Stimulus or strangulation?
Can the COVID-19 budget deal with the crisis?
Monday 20th April 2020
About a fortnight ago, Prime Minister Voreqe Bainimarama, aware that Tropical Cyclone Harold would leave a trail of destruction in Fiji after pounding Vanuatu, tweeted that “the world must be prepared to respond to this disaster at our doorstep”.
In the same tweet he said TC Harold couldn’t have come at a worse time for the Pacific because flights were grounded, foreign aid workers withdrawn and medical supplies were limited due to the COVID-19 pandemic.
At least the PM accepted reality – but not all these realities are caused by the virus. There was a scarcity of medical resources in terms of basic medicine and consumables (even dressings and bandages) well before COVID-19 was declared a pandemic or even before the first positive case in Fiji.
About two weeks ago, the family of a patient who underwent surgery at CWM Hospital had to source iodine and surgical plasters from outside of the hospital because it did not have any. Surely, this lack of supply isn’t related to COVID-19!
We all know that Fiji is now directly affected by this pandemic. But the truth is that the pandemic has begun to strangle the last breaths of an economy already ravaged by the cancer of economic mismanagement and failed policies of a government whose focus has always been on electioneering.
The rest, as they say, is history. Now we are faced with a catastrophe. The government is now facing the daunting prospect scraping the bottom of the barrel of its hollow coffers to help the many thousands of people affected by TC Harold. Homes have either been destroyed or damaged. The agriculture sector has been pummelled. Infrastructure has not been spared. And the sugar industry’s crop production forecast for this year will be drastically reduced, again, as reports indicate most of the damaged cane crop in the Western Division is non-salvageable.
We are facing: -
the devastation of our tourism sector (already battling the crippling effects of the exorbitant 25% taxes and other charges)
suffocation of small and medium enterprises which employ more than 70% of Fiji’s workforce
the possible transition into coma, of a rapidly ailing sugar industry, already gasping for oxygen
a public health and medical system on life-support due to lack of basic medicine, lack of equipment, lack of protective clothing and gear, aging and dilapidated buildings, with limited ability to cope with any outbreak of the pandemic locally
national debt level rising sharply despite a declining GDP
the Fiji National Provident Fund again being milked by government for post-cyclone grants to members of their own money.
Initial help and response
Government’s initial response to providing help after TC Harold (other than deploying its Bushmaster military vehicles) was the PM telling FBC news that the Attorney General was talking to FNPF to “provide reprieve to those who lost their homes”.
This would most likely mean the FNPF being asked to approve housing assistance packages to those members who have suffered damage, as they did after TC Winston.
These withdrawals, the Government may hope, will create an impetus for the economy by making people use their own retirement savings to create financial and economic activity. In other countries this has been generated by governments, not workers’ savings.
What Government is trying to do is contrary to the recommendation of the International Monetary Fund. IMF in its Report (19/57) released in February 2019 had recommended that the pension savings of FNPF members withdrawn by them after Severe TC Winston should be rebuilt. This is what the IMF said: -
“The Fiji National Provident Fund (FNPF) allowed 180,000 pension contributors to withdraw up to 30 percent of the pension savings (about 2.8 percent of GDP). This measure was effective in mitigating the adverse impact of Winston on many households. However, it is also important to lay out a strategy to restore these pension savings to ensure that contributors will eventually have access to adequate pensions, especially given that a large fraction of pension members have relatively low pension saving balances at present”.
Cash-strapped cane growers
Cane growers, however, who are not FNPF members and whose third cane payment has been hit hard by deductions, are unable to access any government or FNPF assistance.
I sighted a Fiji Sugar Corporation statement of a large scale grower who produced nearly 800 tonnes of cane on one of his two farms. With $11 per tonne as his third cane payment his earnings should have been $8,668.00. But after many harvesting and delivery deductions (including a loan), he received $1,536.00. This equates to a paltry $1.95 per tonne of cane for this payment – less than one-fifth of the gross amount. A lifeline has been offered to commercial businesses in terms of deferring their loan and interest repayments to banks for at least 6 months. Why were cane growers not spared?
Cane growing is also a business. It is the only business where the products sold are paid for over a period of 16 months. Few businesses will survive if subjected to this arrangement. And when more than 80% of one’s income is taken away in deductions for expenses and loan payments, it is only logical that the business will shut down.
How does government expect to inspire confidence amongst cane growers to boost their production under such circumstances? Especially now when the cane crop has taken a tremendous beating from the weather?
Cane in the Western Division has been either seriously damaged or destroyed. And growers are being kicked from pillar to post.
So where is the money from the Bainimarama boom? Why hasn’t the Government got any? Why are people asked to help themselves even in the case of assistance packages being offered in the wake of the COVID-19 pandemic?
The so called COVID-19 response budget presented to Parliament is mainly using the pandemic to cover up the government’s failed track on economic policy. $1.5 billion debt in a single financial year - $100 million allocated under Budget’s Head 50 for direct assistance plus $30 million to effectively pay third and fourth cane payments to cane growers.
But no matter what trick is conjured by the Economy Minister, the undisputable fact is that the economy was in the doldrums before CPVID-19 affected Fiji or became a pandemic.
The 2019-20 Budget delivered in June 2019 forecast a deficit of over $604 million or 2.7% of GDP for the financial year August 1, 2019-July 31, 2020.
The coronavirus response budget delivered on 26th March this year has now forecast a deficit of $1.282 billion or 9.0% of GDP, apart from revealing mammoth projected borrowing of over $1.5 billion in a single financial year. This means ballooning national debt to nearly $7 billion by 31st July.
Is this a result of COVID-19? What kind of economics theory projects 2.7% deficit for 12 months but attributes 6.3% hike in deficit (9% - 2.7% = 6.3%) when only 4 months of a financial year is left?
And then to come up with a budget and describe it as a stimulus when only a sum of $100 million is allocated (plus $30m for FSC) while borrowing would have reached $1.5 billion on one year!
Government has now declared a state of natural disaster in respect of both Severe TC Harold and COVID-19.
The many thousands of victims of TC Harold who lost their homes and crops, which has severely dented their livelihood, are justified in expecting government assistance. They still have vivid memories of the millions of dollars dished out by government through many “CARE” schemes after TCs Keni and Josie and severe flooding in April 2018.
Thousands, particularly in the Western Division but also in other parts of the country, received one or many forms of assistance. Some businesses selected by government to provide goods had to re-stock their shops each night. Some were even forced to roll their shutters down and close early because they ran out of stock, forcing people to come back the next day.
Exactly two years later, the people expect government to roll out similar initiatives, starting with immediate distribution of food rations in the cane belts, villages, settlements and the affected islands (which has started), followed by rebuilding assistance, distribution of seeds and seedlings to revitalise agricultural sector and crop rehabilitation programs.
But all the PM says this time is that the Attorney General is talking to FNPF to provide reprieve to those members whose homes were damaged or destroyed.
The hallmark of genuine leadership is to rise when the chips are down. The question is – has the Government still got the money it generously shelled out in the time of past disasters?
Time will tell.
The National Federation Party has already put out it’s plans to deal with this crisis. You can find it on this link: https://www.nfpfiji.org/post/the-corona-crisis-what-now