Pacific Islanders have a long history of exploration, beginning over 5,000 years ago when they navigated to new lands in ocean-going canoes. Their tradition of travel continues today, with nearly 47,807 Islanders traveling to New Zealand or Australia for work during the 2022-2023 period under various labor mobility schemes, including the Pacific Labour Mobility (PALM) scheme and the Pacific Engagement Visa (PEV). This number marks a significant rise compared to previous years.
These labor opportunities are crucial for Pacific Island countries, which greatly depend on remittances sent back home. Seven of the top ten countries receiving remittances as a portion of their gross domestic product (GDP) are located in this region. Rather than posing a problem, these remittances are essential for keeping national debt levels manageable.
If Pacific Island nations were to negotiate with major trade partners like Australia, New Zealand, and China to facilitate the movement of skilled labor, they could look forward to increased skills, income, and government revenues.
The global landscape has seen a dramatic rise in debt since the onset of the COVID-19 pandemic, surpassing the debt accumulation rates observed during the early stages of the Great Depression and the 2007-2008 financial crisis. In the aftermath of the pandemic, global debt levels have remained high, creating considerable obstacles for economic recovery and fiscal stability. Approximately 60 percent of developing nations, including those in the Pacific, are currently either facing distress or are at risk of it.
For instance, Papua New Guinea’s gross financing needs—calculated as the combination of its primary fiscal deficit and upcoming debt obligations—are estimated to be 13.4 percent of GDP during 2021-2023, which is significantly above the pre-pandemic levels. This rapid increase in debt for Pacific Island countries has resulted in heightened vulnerability to debt crises, which are expected to escalate in the near future.
Recent assessments indicate that six Pacific Island nations, including Kiribati, the Marshall Islands, the Federated States of Micronesia, Samoa, Tonga, and Tuvalu, are at a high risk of debt distress. Other nations, like Vanuatu, face medium risk, while Palau and Nauru maintain more sustainable levels of debt.
The average debt-to-GDP ratio for Pacific Island countries rose from 32.9 percent in 2019 to 42.2 percent in 2021, continuing to trend upwards in the post-COVID world. Following the easing of COVID-19 restrictions, Fiji’s debt-to-GDP ratio shot up to over 70 percent, placing it among the highest in the region alongside Palau.
Historically, remittances from overseas workers have been vital in sustaining the fiscal balance in the Pacific. They enhance government revenues by boosting household consumption among local goods and services, thus increasing tax revenues. Furthermore, remittances contribute to greater deposits in the banking system, enabling banks to support governmental debt through treasury bond purchases. They also boost the demand for money, which increases government revenues through what is known as seigniorage.
In Samoa and Tonga, remittances represent approximately one-sixth and two-fifths of their GDP, respectively. However, these countries experienced a drop in remittances during the pandemic, with an estimated 4.3 percent decline projected for 2020 due to COVID-19. Palau was expected to see the most significant decline at 29 percent.
Conversely, some Pacific Island nations saw remarkable increases in remittances during this time. For example, Tonga recorded an impressive 38 percent of its GDP in remittance inflows in 2020, while Fiji experienced a 14.6 percent rise in personal remittances in 2021, totaling US$842.2 million (F$1.895 billion).
Recent data points to a resilient rebound in remittances. In 2023, remittances to low- and middle-income nations, including Pacific Island countries, grew by 3.8 percent, recovering from earlier pandemic decreases. The inflows to the Pacific and East Asia are estimated to have surged by 3 percent, reaching US$133 billion (F$298.88 billion) in 2023.
While the path ahead regarding debt may be challenging for Pacific Island nations, the performance of remittances during and after COVID-19 demonstrates that policymakers can leverage this resource to strengthen their countries’ financial positions. To further assist labor mobility, Pacific Island nations could engage in negotiations with economically stronger partners to create special visa arrangements and immigration schemes.
By relaxing visa requirements and encouraging businesses to employ workers from Pacific nations, coupled with promoting fair workplace rights and extending the duration of residency, these countries can boost the influx of workers abroad. This will lead to skill development, increased income, and consequently higher remittances and government revenue for Pacific Island nations.