Question

With reference to the stabilisation role of the government, discuss your views what instruments of budgetary, fiscal and / or monetary policy should additionally be introduced to stimulate economic growth after covid-19 pandemic ( 5 marks)

b. Discuss your views how government can use debt so that it is at sustainable level

c. Fiji’s Debt-GDP ratio is around 49% and it will increase even more after the COVID-19. With reference to what has been covered in the class regarding the sustainability debt level, discuss weather Fiji’s debt is at sustainable level. Why or Why not?

d. What consequences can arise when the budget deficit and government debt is beyond the sustainable level (2.5

Answer 1

In terms of a pendemi like covid 19

The Fiscal Monitor shows how policymakers can offer emergency lifelines to: save lives; protect people from losing jobs and incomes, and companies from bankruptcies; and enable a recovery. So far, countries have taken fiscal actions amounting to about $8 trillion to contain the pandemic and its damage to the economy.

Emergency lifelines provided globally include higher spending and foregone revenues ($3.3 trillion), public sector loans and equity injections ($1.8 trillion), and guarantees ($2.7 trillion). The Group of Twenty advanced and emerging economies are at the forefront with actions totaling $7 trillion. Fiscal support is also provided by automatic stabilizers—features of the tax and benefit system that stabilize incomes and consumption, such as progressive taxation and unemployment benefits.

challenging.

• First, countries with limited health-care capacity cannot adequately scale up resources.

• Second, borrowing constraints in many emerging market and developing economies requires shifting expenditure toward the health sector while safeguarding social protection spending and vital public services (transport, energy, communications).

Global coordination will help achieve a universally low cost vaccine and medicine, and support countries with limited health capacity, including through aid, medical resources, and concessional emergency financing. As our Managing Director said in her recent speech, the IMF stands ready to deploy $1 trillion lending capacity to assist member countries, with a focus on low-income developing countries.

• Advanced economies can rely on a wide range of instruments on the spending, tax, and liquidity front to support people and firms given their strong tax-benefit systems. In the United States and Germany, for example, measures include extended unemployment benefits, including for the self-employed; payroll tax deferral; and wage subsidies to small and medium enterprises.

  Many workers, small enterprises, and self-employed entrepreneurs struggle to pay bills, make debt payments, and keep people on the payroll. To help them, several European countries have rolled out liquidity lifelines such as affordable loans or guarantees. France and Japan are providing government-funded paid sick and family leave to those who are unwell, self-isolate, or have to stay home and look after children during school closings.

• Emerging market and developing economies typically have less room in the budget to respond. They face several shocks: the pandemic, a steep drop in demand from abroad for their goods and services, plunging commodity prices, capital flight, and higher borrowing costs in financial markets

B

fiji response to covid 19

General Information

• $1 billion COVID-19 Stimulus Package announced together with FNPF
• Fiji economy projected to contract by 4.3 percent this year
• Debt to GDP ratio to increase to 60.9 percent in 2020. Economic rebound and stronger revenues expected following COVID-19 pandemic
• Asian Development Bank to top up its previously-pledged funding of US$100 million by up to US$100 million more. World Bank offering US$5.5 million from its COVID-19 facility
• Downturn in tourism industry expected to impact GDP by 38 percent
• Tertiary Education Loan repayments suspended until 31 December 2020

Tax measures – Direct and Indirect

(e.g. payment deferrals, rate reductions…)

Click here to see a comprehensive summary of jurisdictional tax measures and government reliefs in response to COVID-19.

Economic stimulus measures

(e.g. loans, moratorium on debt repayments…)

Fiji National Provident Fund

• Effective from 1 April 2020 to 31 December 2020 reduction in employee and employer FNPF contribution from 8 percent and 10 percent to 5 percent respectively
• Fijian workers in the hospitality sector who have lost their jobs or have had their hours cut since 1 February 2020 able to access an initial $1,000 from their FNPF accounts, with additional funds to be considered
• Employees affected by the nationwide stipulated physical distancing requirements, along with employees in the Lautoka confined area who have been placed on leave without pay or had their hours cut, able to access an initial $500 from their FNPF accounts
• Government to directly subsidise any shortfall in members balance

Reserve Bank of Fiji

• Maintain the Overnight Policy Rate at 0.25 percent
• Expand Natural Disaster and Rehabilitation Facility to include businesses affected by epidemics/ pandemics. Renamed Disaster Rehabilitation and Containment Facility
• Total allocation for facility now $60million. Businesses affected by COVID-19 can access funds under this facility through commercial banks, licenced credit institutions or FDB at a maximum interest rate of 5.0 percent

Expenditure

• Additional $40 million to enhance our health system’s response capacity
• Additional $20 million to Education and Social Welfare respectively
• Additional $1 million allocation towards Ministry of Agriculture to bolster Fiji’s food security
• $50 million to the FSC to fund cane delivery payments
• Additional $5 million to be added to the small and medium enterprises credit guarantee scheme

Other measures and sources

• Informal sector in the lockdown areas entitled to one-off Government relief payment of $150 where holding a street trader or hawker license
• Government to fund 21 days COVID- 19 leave for Fijian employees earning less than $30,000 who have tested positive for the virus
• Fijians in the informal sector who tested positive for the virus to be paid a one-off sum of $1,000
• Banks and hire purchase companies to offer six month deferral of loan repayments for Fijians who have lost their jobs or had their hours reduced. Also available to businesses
• Banks to waive all charges on minimum balances in customer’s accounts and remove minimum purchasing requirement for electronic transactions
• Fiji Investment Corporation Limited to be revived for equity injection into SMEs
  Conversion of Government loans to equity in Fiji Sugar Corporation, PAFCO, Fiji Rice Limited, Food Processors Limited and Viti Corp Company Limited
• Government to acquire FNPF and FHL’s shares in the FSC
• WAF to suspend all disconnections until 31 December 2020
• EFL to match Government’s 50 percent subsidy to its subsidized customers
• 20 percent pay cut for elected officials for the next six months
• Pensioners monthly travel allowance reduced from $40 to $20