This week, the World Bank released its October 2024 Pacific Economic Update, assessing the economies of 11 Pacific island countries (PICs) and highlighting the importance of investment in expanding the region’s economic prospects.
The report, titled “Diminishing Growth amid Global Uncertainty: Ramping up Investment in the Pacific,” indicated that overall growth in the Pacific has significantly decreased to 3.6 percent this year, a decline from 5.8 percent in 2023. This slowdown is attributed to the waning effects of the post-COVID recovery, particularly in Fiji, which represents over half of the economic output of the 11 PICs discussed, along with ongoing structural issues in the Solomon Islands.
Fiji’s economic growth is projected to slow to 3.1 percent, a sharp decrease from 8 percent in 2023, as activity stabilizes to pre-pandemic levels. However, a slight recovery is anticipated in 2025 in line with pre-pandemic trends. Following a temporary increase to an estimated 5.2 percent this year due to adjustments in VAT and other tax measures, inflation in Fiji is expected to decline toward the Reserve Bank of Fiji’s target of 3 percent by 2025.
The report stated that Fiji’s public debt, anticipated to be 79.4 percent of GDP in 2024, is among the highest in the region. While increased revenue is expected to shrink the fiscal deficit, debt levels are projected to sustain around 79 percent of GDP in the medium term, significantly higher than pre-COVID levels.
Key findings from the report include a significant easing of inflation across the region, with the median rate falling from 6.8 percent in 2023 to 4 percent in 2024. In Fiji, inflation is forecasted to average 3.6 percent in 2025-26 following a temporary increase.
The report also noted improvements in fiscal balances in several PICs, as COVID-19 support measures were phased out and tax revenues increased. While over two-thirds of PICs have seen a reduction in debt as a share of GDP, there remains a high risk of debt distress due to persistent disaster-related vulnerabilities.
Medium-term growth prospects for the region have declined from an average of 3.2 percent from 2000-2019 to 2.7 percent from 2020-2029, primarily due to rising natural disasters and weak investments. The report projected investment growth at only 1 percent annually for 2020-2029, falling short of the 4.2 percent average from 2010-2019.
To stimulate investment and address slow economic growth, the World Bank urged the need for targeted investments to create jobs, enhance infrastructure, and build resilience to climate change. The senior economist at the World Bank, Dana Vorisek, highlighted the importance of pursuing sustainable investment strategies in the Pacific amidst a global investment slowdown.
The October report offers six key recommendations for driving investment, including enabling investment in promising sectors, addressing infrastructure shortcomings, enhancing fiscal resilience against disasters, establishing supportive regulatory frameworks for private investment, improving financing availability, and securing global support for high-impact projects.
World Bank senior economist Ekaterine Vashakmadze remarked that although growth and investments are currently subdued, there is potential for acceleration, emphasizing the need for collective efforts and policy development among PICs to capitalize on emerging growth opportunities.