The Asian Development Bank (ADB) has indicated that tourism is projected to remain a significant driver of economic growth in the Pacific region. The latest Asian Development Outlook has slightly raised the growth forecast for Developing Asia to 5 percent for 2024, while maintaining a forecast of 4.9 percent for 2025. Notably, the growth forecast for the Pacific has been adjusted upwards to 3.4 percent, largely attributed to an increase in tourist arrivals.
Developing Asia includes 46 member countries of the ADB, among which are 14 Pacific nations: the Cook Islands, Fiji, Kiribati, Marshall Islands, the Federated States of Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
The Pacific is expected to grow by 3.4 percent in 2024 and 4.1 percent in 2025; however, the report notes that limited fiscal capacity and high levels of debt distress continue to pose challenges to economic stability. The economies of Papua New Guinea (PNG) and Fiji are key to the region’s economic prospects, representing 90 percent of the subregion’s GDP.
Growth in PNG is anticipated to be slightly lower than previously projected for both 2024 and 2025, primarily due to decreased output from the resource sector. In contrast, Fiji has experienced unanticipated growth due to robust tourist arrivals and increased government spending. The projected GDP growth for PNG in 2024 is now set at 3.2 percent, a slight decrease from earlier estimates.
Looking forward, the recovery of businesses impacted by the social unrest in January 2024, along with the anticipated launch of the multibillion-dollar Papua LNG project in 2025, is expected to drive investment and economic progress, despite ongoing challenges in resource extraction.
Fiji’s economy is projected to grow by 3.4 percent in 2024, up from the earlier estimate of 3 percent, thanks to higher-than-expected visitor arrivals and fiscal measures taken to stimulate economic activity.
The growth predictions for the Cook Islands, Kiribati, Nauru, Samoa, and Solomon Islands have also been revised upward since April, with tourism being a major driver in the Cook Islands. In Kiribati, the increase in public wages has significantly enhanced domestic demand, while the reopening of the Regional Processing Centre has improved forecasts for Nauru. Samoa is expected to benefit from sustained tourism and remittances, whereas the revisions for Solomon Islands reflect updated data.
On the downside, growth forecasts for Tonga in 2024 have been lowered due to El Niño’s impact on agriculture, and Vanuatu faces challenges related to the suspension of Air Vanuatu operations. The ADB report highlighted persistent challenges for future growth, including natural disasters and labor shortages, exacerbated by limited fiscal resources and debt distress.
The report defines debt distress as a situation where a country struggles to meet its financial obligations, necessitating debt restructuring. Currently, seven out of the 14 Pacific developing member countries face a high risk of debt distress, including Kiribati, the Marshall Islands, PNG, Samoa, Tonga, Tuvalu, and Vanuatu. The remaining seven countries are classified as being at moderate risk.
In a separate development, the ADB has entered into a grant agreement with the Marshall Islands amounting to $52.5 million to improve urban services in Majuro and Ebeye.