‘Debt accumulation faster in past decade’

FIJI’S debt accumulation has been faster in the last decade compared with any other time in the country’s history, claims University of the South Pacific (USP) senior lecturer in economics Dr Neelesh Gounder.

During an interview on The Fiji Times online news portal The Lens@177, he also shot down the previous government’s definition of “smart borrowing”.

Dr Gounder said it was important for all Fijians to understand that deficits occurred when spending was more than the revenue being collected.

“So every time we have a deficit, we go and borrow some money to cover for the shortfall, and every year we have a deficit, we go and borrow some money,” he said.

“So as that level increases, we would also expect an economy to be growing over time and if the economy is growing faster than the growth in debt, is not really a big issue.

“The challenge arises when debt has grown large relative to GDP but your economy or GDP hasn’t been growing faster than the growth in debt. And as a result, debt to GDP ratio will approach around 100 per cent. And as debt increases, debt has to be repaid. So as debt grows, more and more revenue that the Government earns each year will go into debt servicing, which means paying off the debt. So, if more and more revenue is going towards debt payments, less and less revenue will be available to the Government to spend.”

He said government spending in this instance usually extended towards public services and infrastructure investment.

This, Dr Gounder said, was one of the challenges which the Fiji Government was facing right now.

“Debt has grown large, over 80 per cent of GDP. But the economy hasn’t grown as much as what we had expected the Fiji economy to grow.”

He stated that even when loans were justified as being “smart borrowing”, it still meant Governments had to pay the money back, albeit with a lower interest rate.

“Although you might be doing smart borrowing by borrowing at low interest rates, your debt is still growing and that has to be paid back.”