Pacific Islanders have a long history of exploration and migration, starting over 5,000 years ago with their ocean-going canoes. In more recent times, from 2022 to 2023, about 47,807 Pacific Islanders traveled to New Zealand and Australia for work under various labor mobility programs, such as the Pacific Labour Mobility scheme and the Pacific Engagement Visa. This marks a notable increase in labor movement compared to previous years.
Remittances from these workers are crucial for the economies of Pacific Island countries, with seven of the top ten nations receiving the highest percentage of remittances relative to their gross domestic product found in this region. Rather than a burden, remittances have been integral in maintaining manageable national debt levels in the Pacific.
To further enhance economic growth, Pacific Island nations could negotiate with major trade partners like Australia, New Zealand, and China to improve the movement of skilled labor, which could ultimately lead to increased skills, income, and government revenue.
The global debt landscape has changed dramatically in recent years, especially due to efforts to stabilize economies during the Covid-19 pandemic. The pace of debt accumulation globally has outstripped that seen during the Great Depression and the 2007/2008 financial crisis. Even with the pandemic’s aftermath, global debt remains high, presenting substantial risks to fiscal sustainability and economic recovery.
Currently, nearly 60% of developing countries, including those in the Pacific, are facing or are at risk of debt distress. For instance, Papua New Guinea’s gross financing needs from 2021 to 2023 are anticipated to reach 13.4% of its GDP, substantially higher than pre-pandemic levels, indicating a growing debt challenge in the region.
Reports also show that six Pacific Island countries—Kiribati, the Marshall Islands, the Federated States of Micronesia, Samoa, Tonga, and Tuvalu—are at significant risk of debt distress, while others like Vanuatu are at medium risk. The average debt-to-GDP ratio for Pacific Island nations rose from 32.9% in 2019 to 42.2% in 2021, continuing to climb in the post-Covid environment. Fiji’s debt-to-GDP ratio has exceeded 70%, ranking it among the highest in the region.
Historically, remittances have been vital in keeping fiscal deficits manageable in the Pacific. They boost government revenues through increased local consumption, which in turn raises tax contributions. Additionally, remittances enhance bank deposits, providing banks with resources to support government debts via treasury bond purchases. They also raise demand for money, benefitting the government’s revenue through currency issuance known as seigniorage revenue.
In Samoa and Tonga, remittances constitute a significant portion of the GDP, accounting for one-sixth and two-fifths, respectively. Although these countries saw a decline in remittances due to the pandemic, the World Bank estimated a 4.3% drop for 2020, with Palau facing even steeper declines of 29%.
On a positive note, some Pacific nations experienced remarkable remittance growth during this period. Tonga, for example, saw remittances soar to around 38% of its GDP in 2020, while Fiji recorded a 14.6% growth in inward remittances in 2021, totaling US$842.2 million (F$1.895 billion).
Recent data indicates a recovery, with remittances to low- and middle-income countries, including those in the Pacific, increasing by 3.8% in 2023 despite prior pandemic setbacks. Specifically, remittances to the Pacific and East Asia grew by an estimated 3% to reach US$133 billion (F$298.88 billion).
Despite the challenges of rising debt, the resilience of remittances through and following the pandemic demonstrates a potential avenue for Pacific Island nations to stabilize their fiscal positions. To maximize labor mobility, these nations could negotiate favorable visa arrangements and immigration policies with wealthier partners.
By easing visa requirements, encouraging local businesses to hire Pacific Island workers, ensuring equitable workplace rights, and extending residency terms for these workers, there could be a substantial increase in labor inflows. Such moves would enable workers to gain skills, earn income, and support their communities, thereby boosting remittances and increasing government revenue in the Pacific region.