EU blacklists Fiji
30 March, 2019, 10:44 am
FOR the first time in history, Fiji has been blacklisted by the European Union (EU).
In the eyes of the world, Fiji is slipping badly in the critical area of good governance.
Our international reputation is plummeting. The blacklisting comes in the wake of two adverse events.
The first is the sharp drop in Fiji’s ranking in the World Bank’s “Ease of Doing Business” index, and the second is the damaging IMF assessment of the Fiji economy.
These are not coincidences.
In my view, they are the results of Fiji not meeting the standards of good governance and making short-term populist decisions.
Someone will have to pay for these decisions, and that someone is us, the people.
The chickens are coming home to roost.
We are beginning to pay the price for many years of poor governance and irresponsible economic management.
The EU is not specific on why Fiji has been blacklisted.
But to be placed on the list basically means that Fiji does not meet the minimum standards on tax rules, disclosures and accountability.
Many countries in the EU blacklist operate offshore financial centers which offer tax havens to offshore companies.
As far as I know, Fiji is not an offshore financial centre.
I recall going to the Caribbean to study the benefits and risks of offshore centres after which I recommended that we do not go down this path. In my assessment, the reputational risks are too high while the economic benefits are uncertain.
If Fiji is not an offshore financial centre, why have we been blacklisted? I believe it is the poor governance of tax laws and their discriminatory applications that have placed Fiji on the list.
The blacklisting by the EU and the IMF report are related through the common issue of good governance.
The IMF Report on Fiji states that, “Governance would be improved by enhancing fiscal transparency and strengthening the rule of law”. I will discuss fiscal transparency in the last article of this series. The report went on to say that the rule of law can be improved by upgrading the investment regime in line with international best practices.
What I think this means is that the tax treatment and investment approval procedures do not follow the legislation and procedures.
This is the result of the government’s heavy-handed intervention in investment approvals and tax exemptions to the rich corporates some of which are from offshore. We can see evidences of this in the willful destruction of our environment by foreign investors.
The IMF report went on to say that “Available evidence based on indicators and qualitative reports, points to governance and corruption vulnerabilities, notably in fiscal governance, rule of law, the regulatory framework, financial sector oversight and Anti Money Laundering”.
The IMF is saying that likelihood of corruption in Fiji is very high. These are very revealing statements by the IMF on our state of governance.
It is damaging. It sheds light on why Fiji has been blacklisted by the EU.
Over the past decade, the international communities have been fighting to dismantle tax havens and the black list is an instrument that the EU has used to force financial and taxation reforms around the globe.
Before being blacklisted, Fiji has been on the EU’s watch list for some time. But the government did nothing to avoid being blacklisted.
Tax havens reward the rich and penalises the poor.
Unfortunately, this is happening in Fiji.
About 30 per cent of the population live in poverty. The rich companies are paying less taxes.
The e-ticket is a classic example of the poor being penalised.
The cost of living is escalating.
The rich are getting richer and the poor poorer.
These are the economic impacts of bad governance. The poor pay.
Backlisting is not a trivial matter as the government would like us to believe.
The blacklist is serious for the following reasons:
- The EU is one of the biggest donors in the region. Fiji’s access to substantial grants from the EU may be made conditional to the taxation reforms. We stand to lose millions of grants because of the backlist.
- The EU may impose sanctions.
- The blacklist harms our international reputation which will make our access to other sources of international finance more difficult. It will slow down capital inflows to Fiji which we need to support our foreign reserves.
- High valued foreign investors will be wary of dealing with a country on the blacklist. The discriminatory application of the laws will make them extremely nervous. They will take their money elsewhere. Investment may slow down when, according to the IMF, we need to raise it to over 20 per cent of GDP.
- Private investment will not rise from the current level of 7 per cent of GDP to become the locomotive of growth as the IMF wanted. Our growth foundation will therefore remain weak. To continue to grow, government will have to continue to spend when the IMF has warned government
to reduce spending.
- Our foreign reserves which are already nosediving will come under more pressure. With our resource-based exports stagnant at best, and oil prices rising, our balance of payments is clearly under immense threat.
Rather than trivialise the backlist, it is in the people’s interest that government does all that is necessary to get Fiji off the list as soon as possible.
Parliament should demand an action plan to get Fiji off the list.
You may have noted that the IMF is most concerned about our foreign reserves because we depend a lot on imports.
Foreign reserves are the Achilles heel of a small open economy with a fixed exchange rate regime.
I will explain in the next article why the IMF sees this as the urgent threat to our economic livelihood in Fiji and what actions do we need to take to reverse the trend.
- Savenaca Narube is the former Governor of the Reserve Bank of Fiji. The views expressed are the author’s and not of this newspaper