Pacific Islanders have a long history of exploration and travel, dating back over 5,000 years when they first ventured into new lands using ocean-going canoes. This tradition of mobility continues today, with around 47,807 Islanders making their way to New Zealand or Australia for work in 2022-2023 through various labor mobility programs, such as the Pacific Labour Mobility (PALM) scheme and the Pacific Engagement Visa (PEV). This marks a notable increase compared to previous years.
The economies of Pacific Island nations significantly depend on remittances sent back home. Seven of the top ten countries with the highest remittance-to-GDP ratios are situated in this region. These remittances have been vital in managing national debt levels sustainably, mitigating potential financial issues.
If Pacific Island nations engage in negotiations with major trade partners like Australia, New Zealand, and China to ease the movement of skilled workers, they stand to gain in terms of skills, income, and increased government revenue.
In recent years, global debt has surged, primarily due to measures taken to stabilize economies during the COVID-19 pandemic. The accumulation rate of global debt was more rapid than during the early days of the Great Depression and the 2007/2008 Global Financial Crisis. Post-pandemic, debt levels have stayed high, presenting challenges for economic recovery and fiscal stability.
Currently, nearly 60 percent of developing nations, including those in the Pacific, either face or are at risk of debt distress. Papua New Guinea, for example, has projected gross financing needs between 2021 and 2023 at 13.4 percent of its GDP, significantly higher than pre-pandemic levels. Six Pacific nations, namely Kiribati, the Marshall Islands, the Federated States of Micronesia, Samoa, Tonga, and Tuvalu, are deemed at high risk of debt distress, while Vanuatu is considered to be at medium risk. In contrast, Palau and Nauru maintain more sustainable debt levels.
The average debt-to-GDP ratio for Pacific Island countries has risen from 32.9 percent in 2019 to 42.2 percent in 2021, continuing its upward trend after COVID-19. Fiji’s debt-to-GDP ratio climbed to over 70 percent, ranking it among the highest in the Pacific alongside Palau.
Historically, remittances from overseas workers have been crucial for maintaining sustainable fiscal deficits in the Pacific. They boost government revenue by increasing local consumption and the associated tax income, as well as enhancing bank deposits that aid in managing government debts.
Examples include Tonga and Samoa, where remittances account for approximately two-fifths and one-sixth of their GDP, respectively. During the pandemic, however, remittances saw a decline, with the World Bank estimating a drop of 4.3 percent in 2020. Palau’s remittances were expected to fall by 29 percent.
Conversely, some Pacific nations experienced record remittance growth during this time. Tonga reported its remittance inflow at around 38 percent of its GDP in 2020, while Fiji saw a 14.6 percent increase in inward personal remittances in 2021, reaching a peak of US$842.2 million.
Recent data indicates a recovery; remittances to low- and middle-income countries, including those in the Pacific, grew by 3.8 percent in 2023. Total remittances to the Pacific and East Asia rose by an estimated 3 percent, reaching US$133 billion.
Despite the challenges ahead regarding debt, the resilience of remittances during and after COVID-19 indicates that Pacific policymakers might leverage this resource to improve their nations’ debt situation.
To bolster labor mobility, Pacific Island countries could seek negotiations with wealthier trading partners for special visa arrangements and immigration schemes. By easing visa requirements and promoting equal rights and residency durations for workers from the Pacific, these countries can increase the flow of workers, allowing them to acquire skills, secure income, support their families, and ultimately enhance remittances and government revenues in their home nations.