Fiji’s 2020-21 budget is aimed squarely at meeting the economic challenges of the damaging effects of the COVID-19 pandemic on tourism—the Reserve Bank of Fiji projects real GDP to fall almost 22% in 2020. In addition to household income support payments and tax cuts to make tourism more competitive, the government aims to “build its way” out of the crisis by stimulating public and private construction.
Rising public (and privately-funded) construction has been a key factor supporting the country’s steady 3% average GDP growth per year during the past decade. Public construction hit record-high levels of FJD216-217 million in 2016 and 2019 (2% of GDP), from as low as FJD16 million in 2009 (Chart). The budget will ramp up government spending on several “shovel-ready” projects, including a new maternity wing at the CWM hospital, construction of the Prime Minister’s Office complex, new and refurbished police stations, new sporting facilities and upgrades of several hospitals. Road rehabilitation and development will benefit from an allocation of nearly FJD350 million in the 2020-21 budget, an increase of FJD72 million from 2019-20. But given debt will surge above 80% of GDP in 2020-21 and likely remain around these levels through 2022-23, risks to debt sustainability are likely to be significant if GDP growth falters and/or infrastructure investments fail to deliver sufficient economic returns.
Fiji is Australia’s 40th largest export partner. Total exports reached a 16-year high of $681 million in 2018 and remained around this level in 2019. Fiji’s increasing investment in residential housing, roads, energy, water and sewerage provides opportunities for Australia’s materials suppliers, including steel products, water management systems, energy, engineering and construction equipment and fit-out items, such as furnishings. Growing spending on roads and major ports will also help ease the cost of doing business and facilitate greater two-way trade. New incentives for foreign investors in the budget could also support greater Australian investment in Fiji, which amounted to $1.5 billion in 2019.