Pacific Islanders have a long history of exploration, having first navigated their way across the ocean in canoes over 5,000 years ago. This spirit of travel continues, as evidenced by the fact that approximately 47,807 Islanders traveled to New Zealand or Australia for work in 2022-2023, participating in various labor mobility programs such as the Pacific Labour Mobility (PALM) scheme and the Pacific Engagement Visa (PEV). This number marks a notable increase compared to previous years.
The economies of Pacific Island nations significantly benefit from remittances sent back home. Seven of the top ten countries receiving remittances relative to their gross domestic product (GDP) are located in the Pacific region. Rather than being a burden, these remittances are crucial in helping maintain sustainable levels of national debt.
If Pacific Island nations engage in negotiations with key trade partners like Australia, New Zealand, and China to enable the movement of skilled workers, they could gain enhanced skills, increased income, and better government revenue. Over the past three years, the global debt has escalated, driven by efforts to support economies during the Covid-19 pandemic. The surge in global debt accumulation has outpaced rates seen during the early stages of both the Great Depression and the Global Financial Crisis of 2007/2008. Since the pandemic, global debt levels have remained high, creating significant hurdles for economic recovery and fiscal health.
Currently, nearly 60 percent of developing countries, which include Pacific Island nations, are in or at risk of being in a state of debt distress. For example, Papua New Guinea’s gross financing needs from 2021 to 2023 are estimated at 13.4 percent of its GDP, which is significantly above pre-pandemic levels. This alarming rise in debt has put Pacific Island nations at risk, with expectations that the situation could deteriorate further in the years ahead.
Recent analyses indicate that six Pacific Island countries—Kiribati, the Marshall Islands, the Federated States of Micronesia, Samoa, Tonga, and Tuvalu—are experiencing a high risk of debt distress. Meanwhile, countries like Vanuatu have a medium risk rating, and Palau and Nauru maintain more manageable debt levels. The average debt-to-GDP ratio for Pacific Island nations has climbed from 32.9 percent in 2019 to 42.2 percent in 2021, continuing to grow after Covid-19.
In the wake of lifted Covid-19 restrictions, Fiji has seen its debt-to-GDP ratio soar to more than 70 percent, ranking it among the highest in the Pacific region, along with Palau. Remittances from overseas workers have historically played a vital role in managing fiscal deficits in the Pacific, bolstering government revenue through increased local consumption and associated taxes.
Further benefits stem from remittances as they enhance bank deposits, allowing financial institutions to support government debts via treasury bond purchases. Additionally, higher remittance inflows boost demand for currency, generating seigniorage revenue for the government. In Samoa and Tonga, remittances make up one-sixth and two-fifths of their GDP, respectively.
However, during the pandemic, these nations saw a drop in remittances. The World Bank had projected a decline of 4.3 percent in remittances to the Pacific in 2020 due to Covid-19 disruptions, with Palau facing the steepest decline at 29 percent. Conversely, some Pacific Island nations experienced remarkable growth in remittances; Tonga saw a record inflow that constituted around 38 percent of its GDP in 2020, while Fiji’s remittances grew by 14.6 percent in 2021, reaching US$842.2 million (F$1.895 billion).
Recent data illustrates a rebound, with remittances to low- and middle-income countries, including those in the Pacific, increasing by 3.8 percent in 2023 despite earlier pandemic-related declines. Remittances to the Pacific and East Asia are estimated to have risen by 3 percent, hitting $US133 billion (F$298.88 billion) in 2023.
While challenges related to debt remain in the Pacific Island countries, the resilience shown by remittances during and after the Covid-19 pandemic indicates opportunities for policymakers to leverage them strategically to strengthen debt positions.
To further facilitate labor mobility, Pacific Island nations could discuss special visa arrangements and immigration schemes with wealthier trade partners. By reducing visa barriers, promoting the hiring of Pacific Island workers, ensuring equal workplace rights, and extending residency durations, these countries could significantly increase the flow of workers to their trade partners. This would ultimately enable these workers to acquire skills, earn income, support their families, and enhance remittances and government revenue back in the Pacific Island nations.