Response from the Attorney-General and Minister for Economy to Neelesh Gounder and Wadan Narsey
Comparing the ongoing Sri Lankan economic and debt crisis with Fiji is like comparing apples and fish. Neelesh Gounder’s blatant bias due to his political affiliations with NFP and PAP is clearly demonstrated through his shoddy economic analysis. In fact, Sri Lanka has a lot to learn from how Fiji managed the COVID-19 crisis by borrowing smartly to ensure our debt and balance of payments remain sustainable.
Below are the stark differences:
1.) Firstly, Sri Lanka doesn't have adequate foreign reserves available in the country. It had $7 billion due in external debt repayments alone and only had $2 billion in total foreign exchange. Fiji's external debt repayments on average are less than $100 million annually and we have over $3 billion available in foreign reserves. This is 30 times more than what's needed for our external debt repayments. This is despite the tourism industry being closed for almost two years which used to bring in over $2 billion of foreign exchange to the country annually.
2.) Secondly, Fiji has over 10 times more government revenue available to service interest payments. Our revenues are over $3 billion in a normal year and debt servicing is just over $350 million in interest payments. For Fiji to be unable to service its debt our revenue will have to fall below $300 million – which is an extremely unlikely scenario. Even during COVID-19 (worst ever national crisis), we managed to maintain revenues at around $2 billion. This basically shows why Fiji has not defaulted on debt before and why we will never default now or in future. Sri Lanka's revenue situation is completely different – it has been simply too low and cannot be compared to Fiji. Similarly, our future principal debt repayments average around $350 million which can be easily refinanced and repaid.
3.) Thirdly, Sri Lanka's lenders stopped lending to them. Our lenders have recently been lending five times more than what they were lending before and continue to want to lend more. These are all credible lenders like the World Bank, ADB, JICA, AIIB and other domestic institutional investors. For these lenders to want to lend more to Fiji means they have full confidence that Fiji will never default on its debt payments.
4. Moreover, Fiji has secured around $900 million in highly concessional external debt with long maturity terms of 40 years, 10 year grace period and near-zero interest rates. Our debt repayment is spread over many years while Sri Lanka had bonds that had to be paid in a bullet repayment. Fiji’s only global bond of US $200 million was settled in the middle of the COVID-19 crisis in October 2020. The global bond was initially raised in 2006 by the Qarase Government. As such Fiji does not hold any internationally-issued bonds as part of its debt portfolio.
5.) Fiji has used debt for building capital infrastructure which ensures that it generates returns to pay our debt in the future. This may not be true for Sri Lanka.
6.) Fiji also has third-party validation that Fiji's debt remains sustainable from agencies like IMF, World Bank, ADB, ANZ, Westpac and our international credit rating agencies. The same agencies have been warning Sri Lanka for some time.
So what are the lessons learnt from the Sri Lanka crisis?
1) In Sri Lanka there was no strong monetary and fiscal policy coordination. In Fiji, this was well coordinated.
2) External debt and debt servicing and its impact on the balance of payments was not dealt with by the Sri Lankan authorities in a timely basis or proactive manner.
3) Rationing foreign exchange and capital controls triggered the loss of business confidence and led to the economic disaster.
4) Sri Lanka engaged very late with multilateral institutions for debt restructuring or refinancing, unlike Fiji, which refinanced the US$ global bond and also accessed highly concessional additional policy-based loans.
5) External debt is not bad if it's priced well and long term which Fiji was able to secure unlike short-term debt like bonds that has bullet repayment in Sri Lanka.
6) The Sri Lankan crisis is also due to promises by the Government which was in opposition before the crisis to bring about a widespread cut in taxes – promising the moon and the stars, something which some of the opposition parties are proposing here in Fiji.
7) This Government avoided the crisis that Sri Lanka experienced. The risks of a Sri Lanka-like crisis are far greater if the opposition comes into power.
Academics in Fiji should provide more balanced, accurate and fair commentary on such issues and not try to mislead people due to their political inclinations. Recently, Wadan Narsey also claimed that Government robbed FNPF members of $380 million by reducing the FNPF rate.
1) Wadan Narsey completely ignored the fact that it was the Bainimarama Government that increased the employer contribution rate from 8 to 10 percent in 2015. Employers had contributed much more in that extra 2 percent than what they benefitted from with the recent reduction during COVID.
2) Narsey's comments also show how detached he seems to be from understanding the severity of the COVID crisis and its impact on business and economic activity and the impact especially on employers, globally and in Fiji. He seems to not appreciate the fact that employee welfare can only be improved if both employers and employees are doing well and are supported. You cannot kill businesses by being unrealistically demanding especially during a crisis of this magnitude.
3) With business revenues declining drastically majority of employers needed some form of relief and the reduced FNPF contribution rate provided that much-needed relief, as part of a wider policy package designed to ensure the survival of many businesses. That's how we have managed to keep businesses afloat and revive them. If we followed Wadan’s recipe, many businesses would have been closed and thousands of Fijians permanently unemployed. He also ignores, it would appear conveniently, that employee contribution were also reduced as employees wanted more take home pay during the pandemic crisis.
We call on independent academics and commentators to provide objective and honest analysis of the Fijian economy. Don’t be like or be misled by politically biased academics like Wadan Narsey and Neelesh Gounder and their political masters whose continuous and blatantly biased analysis continues to discredit their reputation.