Sep 18, 2020 Last Updated 5:56 AM, Sep 18, 2020

A prominent Australian economist says it is “scary” to see COVID-19 put at risk so many of the gains Pacific island countries have made over the last decade.

Dr Jenny Gordon, the Chief Economist at the Australia Department of Foreign Affairs and Trade, says the Asian financial crisis “taught us in South East Asia that setting up good social protection infrastructure” is important so resources can get to the most needy when there is an emergency.

Gordon anticipates Pacific nations’ economic recovery will rely on the regaining of export markets, local stability and access to finance, and that post COVID economies may have a much greater focus on local production, subsistence agriculture and movement back to rural areas, and a strong investment in human capacity.  She describes a “recovery sequence” that starts with resource prices recovering first, “although it might be some time before we see a considerable rise in energy prices”, potential in agriculture and export of high-value agricultural products, continued return of  the Pacific labour market (including labour schemes in Australia) and then, the return of tourism.

“I suspect the recovery of international tourism is going to be very slow,” Gordon says. “We’ve got to think about the next four years. So in terms of the financing gap there’s not much point in just financing this year’s deficit for governments, we’ve got to actually got to think about how they are going to finance those deficit in [following] years and what the size of those deficits will be.”

Gordon says Australia—the largest development partner for many Pacific island nations— is asking questions about governments’ fiscal situation, what is essential expenditure, borrowing capacity from multilateral banks, other donors and domestic sources, social protection and how to maintain basic services.

“A lot of governments as part of their COVID-19 packages are going to forgive power bills and other types of bills but unfortunately that doesn’t help SOEs [State Owned Enterprises]  or private sector providers who are already struggling to pay the return on the capital that they have invested. So that’s quite challenging, how those SOEs will come out of this.” Gordon says there may be an opportunity to improve infrastructure quality and “put into pace some more robust user-pays systems.”

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Papua New Guinea’s Treasurer, Ian Ling-Stuckey says his country has not had “an economic crisis of such complexity or magnitude since World War 2.” Samoa’s finance minister Sili Epa Tuioti calls it a “social and economic tsunami.” The language being employed by institutions and governments in responding to the economic impact of COVID-19 stresses the historic moment we are living through.

The response of international organisations and donor partners to assist Pacific island economies has been swift, although details are still to be ironed out given the pace with which the pandemic is developing and morphing, and the pervasiveness of its impacts across the globe.

Central to that detail will be the form of that assistance; and whether it’s concessional loans, grants, debt forgiveness or a complex combination of all three and more.

What does the crisis mean for tourism, remittances, digital transformation and more? Get your copy of Islands Business to find out more.

 

Growth forecasts

 

2019

2020

2021

Dependencies

Stimulus package

           

ADB Pacific member countries

 

0.3

2.7

Fiscal stimulus measures across the region of at least 10% of GDP

 

Cook Islands

5.3

-2.2

1

Fiscal stimulus measures of approx. 50% of GDP

US$34.7m

Federated States of Micronesia

3

1.6

-3 (WB)

3

0.5 (WB)

Pension fund reform

New capital projects

US$15m

Fiji

 

-4.9

-4.3 (WB)

3 (ADB)

1.9 (WB)

Improved business and investment climate

Limit debt exposure

Climate resilient infrastructure

US$500 million

French Polynesia

       

US$280m

Kiribati

2.4

1.6

1.8

Well managed, sustainable trust funds

 

Marshall Islands

3.8

2.5

-3 (WB)

3.7

1 (WB)

Pension fund reform

Easing of restrictions on travel and transport

 

Nauru

1

0.4

1.1

Well managed, sustainable trust funds

 

Palau

-3

-4.5

-6 (WB)

1.2

0 (WB)

Pension fund reform

Tourism recovery

 

PNG

4.8

0.8

0.2 (WB)

2.8

3.3 (WB)

Good management of public debt

US$1.6billion

Samoa

3.5

-3

-5 (WB)

0.8

0 (WB)

 

US$23.6milloon

Solomon Islands

2.6

1.5

-6.7 (WB)

2.7

-0.3 (WB)

Large infrastructure projects provide some buffer

Reform of tax system

 

Tonga

3

0

0.5 (WB)

2.5

3.2 (WB)

Tourism recovery

Accelerated rehabilitation and recovery post TC Gita

US$25m

Tuvalu

4.1

2.7

3.2

Well managed, sustainable trust funds

 

Vanuatu

2.8

-1

-8 (WB)

2.5

6 (WB)

Benefits of labour mobility schemes are widespread, sustainable

 

Source: ADB Outlook 2020, World Bank, national governments

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