Pacific Islanders have a long history of exploration, initially navigating to new territories over 5,000 years ago in ocean-going canoes. This legacy continues today, with approximately 47,807 Pacific Islanders traveling to New Zealand or Australia for work in 2022-2023 through various labor mobility programs, such as the Pacific Labour Mobility (PALM) scheme and the Pacific Engagement Visa (PEV), marking a notable increase from prior years.
The economies of Pacific Island nations significantly benefit from remittances sent home by these workers. Currently, seven of the top ten recipients of remittances as a share of gross domestic product (GDP) are located in the Pacific. These remittances have been crucial in maintaining manageable levels of national debt across the region.
By engaging in negotiations with major trade partners—Australia, New Zealand, and China—Pacific Island nations could enhance the movement of skilled workers. This strategy could lead to improved skills, increased income, and greater government revenue.
The past few years have seen a surge in global debt, attributed largely to efforts to bolster economies during the COVID-19 pandemic. The accumulation of global debt during this period outpaced even the early stages of the Great Depression and the 2007/2008 Financial Crisis. As we navigate the post-pandemic landscape, global debt remains high, creating challenges for economic recovery and maintaining fiscal sustainability.
Nearly 60% of developing nations, including those in the Pacific, are currently facing debt distress or are at risk of it. For example, Papua New Guinea’s gross financing needs from 2021 to 2023 are projected to reach 13.4% of its GDP, significantly higher than pre-pandemic levels. Six Pacific Island nations are identified as being at high risk of debt distress, including Kiribati, the Marshall Islands, the Federated States of Micronesia, Samoa, Tonga, and Tuvalu, with Vanuatu classified as medium risk. In contrast, Palau and Nauru have relatively sustainable debt levels.
The average debt-to-GDP ratio for Pacific Island countries rose from 32.9% in 2019 to 42.2% in 2021, a trend that continues into the post-COVID era. Following the lifting of pandemic-related restrictions, Fiji saw its debt-to-GDP ratio climb above 70%, making it one of the highest in the region alongside Palau.
Historically, remittances have been critical in keeping fiscal deficits manageable for these nations. They boost government revenue by increasing local consumption and the associated taxes. Moreover, remittances lead to higher deposits in financial institutions, which in turn support government debt through treasury bond purchases. They also drive up the demand for money in the economy, contributing to government revenue via seigniorage.
In Samoa and Tonga, remittances account for substantial portions of their GDP—one-sixth and two-fifths, respectively. Despite a decline during the pandemic, with the World Bank estimating a 4.3% drop in remittances to the Pacific in 2020 and Palau experiencing a forecasted 29% decrease, some countries saw remarkable growth. Tonga achieved a historic high in remittance inflows at about 38% of its GDP in 2020. Likewise, Fiji recorded a 14.6% rise in personal remittances in 2021, totaling approximately USD 842.2 million (FJD 1.895 billion).
Recent data suggests a recovery, with remittances to low- and middle-income countries increasing by 3.8% in 2023, reversing earlier declines. The Pacific region, alongside East Asia, is estimated to have seen remittances rise by around 3%, reaching USD 133 billion (FJD 298.88 billion).
While the path forward regarding debt is complex for Pacific Island nations, the performance of remittances during and after COVID-19 indicates that policymakers can leverage these funds to enhance their countries’ debt positions. To facilitate labor mobility, Pacific Island nations could engage with wealthier trade partners to establish specialized visa provisions and immigration programs.
Such initiatives could involve easing visa requirements, encouraging businesses to hire Pacific workers, ensuring equal workplace rights, and extending the maximum duration of residency for these workers. This would not only increase the number of Pacific workers in trade partner countries but also provide opportunities for skill development, income generation, family support, and ultimately boost remittances and government revenue back home.