Sector Road Map Country Partnership Strategy: Fiji, 2014 2018 SECTOR ASSESSMENT (SUMMARY): PUBLIC SECTOR MANAGEMENT 1 1. Sector Performance, Problems, and Opportunities 1. The government is responsible for maintaining macroeconomic stability and promoting inclusive growth and social development over the longer term. This requires not only the proper management and allocation of scarce public resources, but also the creation of an enabling policy environment to promote business confidence and encourage private investment that would strengthen the economic base. For Fiji, a smooth transition toward democratic policymaking processes will contribute to improving the quality of public sector. 2. Maximizing consultative and participatory processes for development. Fiji has experienced four military coups since 1987, the most recent in 2006. Following the 2006 coup, Fiji s suspension from the Commonwealth of Nations and the Pacific Islands Forum, and its strained relationships with key bilateral partners substantially limited inflows of development assistance. Although Fiji is not as dependent on development partner financing as smaller Pacific economies, the deterioration of its economic linkages with major partners contributed to the constrained economic performance between 2006 and 2013. The enactment of the 2013 Constitution and national elections which took place on 17 September 2014, clears a path back toward democracy. The Constitution provides for a unicameral parliamentary form of representative government, and restores formal systems for checks and balances and transparency and accountability in the public sector. Fully exercising these systems, and rebuilding consultative and participatory processes, will be important foundations of a wellfunctioning democracy. 3. Strengthening fiscal discipline. Budget deficits have persisted since the onset of the 2008 global financial and economic crisis, as a result of the expansionary fiscal policy implemented in a bid to stimulate post-crisis growth. Episodes of heavy rain and severe flooding in 2009 and 2012, and the impacts of Cyclone Evan in December 2013, also prompted increased government spending on relief and reconstruction efforts. Government expenditures increased at an average of 8.5% per annum from 2009 to 2013. Capital expenditures in particular rose at an average of 24.4% per annum during the same period, with a sharp increase in 2013 to finance the rehabilitation and upgrading of the country s road network. A similar increase is budgeted for 2014, as roadworks continue. In contrast, growth in revenue collections averaged only 7.8% per annum over 2009 2013 in part because of uneven economic growth performance and the effects of external shocks. The government started divesting assets such as overseas embassies and some better performing state-owned enterprises (SOEs) to finance deficits in 2012. These only provide temporary increases in revenue, as the stock of government assets that can be sold off is limited. Public debt is estimated at 49.5% of gross domestic product (GDP) as of 2013 with contingent liabilities amounting to another 30% of GDP. Public borrowing is largely in the form of domestic debt, the bulk of which is through the Fiji National Provident Fund (FNPF) purchases of government bonds. These examples highlight the central nature of the FNPF in deficit financing. The introduction of free primary and secondary education in the 2014 Budget puts further pressure on government finances in the future. It is imperative that the government practice stronger fiscal discipline and move away from using the FNPF to finance its deficits. Revenue-enhancing measures, including reducing the growing 1 Government of Fiji. 2014. Medium Term Fiscal Framework. Suva.
2 number of tax incentives, along with efforts to trim nonessential and unproductive public expenditure, are important to ensure not only fiscal sustainability but also the continued viability of the FNPF in the longer term. 4. Improving service delivery and quality. The range of demands on finite public resources is wide and varied, and results in delivering essential services to Fijians are mixed. Education and health sector outcomes are mostly positive. The net enrolment rate for primary education is 97% (97% for females, 96% for males) as of 2011, and 84% for secondary education (88% for females, 80% for males). Free primary and secondary education were made available to all students in Fiji starting in 2014, alongside plans to establish schemes that will support children, the poor, and the elderly. The maternal mortality rate is lower than other Pacific economies, at 59 per 100,000 live births as of 2012, as is infant mortality, at 19 per 1,000 live births. As of 2012, 96% of the population have access to safe drinking water (almost 100% in urban areas, 92% in rural areas), and access to improved sanitation is relatively extensive at 87% (92% urban, 82% rural). However, other infrastructure indicators appear to be lagging. 