Page 15 - IB January 2024

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unprecedented global temperatures through 2024, with a during the pandemic, says Malik, through increased public
chance that this El Niño could even surpass previous record spending in areas that are essential for building resilience
events. to future shocks. However, with high fiscal spending since
According to Malik, supply constraints, the high cost of the pandemic and the cost-of-living crisis, governments are
local food production, and high transportation costs have now faced with difficult fiscal positions and rising debt. He
contributed to high food prices in the Pacific. Increased says they will need to raise extra resources through domestic
electricity and transport costs have also contributed to rising resource mobilisation or find new funding sources, to address
costs of living for people in the region. pressing development concerns.
Agencies such as ESCAP also point to new troubles on the
horizon – economic difficulties in Australia and New Zealand, Debt
whose growth prospects are vital to the economies of South Pacific Network on Globalisation Coordinator, Maureen
Pacific islands as the key source markets for tourists, as well Penjueli, says debt has become a dominant feature that
as for seasonal employment and remittance incomes. threatens to reverse the region’s development gains.
Since borders reopened in 2022, the return of tourists from “As a result, it is shaping the economic landscape in ways
Australia and New Zealand at close-to or exceeding pre- that could undermine the region’s ability to be economically
pandemic levels in many Pacific Island countries, particularly self-determining. Debt servicing in the immediate and
Fiji, Samoa, Cook Islands and Tonga, has been instrumental in medium term will be critical as the global economy slows
those countries’ economic recovery. down with increased government dependency on remittances
and natural resource extraction,” says Penjueli in PANG’s 2023
annual report.
In August, the Australian government issued a stark forecast
that public debt in the Pacific was expected to almost double
by 2025 compared with 2019, with the cost of interest
“Security deals are just a part of a possibly wider suite
of militarisation/securitisation ‘engagements’ in the repayments eroding frontline services.
Pacific.” “The increase in the debt servicing burden will exacerbate
challenges and impact critical health, education and social
- Jope Tarai.
services,” warned the Australian government in its first
update of its international development policy in a decade.
The debt burden has been central to meetings of Finance
ministers and Pacific leaders in recent years. At a high-level
Dialogue on Financing for Development at the United Nations
However, Malik says economic growth has weakened in in September, Palau’s President, Surangel Whipps Jr. said the
Australia and New Zealand, “as evident from declines in vulnerability of Pacific Small Island Developing States (PSIDS)
consumption, investments, and net exports, and a clear to natural disasters and dependence on a narrow resource
technical recession registered by New Zealand in the third base meant that most of them were regularly assessed to be
quarter of 2023. Despite inflation peaking in these economies, at a high risk of public debt distress.
interest rates remain elevated and are dampening domestic “The pandemic has further strained resources, and
demand. Elevated inflation, higher interest rates and weak increased debt levels. Yet, our transition to affordable and
external demand are key risks to these countries’ near-term
outlook.”
This could see travel from these markets decline as people
spend less on travel, according to Malik, deferring full
recovery of the region’s tourism sector, which contributes
more than 20% of GDP in several Pacific Island economies.
Despite the worries, year-end (2023) statistics emerging “Elevated inflation, higher interest rates and weak
from Fiji, which led the region’s post-pandemic economic external demand are key risks to Australia and New
Zeraland’s near-term outlook.”
recovery in 2022 on the back of tourism, showed overall
visitor arrival numbers (846,920) at 3% above 2019. Forward - Hamza Malik, ESCAP’s Director of Macroeconomic
Policy and Financing for Development
bookings indicate this trend is set to continue into 2024.
Malik says there will be several other challenges going
forward for tourism across the region.
“Since the pandemic, certain tourism facilities remain in
shortage due to difficulty in reinvestment, damage through resilient green energy and basic infrastructure, is hindered
natural disasters, and labour constraints, which could be by our lack of access to predictable, concessional financing.
factors holding back further tourism recovery.” A primary reason is concessional financing’s reliance on
From a medium to longer term perspective, economies GDP/GNI per capita as the basis for allocating funds. This is
should be restoring development gains that were derailed worsened by lack of generous debt relief and the graduation

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