This week, the World Bank released its October 2024 Pacific Economic Update, which assesses the economies of 11 Pacific island countries (PICs) and emphasizes the importance of investment to enhance the region’s economic prospects.
Entitled “Diminishing Growth amid Global Uncertainty: Ramping up Investment in the Pacific,” the report reveals that growth in the Pacific has significantly decreased to 3.6 percent this year, a drop from 5.8 percent in 2023. This slowdown is attributed to the waning effects of the post-COVID pandemic recovery, particularly in Fiji, which represents over half of the collective output of the 11 PICs included in this update, as well as ongoing structural challenges in the Solomon Islands.
The report forecasts a further deceleration in Fiji’s growth to 3.1 percent, down from 8 percent in 2023, as economic activity stabilizes at pre-pandemic levels. However, a slight recovery is expected in 2025, aligning with historical trends.
Inflation in Fiji is anticipated to average 3.6 percent in 2025-26 after a temporary increase this year due to tax adjustments. Despite this, essential goods remain costly due to previous high inflation rates.
Fiji’s public debt, projected at 79.4 percent of GDP in 2024, is one of the highest in the region. While increasing revenues are likely to help reduce the fiscal deficit, the debt is expected to linger around 79 percent of GDP in the medium term, approximately 27 percent higher than pre-COVID levels.
Key findings from the report include a notable decline in inflation across the region, with the median rate dropping from 6.8 percent in 2023 to 4 percent in 2024. The fiscal balances of several PICs have improved as COVID-19 support measures were reduced. Over two-thirds of PICs have seen a decrease in public debt as a share of GDP since 2022, although the risk of debt distress remains significant due to persistent disaster risks.
The report suggests that medium-term growth prospects in the region have diminished from an average of 3.2 percent annually between 2000-2019 to 2.7 percent projected for 2020-2029. This decline is driven by increasing natural disasters, climate change impacts, and insufficient investment, with projected investment growth of just 1 percent annually from 2020 to 2029, far below the 4.2 percent average from 2010-2019.
To address these challenges, the World Bank urges a considerable increase in investment aimed at improving economic growth. The authors stress the need for targeted investment to generate jobs, enhance infrastructure, and bolster resilience against climate change amid global uncertainties. These efforts are vital for boosting the livelihoods of Pacific communities and closing the income gap with wealthier nations.
World Bank senior economist Dana Vorisek highlighted the slowdown in investment trends in the Pacific, noting that the region has experienced a marked decline in year-to-year investment.
The October report outlines six key recommendations to promote investment and ensure that local communities benefit from economic growth. These include prioritizing investments in high-potential sectors like modern agriculture, addressing infrastructure gaps, building resilience against disasters, and establishing supportive regulations to attract private investment. Additionally, enhancing the availability of financing and fostering global cooperation are also stressed as crucial steps for revitalizing the region’s economic prospects.
Senior economist Ekaterine Vashakmadze noted that although growth and investment have declined, there are indications of potential recovery, emphasizing the need for collaborative efforts among PICs to capitalize on forthcoming growth opportunities.