The interim minister for finance announced the theme of his 2007 ‘revised’ budget as ‘securing financial and economic stability’. While the minister did not define what he meant by these two terms, the first is interpreted as achieving fiscal sustainability, while the latter is interpreted as achieving internal and external balance. Priority was given to the former in the budget.

Securing financial stability entails reducing expenditure, raising income, and/or improving productivity of public outlays in order to contain any deterioration in access to public services. The minister warned that failing to contain the deficit would result in a devaluation of the Fiji dollar. While budget deficits and current account deficits have a close association, linking fiscal policy to the value of the Fiji dollar may have been a mistake, particularly when the risk of capital flight following the coup remains significant. The government achieved its deficit target in 2007 but this will be no guarantee against a devaluation of the currency. Ultimately, current account sustainability will hold sway in determining the value of the currency. The decision to devalue the currency will be driven by considerations of ensuring external balance.

Savings in the revised budget were achieved through a salary cut of 5 per cent for public servants. While this salary cut was lower than the 12.5 per cent and 15 per cent pay cuts following the coups of 2000 and 1987, respectively, public servants were also denied the 4 per cent cost of living adjustment previously agreed to with the ousted government. Total savings from this measure were estimated at F$70 million. Amongst the major revenue initiatives was an increase in the airport departure tax from F$25 to F$40; this was anticipated to raise an additional F$7.88 million. VAT was left at 12.5 per cent instead of being raised to the 15 per cent foreshadowed in the original budget brought down by the ousted government in November 2006. Government debt as of 2006 was estimated at 53 per cent of GDP.

While the motivations for containing public expenditure are clear, the impact of these initiatives on public sector productivity could be devastating. Salaries of public servants have barely kept pace with inflation since 1993.^[12] Nurses with a diploma entering the public service at the beginning of 2007 earned 22 per cent more (in 1993 dollars) than they did in 1993 – an implied annual growth rate in their real (that is, inflation-adjusted) salary of 1.4 per cent. Nursing salaries, moreover, have hardly kept pace with inflation for the first six years of the new millennium. Compounding the low real income growth has been the high demand for nurses abroad; entry level salaries for registered nurses in Western Australia as of July 2006, for example, were some four times that of their counterparts in Fiji. These situations are expected to hold for the rest of the public service. Salary cuts for public servants, therefore, are likely to adversely affect productivity – and lower productivity could be a justification for real wage reductions.

Efforts are being made to raise productivity within the public sector. For example, the number of ministries was reduced from 23 to 16, and a taskforce was established to consider strategies for improving efficiency and productivity of the public service.