The Asian Development Bank in its latest Pacific Economic Monitor has stated that Fiji’s fiscal outlook hinges on continued economic recovery into the medium term.

In its report, COVID-19 and the Pacific three years on, the ADB states that a 26% increase in Fiji’s expenditures in the 2023-24 National Budget places heavy pressure on the new revenue measures.

It says while Fiji is earmarked to record one of the highest growth rates in the Pacific sub-region in 2023, fiscal and monetary tightening in major tourism source markets in response to high inflation may adversely affect tourist real discretionary income in the coming months.

This it warns will jeopardize the revenue recovery.

Of the key tourism source markets, Australia and the United States are reportedly facing an economic slowdown, while New Zealand entered a technical recession in the second quarter of the year amid high inflation environment.

The ADB says all central banks have indicated further tightening should inflation remain above target.

To sustain tourism recovery, it suggests price competitiveness against similar destinations and household disposable incomes in key markets will be important factors in supporting tourism moving forward.

The ADB says the national budget for lays out some of the concrete plans for fiscal consolidation.

The government aims to reduce the fiscal deficit from the equivalent of 11.9 percent of GDP in 2022 to 6.2 percent of in FY2023, and further narrow it to 4.8 percent next year.

The government is relying on a combination of revenue policy changes, nominal GDP growth, and a recovery in the tax base to offset the increase in expenditures and bring down the debt-to-GDP ratios.

The ADB states that while the intent of the budget is clear, its impact on sustainable economic recovery may be tested.

It adds that higher tax rates can be expected to dampen consumer and business demand.

Meanwhile, it also says that the planned higher expenditure may lead to more imports putting pressure on Fiji’s current balance of payments position.

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