Analysis of Debt to GDP Ratio in Fiji

Analysis of debt to GDP ratio over the last 10
years - A case study of Fiji

ABSTRACT
This report summarised about the analysis of debt to GDP ratio over the last 10 years of
Republic of Fiji. This includes the several topics such as foreign aid, debt to GDP ratio from last
ten years and how economy performs throughout the years. The debt- to- GDP relationship is
dynamic, varied across counties and influenced by macroeconomic factor. Although there is no
clear universal level beyond which debt-to-GDP is a big constraint on growth, based on
information from the last ten decades, they have shown that rapidly increasing public debt
pressures slow it down the growth in long term.
The relationship among debt growth and economic growth has drawn a strong interest in
recent times, spurred by a huge increase in public debt in developed economies due to the
financial crisis and ensuing Eurozone debt crisis. Economists appear to accept that, throughout
the short run, the rise in public debt resulting from fiscal contraction increases aggregate demand
that is expected to help to make economies strong. On the other hand, the longer-term economic
effect of public debt creation is susceptible to more spirited argument where views are not
united. Some contend for an adverse long-term relationship among the two where others
challenge any long-term correlation between low or moderate levels of government debt. There
is a clear need for a better understanding of long term economic implications of increasing public
debt.
Careful empiric study of such a relationship that is used a board of 40 advanced and
emerging market economies and four centuries of evidence. There are many mechanisms by
which persistent debt accumulation can damage economic development, such as "crowding out"
private sector investment, high interest rates for long-term , more stringent future taxes, and
potentially poorer investor confidence and uncertainties.
1

ABSTRACT....................................................................................................................................1
INTRODUCTION...........................................................................................................................3
Literature Review............................................................................................................................4
Methodology..................................................................................................................................10
Data analysis..................................................................................................................................12
Result.............................................................................................................................................14
Conclusion and Policy recommendation.......................................................................................15
REFERENCES..............................................................................................................................17
2

INTRODUCTION
Fiji's economy has been growing by only 0.5 per cent in 2019, with growth of 3.5 per cent in
2018 , down from 5.6 per cent, 4.7 per cent and 5.4 per cent in 2014, 2015 and 2017, respectively
and development in 2016 was weaker compared to Cyclone Winston. Pre‐COVID‐19, the growth
forecast for 2020 was 1.7% and for 2021 2.9% (Bertana, 2020). Of course, such
predictions especially for 2020 and definitely for 2021 already have been decreased due to the
effects of COVID‐19, with −4.3 per cent growth displayed for the existing year since May
2020. Although even placing COVID‐19 aside, as this survey does, the nation's recent growth
output indicates weak development prospects.
Only at end of 2019, the Reserve Bank of Fiji (RBF) predicts a trend growth to about 2.9 to
3% from 2021 onwards. With poor growth and declining revenues, fiscal contraction proposed
in the 2019–20, Budget which released in June 2019 with substantial spending cuts was
unavoidable due to high government debt over the last 5 years. Previous budgets were used as a
polling tool, but need for fiscal consolidation has been evident since 2015 (Arčabić and et.al.,
2018) The government has now been expected to cut away on vital expenses for education,
health and infrastructure, areas that the government has indeed constantly recognised as
objectives. Considering the low-growth scenario, the government’s obstacle to revenues is not
really a gradual one, but a systemic one.
The higher growth of about 5% reported a few years ago has been heralded with a 'new
standard' for Fiji. Previous to COVID‐19, hospitality appeared to play a major role in the
maintenance of economic development (Borja and et.al., 2018). Operation in other significant
sectors including such sugarcane, wood, silver and coal, nevertheless, has stayed restricted.
3