This week, the World Bank released its October 2024 Pacific Economic Update, assessing the economies of 11 Pacific island countries (PICs) and emphasizing the potential for investment to enhance 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 region has decreased to 3.6 percent this year, down from 5.8 percent in 2023. This decline is attributed to the waning effects of the post-COVID recovery, especially in Fiji, which contributes over half of the collective output of the 11 PICs, and to structural difficulties in the Solomon Islands.
Fiji’s growth is projected to slow down to 3.1 percent from a previous 8 percent in 2023, as economic activities revert to pre-pandemic levels. However, a slight recovery is expected in 2025, aligning with historical trends.
For Fiji, inflation, which surged due to VAT and other tax adjustments, is anticipated to moderate towards the Reserve Bank of Fiji’s target of 3 percent by 2025. The report also highlights that Fiji’s public debt is expected to reach 79.4 percent of GDP in 2024, among the highest in the region. While increased revenues may help reduce the fiscal deficit, debt levels are anticipated to remain significantly higher than pre-COVID levels.
Key findings from the report include a considerable 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 expected to average 3.6 percent in 2025-26 following a temporary spike.
Fiscal balances have improved in several PICs as COVID-19 support measures diminish and tax revenues rise. Public debt as a percentage of GDP has decreased in more than two-thirds of PICs since 2022, although the risk of debt distress persists due to ongoing disaster threats.
The report also notes a decline in the region’s medium-term growth projections, from an average of 3.2 percent in 2000-2019 to 2.7 percent for 2020-2029, driven by climate change, natural disasters, and weak investments. Investment growth is predicted to be only 1 percent annually between 2020 and 2029, well behind the 4.2 percent average from 2010-19.
To combat slowing economic growth, the World Bank emphasizes the urgent need for significant investment. The report outlines that targeted investment is critical in creating jobs, enhancing infrastructure, and building resilience to climate change amidst global uncertainties. These measures are essential for improving the living standards of Pacific communities and narrowing the economic disparity with high-income nations.
World Bank senior economist Dana Vorisek highlighted the need for the Pacific to adopt strategies focused on fostering sustainable investments, noting the general slowdown in investments in emerging markets, including the Pacific.
The report provides six key recommendations aimed at stimulating investment and ensuring local communities benefit economically. These include promoting investments in high-potential sectors, addressing infrastructure shortcomings, enhancing disaster resilience, creating a supportive regulatory framework for private investment, improving financing availability, and securing global support for impactful projects.
Despite the slowdown in growth and investments, World Bank senior economist Ekaterine Vashakmadze expressed optimism that projections point towards future acceleration in these areas. She stressed the importance of collaborative efforts for PICs to capitalize on growth opportunities.