The Asian Development Bank expects Pacific Island economies to return to positive growth this year, although at different rates, and with a great deal riding on successful vaccine roll-outs.
Pacific economies contracted by an estimated 5.8% last year due to the effect of the coronavirus pandemic on tourism and trade flows, and construction activity. The region's economies are forecast to recovery to 1.4% this year, and 3.8% in 2022, although this is “contingent on improvements in tourism numbers, commencement of delayed construction projects, and resumption of labor mobility and cross-border trade,” according to the ADB.
ADB Director General for the Pacific, Leah Gutierrez says the start of vaccine rollout in many Pacific Island nations bodes well for a level of economic recovery. “However, risks to the recovery remain, particularly in tourism-oriented economies that are feeling the heaviest impacts of the pandemic crisis,” Gutierrez says.
Specific forecasts for Pacific Island nations as per the ADB’s latest outlook report are as follows:
Cook Islands: GDP is expected to fall by more than a quarter (26%) in 2021, before recovering to growth of 6% in 2022.
Federated States of Micronesia: GDP contraction of 1.8% in 2021, 2% growth in 2022.
Fiji: 2% growth in 2021, 7.3% growth in 2022 following an “unprecedented 19% contraction last year”. The ADB says it make take some years for the economy to return to its pre-pandemic levels.
Kiribati: Small contraction of 0.2% this year, 2.3% growth next year.
Marshall Islands: Negative growth of 1.4% in 2021, 2.5% growth in 2022.
Nauru: GDP growth of 1.5%, 1% in 2022 with the impending closure of the Regional Processing Centre.
Palau: Decline of 7.8% this year, growth of 10.4% next year.
Papua New Guinea: Moderate 2.5% growth in 2021, 3% in 2022, although the recent surge in cases threatens prospects for economic recovery.
Samoa: GDP down 9.2% in 2021, recovering to 3.1% in 2022 once full vaccine coverage is achieved.
Solomon Islands: 1% growth this year, 4.5% in 2022 as fishing and construction rebound.
Tonga: a 5.3% contraction exacerbated by Tropical Cyclone Harold in 2021, 1.8% growth in 2022.
Tuvalu: 2.5% growth in 2021, 2% next year.
Vanuatu: 2% growth in 2021 and 4% in 2022, but this is dependent on a successful vaccination rollout and establishment of travel bubbles.
Economic growth expectations for the Pacific have been downgraded to decline by 6.1% for 2020.
The Asian Development Bank had originally forecast a 4.3% decline in July of this year.
“Vaccine procurement and distribution, safe travel arrangements, and continuing to strengthen health and social protection systems will all be key to ensuring the region’s recovery is sustainable,” said ADB Director General for the Pacific Leah Gutierrez.
For now the ADB is projecting growth of 1.3% for the region next year, but its Pacific Economic Monitor released today states that depends on early lifting of trael and trade restrictions.
The ADB predicts Papua New Guinea’s economy will contract by 2.9% in Papua New Guinea, with low growth of 2.5% in 2021.
In Fiji, the economy is projected to contract by 19.8%, and recover by 1% next year, if the country opens up to tourists in the second half of 2021.
For the Cook Islands, the ADB expects GDP to contract by 15.4% next year, even with a resumption of tourism.
The ADB says fiscal pressures seem to be mounting in Vanuatu, and that expanding seasonal worker schemes would “substantially allevaiate economic pressures” for Samoa and Tonga.
It states targeted efforts are needed to improve fiscal buffers and collected revenue in Solomon Islands, and that the Federated States of Micronesia and the Marshall Islands have been more affected by the socioeconomic impacts of the pandemic than initial estimates. “Measures to safeguard public health, provide training and education, and protect the vulnerable will help those countries avoid the spread of the disease and lay the foundations for a strong and sustainable economic recovery.”
For Kiribati and Tuvalu, the ADB says more information on vulnerable groups would help better targeting of social assistance measures.
The full report can be viewed at https://www.adb.org/publications/series/pacific-economic-monitor
The Asian Development Bank has announced a series of grants to Pacific nations. US$13.3million has been made available to 10 nations—Cook Islands, Kiribati, Marshall Islands, Federated States of Micronesia, Palau, Papua New Guinea, Samoa, Solomon Islands, Tuvalu and Vanuatu—to help finance their COVID-19 responses. This is the latest round of ADB emergency grans for the Pacific. In April, the ADB provided $2 million from the fund to help FSM, Marhsall Islands, Nauru, Tonga and Tuvalu respond to COVID-19.
Separately, the ADB has approved a $20 million loan to Palau to help it provide for COVID-19 and respond to its impact on the economy. An ADB statement says the loan will finance the purchase of ventilators for Belau National Hospital, establish a COVID-19 hotline for public inquiries, and fund overtime and hazard pay for frontline health workers. It will also support Palau’s government to provide concessional loans to local businesses; benefits for the unemployed and assistance finding temporary work in areas such as tourism, the environment, and elderly care; support for free pre-school and childcare for lower income families; and subsidies for utilities such as electricity and water. Palau received a $15 million policy-based loan from the ADB in April.
The ADB has also approved a separate $20 million grant for Samoa to upgrade isolation rooms in hospitals, strengthen quarantine areas, and procure medical supplies. It will help train frontline workers to prevent infections and support the payment of unemployment benefits, cash transfers, and higher pensions for the elderly. The hospitality industry will receive support through lower electricity tariffs and deferred contributions to the Samoa National Provident Fund. Several measures will target support for women, such as grants for village women’s committees to promote rural health and sanitation practices.
Fiji is looking at a potential loss of F$1.4 billion (US$608 million) in tourism earnings as global travel grinds to a halt by the ongoing coronavirus pandemic.