5. Latest estimates show that only about 49% of Fiji s 11,000 kilometer road network is paved, and road density is quite low at 18.8 kilometers of road per 100 square kilometers of land. Recent projects to upgrade and rehabilitate Fiji s roads have improved conditions but have not expanded the network effectively. Extending the existing road network will expand access to basic government services, and open up more opportunities for market-based economic activities that can improve livelihoods in more remote rural areas. Climate proofing of roads to ensure all-weather access will also be essential. Limited access to key infrastructure has contributed to poor progress in reducing rural poverty rates, which increased from 40% in 2003 to 43.0% in 2009. Fiji Electricity Authority, an SOE, provides power generation, transmission, and distribution services. The lack of competition or proper regulation has resulted in inefficient and costly provision of electricity. According to the World Bank s Doing Business 2014 survey, it takes a business about 81 days to secure a connection to the power grid in Fiji, longer than in the Marshall Islands, Samoa, Tonga, and Papua New Guinea. 2 The cost of a permanent power connection is also high, at over 18 times per capita income. Further, rural electrification remains very low in the maritime islands. SOE reform, in the context of a broader structural reform program to enhance the business environment, will be an important channel through which provision of basic utilities and other infrastructure services can be improved. Civil service reform, with focus on performance management to raise public sector efficiency and productivity, will also be critical for improving service coverage and quality. 2. Government s Sector Strategy 6. The September 2014 elections returned a democratically elected government to Fij. Establishment of the Constitutional Offices Commission, which will include not only the Prime Minister and government nominees but also the leader of the opposition and an opposition nominee as members, is seen as a key foundation of effective checks and balances within the public sector. Reinstatement of the principles of representative democracy has begun to normalize the political and business environment in Fiji, and bilateral and multilateral development partners have demonstrated their willingness to reengage with Fiji. In addition to development of the new Constitution and electoral reforms, Fiji s Green Growth Framework 2 World Bank. 2013. Doing Business 2014: Understanding Regulations for Small and Medium Enterprises. Washington, DC.
Country Partnership Strategy: Fiji, 2014 2018 (approved by Cabinet on 29 July 2014, following an extensive consultation process) is a tool to accelerate integrated and inclusive sustainable development, strengthen environmental resilience, build social improvement and reduce poverty, support economic growth, and strengthen capacity to withstand and manage the adverse effects of climate change. 3 The framework is the first initiative of its kind for Fiji and must be seen as a living document that will be continually reviewed and updated. It is intended to support and complement the Peoples Charter for Change, Peace and Progress; and the 2010 2014 Roadmap for Democracy and Sustainable Socio-Economic Development; and to guide future national development planning. This framework is underpinned by sector plans, including a 20-year transport master plan and an urban development master plan (both due for finalization in 2014 with support from the Asian Development Bank [ADB]). 7. Fiji s annual national budgets incorporate a Medium-Term Fiscal Framework that includes 2-year forward targets for overall revenue, expenditure, fiscal balance, and public debt. However, projections of revenue and expenditure details are limited to the current budget year. Financial reports, including classification of the budget, are compliant with the International Monetary Fund s (IMF) Government Financial Statistics (GFS), which is international best practice; and the government works closely with the Pacific Islands Financial Technical Assistance Center and the IMF on capacity building for budgeting, accounting, macroeconomic, and GFS standards. 8. SOE reform has been under way in Fiji since 1996, when the Public Enterprise Act started off the reform process. A policy framework for SOE governance, management, and privatization was established in 2001, and a corporate governance framework was adopted in 2003. Achievements in SOE reform since 2010 include corporatizing the Water Authority and Fiji Roads Authority; privatizing Fiji Dairy; and merging Fiji Ships and Heavy Industry with Fiji Ports Corporation, among others. 4 In January 2014, the SOE ownership monitoring regime was rationalized by merging the Asset Management Unit of the Ministry of Finance with the Ministry of Public Enterprises. 9. By 2015, the newly elected government is expected to formulate a new national development plan outlining its medium-term development priorities and strategies, including public sector management. ADB s country partnership strategy must therefore be adaptable and flexible enough to adequately to requests for support in any new priority areas that may be identified. 3. ADB Sector Experience and Assistance Program 10. Despite limited direct engagement since the 2006 coup, ADB has supported improvements in public sector management in Fiji through regional technical assistance (TA) facilities, which has provided technical advisory support in the areas of economic management and private sector development. 11. Pacific Economic Management TA Phase I, designed to support Pacific developing member countries in the wake of the 2008 global economic crisis, fielded consultant missions to Fiji to advise on macroeconomic management, and build fiscal planning and policy-making 3 Government of Fiji. 2014. Green Growth Framework for Fiji. Suva. 4 ADB. 2014. Finding Balance 2014: Benchmarking the Performance of State-Owned Enterprises in Island Countries. Manila.
