loans should be carefully targeted to ensure maximum advantage for the country.
“As long as you are prioritising the development areas that in the long run beneficial to the economy with highest payoff that would be good in short and long term,” Stuart said.
In the meantime, Dr Gounder highlighted one approach that would assist Pacific Island Countries turn away from falling into debt trap.
He says in these difficult times of COVID-19, direct budgetary support from Australian government and NZ government or other genuine donors is needed.
Dr Gounder said direct budgetary support would give some relief to Fiji’s budget – and to that of other Pacific countries – as they try to cope with the combination of lost revenue and increased need for spending. ….PACNEWS