Pacific Islanders have a long history of travel, beginning with their exploration of new lands over 5,000 years ago in ocean-going canoes. Today, this tradition continues, with approximately 47,807 Islanders traveling to New Zealand or Australia for work in 2022-2023 under various labor mobility programs such as the Pacific Labour Mobility (PALM) scheme and the Pacific Engagement Visa (PEV), marking a significant rise from prior years.
The economies of Pacific Island nations heavily depend on remittances sent home by these workers. In fact, seven out of the top ten remittance recipients, in terms of their share of gross domestic product (GDP), are located in the Pacific region. These financial transfers are crucial for maintaining sustainable national debt levels rather than being viewed as an issue.
If Pacific Island countries engage in negotiations with major trade partners like Australia, New Zealand, and China to facilitate the movement of skilled workers, they could enhance their labor markets, increase income, and boost government revenues.
In recent years, global debt levels have surged, driven by efforts to stabilize economies during the Covid-19 pandemic. This debt accumulation has outpaced even the early phases of the Great Depression and the Global Financial Crisis of 2007/2008. As we move forward from the pandemic, high global debt levels remain a challenge for economic recovery and financial sustainability.
Nearly 60 percent of developing nations, including those in the Pacific, are currently experiencing debt stress or are at risk of it. Papua New Guinea, for example, faces gross financing needs projected at 13.4 percent of its GDP for 2021 to 2023, significantly higher than pre-pandemic levels. This escalation in debt for Pacific Island countries highlights the looming debt issues expected to worsen in the future.
Current assessments reveal that six Pacific Island nations — Kiribati, the Marshall Islands, the Federated States of Micronesia, Samoa, Tonga, and Tuvalu — are at high risk of debt distress. Meanwhile, Vanuatu is at medium risk, while Palau and Nauru maintain relatively sustainable debt levels.
The average debt-to-GDP ratio for Pacific Island countries climbed from 32.9 percent in 2019 to 42.2 percent in 2021, with continuing increases in the post-Covid-19 landscape. Fiji has seen its debt-to-GDP ratio soar past 70 percent, ranking it among the highest in the Pacific.
Historically, remittances have been pivotal in sustaining fiscal balance within the region. These transfers not only augment government revenue through increased local consumption but also enhance the financial system’s deposits, which help fund government debts via bank purchases of treasury bonds. Moreover, remittances raise the demand for currency, providing seigniorage revenue for governments.
In Samoa and Tonga, remittances are fundamental, contributing one-sixth and two-fifths of their GDPs, respectively. However, during the pandemic, these revenues dipped, with the World Bank predicting a 4.3 percent decrease in remittances to the Pacific in 2020, particularly impacting Palau, with a projected 29 percent decline.
Contrastingly, some countries in the region saw remarkable increases in remittances. Tonga, for instance, reported the highest remittance inflow at roughly 38 percent of its GDP in 2020, while Fiji’s personal remittances rose by 14.6 percent in 2021, reaching $842.2 million (F$1.895 billion).
Recent analysis indicates a robust recovery with remittances to low- and middle-income nations, including those in the Pacific, growing by 3.8 percent in 2023 despite the initial pandemic downturn. Data suggests a 3 percent surge in remittances to the Pacific and East Asia, totaling an estimated $US133 billion (F$298.88 billion).
Although the road ahead regarding debt may be challenging for Pacific Island nations, the rebound in remittances during and after Covid-19 indicates opportunities for policymakers to leverage these funds to improve their debt positions.
To enhance labor mobility, Pacific Island countries should negotiate with wealthier partners for tailored visa arrangements and immigration pathways. Lowering visa barriers, incentivizing businesses to hire from the Pacific, ensuring equal rights for these workers, and extending residency lengths could facilitate a greater influx of skilled workers. This, in turn, would enable these workers to gain experience, earn income, support their families and communities, and ultimately increase remittances and government revenue in the Pacific nations.