4 capacity. 5 This included the development and maintenance of a fiscal management model (FMM), a simple budgeting tool that can be used to assess the impacts of policy decisions and economic shocks on public resources. The Fiji FMM has been used by the Ministry of Finance to develop medium- to long-term fiscal projections that feed into annual national budgets. Phase I also supported ongoing efforts in Fiji to draft new legislation governing the oversight and management of the FNPF. Phase II of the Pacific Economic Management TA, approved in December 2013, aims to provide enhanced advisory services on public financial management, and will continue to promote use of the FMM as well as publish the biannual Pacific Economic Monitor. 6 In 2012 2013, stand-alone ADB TA involving SOEs was undertaken. 7 A coordinated and sequenced plan for reform implementation was prepared, which included good practice guidelines for reorganization, corporatization, increased commercialization, privatization, and outsourcing; and two SOEs were prepared for reform. 12. The Private Sector Development Initiative, cofinanced by ADB with the governments of Australia and New Zealand, focuses on enhancing the business environment through the development of financial markets and services; modernization of business laws; SOE reform; and the promotion of public private partnerships, competition policy, and the economic empowerment of women. 8 The initiative has also supported Fiji in SOE reform through Board of Directors training and community service obligations training. The initiative also conducts private sector assessments for Fiji, and Fiji participates in the initiative s SOE benchmarking exercises. 9 Moving forward, Fiji has requested further ADB support through the initiative on continuing SOE restructuring and public private partnerships. ADB will mainstream gender issues in all its programs by ensuring that all political, economic, and social decisions and actions are critically analyzed for their differentiated impact on women, men, girls, and boys; and remedying any impact that would perpetuate gender inequality. ADB recognizes that this analysis needs to be an integral dimension of the design, implementation, monitoring, and evaluation of policies and programs, to ensure that women, men, girls, and boys benefit equally. 5 ADB. 2009. Technical Assistance for Pacific Economic Management (Phase 1). Manila (TA7280-REG). 6 ADB. 2013. Technical Assistance for Pacific Economic Management (Phase 2). Manila(TA8565-REG). 7 ADB. 2012. Technical Assistance to the Republic of Fiji for Implementing Reforms of State-Owned Enterprises. Manila (TA8059-FIJ). 8 ADB. 2013. Technical Assistance for the Pacific Private Sector Development Initiative (Phase 3). Manila (TA8378- REG). 9 ADB. 2013. Re-invigorating Private Sector Investment: A Private Sector Assessment for Fiji. Manila.
5 Problem Tree for Public Sector Management Pressure on FNPF to finance fiscal deficits Buildup of public debt and contingent liabilities Low rural electrification rate High cost of electricity connection Limited road network, particularly in rural areas Low percentage of paved and climate - proofed roads Persistent fiscal imbalances Weak service delivery Inefficient mobilization and utilization ofpublic resources Large and inefficient SOE sector Unpredictable political and business environment Policy uncertainty Low transparency and accountability in policy making Lack of public consultation and participation in governance Economy performing below potential Weak private investment Limited access to development partner assistance Reduced linkages with economic partners FNPF = Fiji National Provident Fund, SOE = state-owned enterprise.
6 Outcomes with ADB contribution Sector Results Framework (Public Sector Management, 2014 2018) Country Sector Outcomes Country Sector Outputs ADB Sector Operations Indicators with Outputs with Indicators with Planned and Ongoing Targets and Baselines ADB Incremental Targets ADB Interventions Stronger fiscal discipline and improved delivery of public services At least one public private partnership approved by 2015. (Baseline 2 PPPs in 2014) At least one public enterprise sold by 2017. Baseline 29 SOEs in 2014) Contribution Greater efficiency in the mobilization and utilization of public resources Revenue as % of GDP increases to over 30% of GDP by 2018 (2013 baseline: 27% of GDP) Subsidies to SOEs reduced to below 10% of current expenditure by 2018 (2013 baseline: 13% of current expenditure) Fiscal deficit contained at 1% 2% of GDP through 2018 (2013 baseline: 2.8% of GDP) Planned key activity areas Policy dialogue with key government ministries, including the MOF, MPE, and MWTPU Pipeline projects with estimated amounts Public sector reform programs Ongoing projects with approved amounts Implementing reforms of SOEs ($0.5 million) Transport sector planning and management ($0.8 million) Urban development planning and institutional capacity building ($1.15 million) ESG: 33% GEM: 30% Main Outputs Expected from ADB Interventions Planned key activity areas Strengthened coordination between government ministries and development partners in addressing key issues in public sector management Pipeline projects Stronger fiscal discipline and improved service delivery through increased transparency and accountability, consultation, and participation in governance Ongoing projects Coordinated and sequenced SOE reform implementation plan Transport sector assessment and road map Urban management board established ADB = Asian Development Bank, GDP = gross domestic product, ESG = environmentally sustainable growth, GEM = gender euity and mainstreaming, MOF = Ministry of Finance, MPE = Ministry of Public Enterprises, MWTPU = Ministry of Works and Transport Planning Unit. Source: Asian Development Bank