2nd Opinion piece on the 2017 - 2018 national budget by Party Leader, Mr. Savenaca Narube
My first opinion on the 2017/18 national budget identified the two major causes of financial crisis were that government borrowed too much too quickly and the quality of expenditures was poor. In dollar terms, the Fiji Government has borrowed a lot in a very short time. Moreover, Government is relying solely on economic growth to reduce Fiji’s debt to the safer level of 40% of GDP which is insufficient and dangerous given the vulnerability that Fiji faces as a small country relying heavily on only a few commodities. The recent comparison of Fiji’s indebtedness with developed countries like Singapore is misleading. The key difference is that a single disaster in Fiji can wipe out a large chunk of our economy which is not the case for Singapore or Switzerland. This reality reflects the seriousness of the risk that we face.
This article examines the second element of the cause of fiscal crisis—the quality of government expenditure.
Why is the quality of expenditure important? Government needs to spend the borrowed monies on expenditures that will generate additional revenue to repay the debt including interests. It is therefore essential that Government spends the borrowed monies to expand the capacity of the country to produce more goods and services which, in turn, generate additional tax revenue. This becomes critically important given that the Government is relying solely on economic growth to reduce debt as a percentage of GDP. Unfortunately, road maintenance which is one of the areas of high government spending, while necessary, does not expand productive capacity. Neither do wages and salaries, and freebies to micro-businesses. These low-quality spending will prop up growth as they are doing now but this will be temporary unless Government continues to pump more borrowed monies into the economy. One does not need to be an economic student to predict what will happen if we get hit by a few shocks.
The obvious component of quality of spending is wastage. Past External Auditor’s reports demonstrate the degree of wastage by Government. Let me add here that the recent admission by the Auditor General of errors in his last report is unprecedented. It is very unlikely that the audit processes and checks that have stood the test of time would suddenly collapse. The credibility of this institution that we rely on to keep the Government honest is at stake. People must demand an independent investigation of the whole drama while the Auditor General is asked to go on leave.
The second component of the quality of expenditure are programs that are not meeting their objectives and there are many. Some examples are the cereal and milk for school children, sponsorship of international sporting events, the high cost of road repairs, the e-transport saga, and the contracts of the civil servants. The causes of these low-quality expenditures are poor policy design, lack of robust evaluation, hasty decision making, micro management, and populist and interventionist policies.
But the most critical component of the quality of expenditures that many of us do not see is that of “value for money”. To put it simply, value for money is Government procuring goods and services with the least cost. A credible international assessment that reviews the integrity of procurement is called the Methodology of Assessing Procurement Systems (MAPS). The Government has not done a MAPS for Fiji.
The Minister of the Economy has the authority to waive the procurement procedures under certain conditions and this is standard practice. The waivers by the Minister must however be published to prevent abuse. This is not being done. In addition, Government does not publish the full results of all bids which must include not only the successful bid but details of those that were not successful. Moreover, Government operates two tender boards—a central one and a separate IT tender board. Best practices dictate that all tenders go through the same procedures and be transparent.
The deviations from global best practices in procurement--the riskiest area of public finance—seriously reduce the value we get for our hard-earned tax dollars. The Fiji Revenue and Custom Services demands that everyone pay their taxes on time. This is fair enough. But likewise, Government must reciprocate that fairness and refund VAT to businesses on time and use our tax dollars wisely.
To properly determine the quality of spending, governments normally undertake what is called a Public Expenditure Review (PER). As far as I know, this Government has not done a single PER.
Let us get back to the focus of the two articles of safeguarding our fiscal position in the medium term. My conclusion is that Fiji has already slipped into the risk of a fiscal crisis—Government is borrowing too fast too quickly and the quality of expenditure is compromised by the lack of rigor in decision making and poor compliance to international standards especially transparency. The risk of a fiscal crisis in future is therefore very high. It is the duty of the independent economic and financial watchdogs to raise this risk boldly to Government. Sadly, this is not being done. We, the people, must therefore call on Government to take immediate steps to reduce this risk by cutting back on the net deficit and improving the quality of spending. Otherwise, we are dodging our responsibility by passing the burden to our young people to bear the cost of adjustments which can be very high. I am certain many of us do not want to leave that legacy to our children and grandchildren.