This week, the World Bank released its October 2024 Pacific Economic Update, which evaluates the economies of 11 Pacific island countries (PICs) and emphasizes the investment potential to expand the region’s economic prospects.
The report, titled “Diminishing Growth amid Global Uncertainty: Ramping up Investment in the Pacific,” indicates that economic growth in the Pacific has significantly declined to 3.6 percent this year, down from 5.8 percent in 2023. This slowdown is attributed to the waning effects of post-COVID recovery, particularly affecting Fiji, which contributes more than half of the output of the covered PICs, along with structural challenges faced by the Solomon Islands.
Fiji’s growth rate is anticipated to drop to 3.1 percent, a substantial decrease from 8 percent in 2023, as economic activity stabilizes to pre-pandemic levels, although a slight recovery is expected in 2025 in line with pre-pandemic trends. After a temporary rise to an estimated 5.2 percent this year due to VAT and tax adjustments, inflation in Fiji is projected to ease towards the Reserve Bank of Fiji’s target of 3 percent by 2025.
The report notes that Fiji’s public debt is at 79.4 percent of GDP in 2024, one of the highest in the region. Although increased revenue is expected to help reduce the fiscal deficit, the debt is projected to remain around 79 percent of GDP in the medium term, significantly higher than pre-COVID levels.
Other significant findings include a notable decline in inflation across the region, with the median rate falling from 6.8 percent in 2023 to 4 percent in 2024. In Fiji, inflation is expected to average 3.6 percent in 2025-26 after a brief spike this year due to tax changes. Additionally, fiscal balances as a share of GDP have improved in several PICs following the reduction of COVID-19 support measures and increased tax revenues, although the risk of debt distress persists due to ongoing disaster risks.
Medium-term growth prospects in the region have decreased from an annual average of 3.2 percent in 2000-2019 to 2.7 percent in 2020-2029, driven by the increasing frequency of natural disasters, climate change, and insufficient investment, which is projected to grow at just 1 percent annually from 2020-2029, compared to a 4.2 percent average between 2010-2019.
To address the region’s slowing growth, the World Bank emphasizes the need for a substantial increase in investment. The report outlines the importance of targeted investments to create jobs, enhance infrastructure, and build resilience against climate change amidst global uncertainties, all of which are vital for improving livelihoods in Pacific communities and bridging the income gap with wealthier nations.
World Bank senior economist Dana Vorisek highlighted that the Pacific needs to adopt strategies aimed at generating sustainable investment, noting that investment has been on a downward trend compared to previous years.
The report presents six key recommendations for driving investment and ensuring local communities benefit from economic growth, including enabling investment in high-potential sectors, addressing infrastructure deficiencies, building resilience against disasters, establishing supportive regulatory frameworks, improving financing availability, and securing international support for significant projects.
World Bank senior economist Ekaterine Vashakmadze acknowledged the slowdown in growth and investments but expressed optimism that projections suggest an uptick in the future. She emphasized the need for the Pacific region to collaboratively enhance growth opportunities through effective policies.