The Asian Development Bank (ADB) has reported that tourism will continue to be a significant driver of economic growth in the Pacific region. According to the latest Asian Development Outlook, the growth forecast for Developing Asia in 2024 has been slightly increased to 5 percent, while the forecast for 2025 remains at 4.9 percent. For the Pacific specifically, the growth prediction has been revised upwards to 3.4 percent, attributed to a rise in tourist arrivals.
Developing Asia includes the 46 member countries of the ADB, which encompasses 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 region is projected to grow by 3.4 percent in 2024 and 4.1 percent in 2025. However, the report highlights ongoing challenges, such as limited fiscal space and high levels of debt distress.
The economic outlook for the Pacific is largely influenced by Papua New Guinea (PNG) and Fiji, which together contribute to 90 percent of the subregion’s GDP. The forecast for PNG’s growth has been slightly reduced for both 2024 and 2025 due to decreased output in its resource sector.
Conversely, Fiji is expected to experience better-than-anticipated growth, supported by an increase in tourist arrivals and higher government expenditure. The revised GDP growth for PNG in 2024 is now 3.2 percent, slightly down from the previous forecast of 3.3 percent, mainly due to lower production rates for liquefied natural gas, gold, and nickel in early 2024.
Looking forward, recovery from previous social unrest and the expected launch of the multibillion-dollar Papua LNG project in 2025 are likely to boost investments and growth. Nonetheless, the limited output in resource extraction continues to pose challenges.
In Fiji, increased visitor numbers and fiscal stimuli are predicted to support a growth rate of 3.4 percent in 2024, an increase from the previously estimated 3 percent.
The growth forecasts for the Cook Islands, Kiribati, Nauru, Samoa, and Solomon Islands have improved since April. Tourism has been a key factor driving growth in the Cook Islands, while increased public wages in Kiribati have positively impacted domestic demand. The reopening of the Regional Processing Centre has raised Nauru’s forecasts, and sustained tourism and remittance flows are expected to bolster growth in Samoa. However, the growth outlook for Tonga in 2024 has declined due to the effects of El Niño on agriculture, while Vanuatu has been adversely impacted by the suspension of Air Vanuatu operations.
The ADB notes that the Pacific faces several challenges to future growth, including natural disasters and labor shortages, compounded by issues related to limited fiscal capacity and debt stress. As defined by the International Monetary Fund, debt distress refers to situations where countries are unable to meet their financial commitments, necessitating debt restructuring.
Currently, seven out of 14 Pacific developing countries face a high risk of debt distress, including Kiribati, the Marshall Islands, PNG, Samoa, Tonga, Tuvalu, and Vanuatu. The other seven countries are considered to be at moderate risk: the Cook Islands, Fiji, the Federated States of Micronesia, Nauru, Niue, Palau, and the Solomon Islands.
Additionally, the ADB has entered into a $52.5 million grant agreement with the Marshall Islands aimed at enhancing urban services in Majuro and Ebeye.