This is according to a recent assessment by the ANZ Bank on the pandemic's impact on major tourist destinations in the Pacific - Fiji, Cook Islands, Samoa and Tonga, four economies that rely heavily on tourism.
"Fiji now stands to lose nearly 602k visitors by air this year (-67% y/y). This translates into a FJD1.4bn (US$566m) loss in tourism receipts which will subtract 12ppt from nominal GDP. Vanuatu’s economy is expected to decline (-13.5%), as are Samoa (-18.7%), Cook Islands (-60.4%) and Tonga (-7.9%)," ANZ's economists wrote in the bank's Pacific Perspective report dated March 25, 2020.
Based upon a likely scenario that zero tourists will come to their shores at least for the next three months, these countries are in for huge shocks.
"Fiji’s tourism earnings totalled FJD2bn (17.2% of GDP) in 2019, Samoa received SAT528m (23%), Vanuatu VUV21bn (19.3%), Cook Islands NZD384m (73.3%) and Tonga TOP135m (10.4%).
We now predict nearly 602k visitors won’t be coming to Fiji this year. For Vanuatu, Cook Islands, Samoa and Tonga, we estimate visitor arrivals could decline -84.2k, -141.1k, -146.9k and -34.3k, respectively, in 2020. Our analysis revealed that Fiji stands to lose FJD1.4bn in tourism exports and FJD3.8bn in gross output. This will subtract 12ppt from nominal GDP. Vanuatu’s economy is expected to decline (-13.5%), as will Samoa (-18.7%), Cook Islands (-60.4%) and Tonga (-7.9%)."
Huge job losses are also expected, with Fiji potentially looking at a casualty swathe of 75,000 jobless or 75% of total workforce.
Vanuatu and Samoa may lose 21,000 and 7,000 jobs respectively.
The report further advised that the economic fallout of the pandemic can be minimised via "decisive, targeted, right-sized and timely fiscal and monetary stimuli."
"Governments are likely to need a fiscal stimulus of at least 10% of GDP, although the Cook Islands will need something closer to 50%," it said.
"With the stimulus spend, GDP and employment contraction can be limited to the -2% to -3% range, as opposed to double-digit declines without the additional support. Monetary stimulus, in the form of cheap central bank loans to businesses willing to undertake capex, could also be explored."
As countries all over the world attempt to keep their economies afloat via mostly debt-funded relief packages, the four Pacific economies are advised to first tap locally for financing options before looking to multilateral donors.
"We believe governments have some headroom to borrow more from the domestic market. Superfunds could absorb some of the government security issuances, and shortfalls can be underwritten by the central bank," the report's authors wrote.
With thousands already out of work across the Pacific as a result of the pandemic, the bank has joined others is offering respite to affected customers.
Yesterday, it announced loan repayment deferral for up to six months for its Fiji customers after it received 1,100 requests for hardship assistance in one week alone.
"This is going to significantly help Fijian people and the broader economy to manage over the long term through the pandemic,” said ANZ Fiji Country Head Saud Minam.
"ANZ received more than 1100 requests for hardship assistance in the first week since the Fijian Government announcement. We’ve already contacted more than 270 of these applications and will increase our contact with customers this week.”
ANZ operates in 11 Pacific countries: Fiji, Samoa, Vanuatu, Tonga, Cook Islands, Kiribati, Solomon Islands, Timor Leste, Papua New Guinea, Guam and American Samoa.
Fiji's loan request of US$200million (F$460m) from the Asian Development Bank (ADB) "will be considered by ADB’s Board of Directors in the coming months," according to a statement from the ADB this week.
As detailed in the Fiji government's revised 2019/2020 Budget last month, half of the requested loan is to go towards the refinancing of Fiji's global bond, due for settlement in October this year, while the other half is earmarked for our response to the coronavirus pandemic.
Of the ADB's 14 member countries in the Pacific region, Fiji is expected to experience the "steepest decline" from the pandemic's economic fallout, according the ADB's Outlook 2020, released this week.
ADB President Masatsugu Asakawa and Fiji's Attorney-General and Minister for Economy Aiyaz Sayed-Khaiyum recently discussed how the Bank may be able to assist Fiji.
“Developing economies will be hardest hit by the coronavirus-driven collapse of the world economy. This crisis demands an unprecedented multilateral response–and we’re encouraged by ADB’s willingness to support Fiji in responding to and recovering from this pandemic,” Sayed-Khaiyum said.
Fiji's economy, he said, was already feeling the shocks of the pandemic's impact on major international source markets for trade, manufacturing, tourism, and the aviation industry.
The ADB said Fiji's US$200m policy-based loan was part of subprogram 3 of the ongoing ADB-supported Sustained Private Sector-Led Growth Reform Program and that the request would be considered by its board over the coming months.
"ADB is committed to helping Fiji combat the impact of this damaging pandemic,” Asakawa said. “We will consider all options, including policy-based lending, that can be approved and disbursed in a timely manner.”
The Fiji government had revealed in last month's COVID-19 Response Budget how the money would be used.
"Government is refinancing the US$200 million global bond in October 2020 with policy based loans from the Asian Development Bank (ADB) and the World Bank. Government has completed a series of sub-programmes as part of the entire policy-based reform programme and has secured US$65 million from ADB and US$35 million from World Bank.
Government is currently in the advanced stages of the final sub-programme which will result in an additional loan financing of US$200 million by ADB towards global bond refinancing (US$100 million) and budget support for COVID-19 (US$100 million). The implementation of reforms under the sub-programmes have been further supported by Australia and New Zealand in the form of grants and technical assistance," it said.