This week, the World Bank released its October 2024 Pacific Economic Update, which evaluates the economic situation of 11 Pacific island countries (PICs). The report emphasizes the importance of investment in expanding the region’s economic opportunities.
Titled “Diminishing Growth amid Global Uncertainty: Ramping up Investment in the Pacific,” the report indicates that overall growth in the Pacific has dropped significantly to 3.6 percent this year, a decline from 5.8 percent in 2023. This slowdown is attributed to the waning effects of the post-COVID recovery, particularly in Fiji, which contributes more than half of the economic output among the 11 PICs, as well as structural issues in the Solomon Islands.
Fiji’s growth is projected to fall to 3.1 percent, down from 8 percent in 2023, as economic activities stabilize to pre-pandemic levels. However, a slight recovery is anticipated in 2025, aligning with historical trends.
Fiji’s inflation rate, which surged to an estimated 5.2 percent this year due to adjustments in VAT and other taxes, is expected to decrease towards the Reserve Bank of Fiji’s target of 3 percent by 2025.
The report also highlights that Fiji’s public debt, which stands at 79.4 percent of GDP in 2024, is among the highest in the region. While increased revenue may help reduce the fiscal deficit, debt levels are expected to hover around 79 percent of GDP in the medium term, 27 percent higher than pre-COVID levels.
Key findings from the report include a significant reduction in inflation across the region, with the median rate dropping from 6.8 percent in 2023 to 4 percent in 2024. Although inflation in Fiji is projected to average 3.6 percent in 2025-26, the high cost of essential goods remains a concern due to past inflation.
Fiscal balances have improved as a percentage of GDP in several PICs, thanks to the easing of COVID-19 support measures and higher tax revenues. Since 2022, public debt as a share of GDP has declined in more than two-thirds of PICs, although debt distress remains a significant risk due to ongoing disaster threats.
The medium-term growth outlook for the region has decreased from an annual average of 3.2 percent from 2000 to 2019 to 2.7 percent from 2020 to 2029. This decline is driven by increased natural disasters, climate change, and weakened investment, with projected investment growth at just 1 percent annually from 2020 to 2029, significantly lower than the 4.2 percent average from 2010 to 2019.
In response to the economic challenges, the World Bank is advocating for a substantial increase in investment to counteract the declining growth in the region. The report’s authors highlight the urgent need for targeted investments to create jobs, enhance infrastructure, and bolster resilience against climate change amid global uncertainties. These initiatives are crucial for improving the living standards of Pacific communities and bridging the income gap with more affluent nations.
To stimulate medium-term growth, World Bank senior economist Dana Vorisek emphasized the need for strategies that foster sustainable investment in the Pacific. She noted a general decline in investment within emerging markets and developing economies, which also applies to the Pacific region.
Vorisek pointed out a concerning trend where investment often shrinks year-on-year in the Pacific. The October report offers six principal recommendations to encourage investment and ensure that local economies benefit from growth, including:
– Enabling investments in high-potential sectors such as modernizing agriculture, advancing the blue economy, improving tourism, and promoting sustainable production practices.
– Addressing infrastructure deficiencies by enhancing road connectivity, upgrading ports and airports, and improving energy and internet services, especially through renewable energy.
– Building disaster resilience by investing in climate-resilient infrastructure, promoting sustainable land use, and improving fiscal management to better handle future disasters.
– Establishing a supportive regulatory framework to attract private investments through clear legal policies for state enterprises and reducing bureaucratic hurdles.
– Enhancing access to financing and insurance products to support major investment projects and infrastructure recovery from disasters.
– Securing global support to obtain timely funding and expertise from international financial institutions for impactful projects.
World Bank senior economist Ekaterine Vashakmadze remarked that despite the current slowdown in growth and investments, there is optimism for future acceleration if the Pacific region collectively commits to strategic policies that leverage growth opportunities.