Public Sector Reforms Support Private Sector–Led Growth

Pacific Hub

Despite its location—in the middle of the South Pacific, where tropical storms germinate and volcanic and seismic activities often occur—Fiji enjoyed sustained economic growth in the 9 years before COVID-19. The country’s staunch government and its clear policy direction have steered the country to an average 3.7% growth per year from 2010 to 2018.

Fiji’s growth has been supported by favorable fiscal policies, including tax cuts, low interest rates, and increased public investment. However, this reliance on government spending may not be sustainable in the long run. The government has initiated efforts to improve the performance of state-owned enterprises (SOEs) as their productivity remained low and service delivery below expectations.

Private sector partners could fuel faster and more broad-based growth so long as the business environment was supportive. The country needed major policy and structural reforms to encourage private sector investment, ensure the government has enough resources to respond to disasters and emergencies, and sustain economic growth in the coming years.

Sound public financial management systems and processes provide the private sector with policy certainty and business confidence as well as more cost-effective public services.

In 2018, ADB responded to the Government of Fiji’s request for a series of programmatic “policy-based loans” to support the implementation of its medium-term reform program. ADB’s policy-based loans are designed “to provide more effective and flexible ways of translating complex objectives of structural reforms into implementable policy actions.” The loans would support the implementation of the government’s National Development Plan (NDP) 2017–2036, which envisions inclusive socioeconomic development by becoming a regional hub of the South Pacific for business, transport, communications, and other services.

The Government of Fiji is focused on substantive policy actions spread across three subprograms. Subprogram 1, approved in June 2018, helped the government shift from public spending toward greater private investment and private sector participation. The policy actions cover three reform areas: sound public financial management, stronger SOEs and opportunities for private investment, and an enhanced business environment.

Policy Actions and the Gender Agenda

In September 2019, ADB approved Subprogram 2 to pick up from where the first subprogram left off. Under Subprogram 2, Fiji embarked on policy actions that supported the creation of an environment where the private sector could develop and better drive national economic growth through investment. Cofinancing was provided by New Zealand and the World Bank.

A distinctive aspect of Subprogram 2 is the push for improvement in women’s access to services, opportunities, and decision-making in the three reform areas.

Improving public financial management

Sound public financial management systems and processes provide the private sector with policy certainty and business confidence as well as more cost-effective public services. Policy actions in this reform area revolved around developing public financial management frameworks, improving debt management, and updating financial management systems.

Major policy actions include the review of the Financial Management Act 2004 and the implementation of the Fiji Public Financial Management Improvement Programme 2016–2019. The Ministry of Women, Children, and Poverty Alleviation; Ministry of Health and Medical Services; and Ministry of Education, Heritage, and Arts are testing new planning frameworks to push the gender agenda and better align their service delivery, staffing, and corporate planning requirements. The Ministry of Economy has implemented the Debt Management Strategy for FY2019 and reviewed the current Financial Management Information System to determine its user-friendliness and appropriateness. Also, Subprogram 2 targets at least 75% of government payments to be made through digital platforms.

Strengthening state-owned enterprises

While Fiji’s SOEs have performed better in the past few years, productivity remains low. Subprogram 2 policy actions involved SOE divestment, outsourcing, and public–private partnerships (PPPs) to increase private sector investment, innovation, and expertise.

Parliament passed the Public Enterprises Bill 2019—validated by the Parliament Standing Committee on Justice, Law, and Human Rights—for review and consultation, including gender analysis. The act establishes a clear framework to strengthen SOE governance, transparency, and accountability as well as improve performance and service delivery. A new fiscal risk assessment framework was approved for use by the Ministry of Economy, and the Cabinet approved a new policy framework for government guarantees for SOEs’ financial liabilities. The PPP policy (approved under Subprogram 1) has come into force, and the government has appointed the International Finance Corporation as a transaction advisor to develop a PPP for affordable and climate-resilient housing.

Creating a better business environment

Subprogram 2 policy actions sought to boost foreign direct investment, improve access to finance, and improve ways of doing business for the private sector to create a more conducive business and investment environment.

The International Arbitration Act of 2017 has come into force to boost investor confidence. Fiji had also completed its commitments to the World Trade Organization Trade Facilitation Agreement. The Ministry of Industry, Trade, and Tourism consulted stakeholders on a draft investment bill. Regulations under the Personal Property Securities Act would enable lenders to accept movable assets as security for loans (as opposed to fixed assets, such as land, that women are less likely to possess). These will improve women’s economic empowerment and access to finance and particularly benefit women-owned businesses.

The government has also circulated draft bills to enhance the legal framework for trademarks, designs, and patents for stakeholder comments, and consultations have been held regarding the review of the Fijian Competition and Consumer Commission Act 2010. Both of these are fundamental for private sector development and entrepreneurship. One new and distinctive policy action under Subprogram 2 seeks to make it easier for mothers to enter and remain in the paid workforce.

Results So Far

Subprogram 2 has delivered promising results so far, including more efficient recruitment methods and merit-based appointments for SOE directors, leading to women’s increased representation on SOE boards. Female directors have nearly doubled, from 8.4% in 2017 to 16.4% in 2018.

Under Fiji’s Employment Relations Act 2007, new provisions were enacted, increasing paid maternity leave from 84 to 98 days and introducing paternity leave and family care leave. In promoting PPP, the government completed two transactions between March 2018 and May 2019, with a concession agreement signed for the upgrade and operation of the Lautoka and Ba hospitals and the sale of the Government Printing and Stationery Department.

In 2020, ADB approved Subprogram 3 with stronger policy reforms aiming for a transformational impact on gender equality through inclusive private sector–led growth, increased access to quality services for women and girls, and support for women’s economic empowerment during and following the COVID-19 crisis. ADB’s support to Fiji Airways in facing the financial impact of the pandemic (see related story) complements the government’s efforts in all three subprograms. It is a step forward to private sector–led growth in Fiji.