This week, the World Bank released its October 2024 Pacific Economic Update, which assesses the economies of 11 Pacific island countries (PICs) and highlights the potential of investment to expand the region’s economic prospects.
Titled “Diminishing Growth amid Global Uncertainty: Ramping up Investment in the Pacific,” the report reveals that growth in the Pacific has notably declined to 3.6 percent this year, down from 5.8 percent in 2023. This slowdown is attributed to the waning effects of the post-COVID recovery, especially in Fiji, which contributes over half of the total output of the 11 PICs, and due to structural issues in the Solomon Islands.
The report forecasts that Fiji’s growth will slow to 3.1 percent, a significant drop from 8 percent in 2023, as economic activities return to pre-pandemic levels. Nonetheless, a slight recovery is anticipated in 2025, aligning with trends observed before the pandemic.
In terms of inflation, Fiji is expected to reach an estimated 5.2 percent this year, influenced by adjustments in VAT and other taxes. However, inflation is projected to return closer to the Reserve Bank of Fiji’s target of 3 percent by 2025.
Fiji’s public debt is projected at 79.4 percent of GDP in 2024, one of the highest in the region. Though increased revenue is expected to help reduce the fiscal deficit, national debt is predicted to remain around 79 percent of GDP in the medium term, approximately 27 percent above pre-COVID levels.
Other notable findings include a significant reduction in inflation across the region, with the median rate falling from 6.8 percent in 2023 to 4 percent in 2024. Despite a temporary spike due to tax adjustments, inflation in Fiji is expected to average 3.6 percent in 2025-26, although the cost of essential goods remains high due to previously elevated inflation rates.
The fiscal balance as a percentage of GDP has improved in several PICs as COVID-19 support measures have been phased out and tax revenues have increased. While public debt as a share of GDP has decreased in many PICs since 2022, the risk of debt distress remains significant, driven by ongoing disaster risks.
The report indicates that medium-term growth prospects in the region have dropped from an annual average of 3.2 percent from 2000 to 2019 to 2.7 percent for 2020 to 2029, largely due to the increased frequency of natural disasters, the impact of climate change, and weak investment levels. Investment growth is projected to be just 1 percent annually from 2020 to 2029, far below the 4.2 percent average seen from 2010 to 2019.
To counteract the decline in growth, the World Bank stresses the urgent need for enhanced investment strategies to create jobs, improve infrastructure, and build climate resilience. World Bank senior economist Dana Vorisek highlighted a concerning trend of fluctuating investments in the Pacific, which mirrors patterns seen in other emerging markets.
The report outlines six key recommendations designed to increase investment and ensure local communities benefit from economic growth:
1. Enable investment in high-potential sectors by modernizing agriculture, advancing the blue economy, diversifying tourism, and promoting sustainable commodity production.
2. Address critical infrastructure deficiencies by improving road connectivity and upgrading port and airport facilities to facilitate trade.
3. Build resilience against disasters by investing in climate-resilient infrastructure and improving revenue management for effective budgeting.
4. Establish a supportive regulatory framework to attract private investment by enhancing transparency and reducing bureaucratic hurdles.
5. Improve the availability of financing and insurance products to support major investment projects and disaster recovery efforts.
6. Seek global support by collaborating with international financial institutions and regional partners for knowledge sharing and investment strategies.
Despite the current slowdown, World Bank senior economist Ekaterine Vashakmadze believes there is potential for acceleration in growth and investment in the Pacific, emphasizing the need for coordinated efforts and policies to seize growth opportunities.