Fiji risks defaulting on bonds

Fiji is in danger of defaulting next year on US$150 million ($207 million) of bonds accounting for more than half its foreign debt, one of the country's leading economists warns.

The warning has not been published in Fiji where all media are subject to censorship by its military rulers.

Writing in the Pacific Economic Bulletin, Professor Biman Prasad of the University of the South Pacific said Fiji had a five year sovereign bond maturing next September requiring a single payment of more than US$150 million.

The bonds, carrying an annual fixed rate of 6.875 percent, are held by mainly Asian institutions and account for 56 per cent of Fiji's total external debt.

''This repayment is likely to put a serious strain on the government's ability to service debt and run an appropriate expenditure policy,'' Professor Prasad wrote.

He said the International Monetary Fund was already pressuring Fiji to reduce its capital expenditure.

''Assuming that the IMF does not come to Fiji's rescue, there is always a possibility of Fiji defaulting,'' he said.

''This could create further instability among domestic purchasers of government bonds and treasury bills.''
Paying the bond would reduce foreign reserves for Fiji.

''This could create a foreign reserves crisis. This would be followed by a money supply contraction, a rise in domestic interest rates and, in effect, reduced domestic lending.''

He said the government could consider borrowing domestically from the state controlled Fiji National Provident Fund (FNPF) which already holds 80 per cent of long-term government bonds and 48 per cent of short-term treasury bills.

FNPF was this year forced to write down FJ$327 million ($232 million), an amount greater than its annual member's contribution, partly as a result of the collapse of finance company Bridgecorp.

FNPF had partnered with Bridgecorp on a failed and now rotting ghost resort at Momi Bay.

''Meeting the  payment could mean that the government will have to cut public expenditure and this is likely to come mainly from cutting capital expenditure,'' Professor Prasad said.

Since independence in 1970 Fiji has suffered four coups and remains under military rule since the 2006 coup of Commodore Voreqe Bainimarama.

Professor Prasad said since 2006 Fiji has gone into economic decline.

''The one thing that our leaders and those who have supported the coups since 1987 have failed to realise is how much damage they have done to the social, economic and political fabric of the country.''

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