This week, the World Bank released its October 2024 Pacific Economic Update, which evaluates the economies of 11 Pacific island countries (PICs) and emphasizes the potential of investments to enhance the region’s economic outlook. The report, titled “Diminishing Growth amid Global Uncertainty: Ramping up Investment in the Pacific,” indicates that growth in the Pacific has dropped significantly to 3.6 percent this year, down from 5.8 percent in 2023. This slowdown is attributed to the waning effects of the post-COVID recovery, particularly in Fiji, which constitutes over half of the combined output of the 11 PICs, along with structural issues in the Solomon Islands.
The report forecasts that Fiji’s growth will slow to 3.1 percent, a sharp decline from 8 percent in 2023, as economic activities normalize to pre-pandemic levels. However, a slight recovery is anticipated in 2025 in line with its pre-pandemic trajectory.
For Fiji, inflation is expected to ease toward the Reserve Bank of Fiji’s target of 3 percent in 2025, following a temporary spike this year due to VAT and tax adjustments that brought inflation to an estimated 5.2 percent.
Fiji’s public debt is projected to reach 79.4 percent of GDP in 2024, making it one of the highest in the region. While rising revenues are expected to reduce the fiscal deficit, debt levels are projected to remain around 79 percent of GDP in the medium term, approximately 27 percent higher than pre-COVID levels.
Other significant findings from the report include:
– A substantial decrease in inflation across the region, with the median rate falling from 6.8 percent in 2023 to 4 percent in 2024.
– Expected average inflation in Fiji at 3.6 percent for 2025-26, despite a temporary inflation rise due to tax adjustments, with essential goods remaining costly due to previously high inflation rates.
– An improvement in fiscal balances as a share of GDP in several PICs, thanks in part to the conclusion of COVID-19 support measures and increasing tax revenues, although the risk of debt distress persists due to ongoing disaster risks.
– A decline in medium-term growth prospects from an annual average of 3.2 percent (2000-2019) to 2.7 percent (2020-2029), influenced by more frequent natural disasters, climate change ramifications, and weak investments. The report predicts investment growth at only 1 percent annually in 2020-2029, significantly lower than the 4.2 percent average recorded from 2010-2019.
To address the region’s economic slowdown, the World Bank suggests a significant increase in investments. The reasoning behind this call is to create jobs, improve infrastructure, and enhance resilience against climate change amidst global uncertainties. These efforts are deemed critical in elevating the living standards of Pacific communities and bridging the income disparity with wealthier nations.
World Bank senior economist Dana Vorisek stressed the need for the Pacific to implement strategies that foster sustainable investment. She noted a general decrease in investment in emerging markets, including the Pacific.
Six key recommendations to stimulate investment and ensure local communities reap the benefits of economic growth include:
– Enabling investment in high-potential sectors, such as modernizing agriculture, advancing the “blue economy,” diversifying tourism, and promoting sustainable commodity production and mining.
– Addressing infrastructure deficiencies by enhancing road networks, upgrading port and airport facilities, and improving energy and internet access through renewable resources.
– Building resilience to disasters through investments in climate-resilient infrastructure and promoting sustainable land use.
– Establishing a supportive regulatory and policy framework to attract private investments, including effective oversight of State-owned enterprises and improving public-private partnerships.
– Enhancing the availability of financing and insurance products for major investments and disaster recovery projects.
– Securing global support through timely financing and technical assistance from international financial institutions.
Despite the slowdown in growth and investments, World Bank senior economist Ekaterine Vashakmadze remains optimistic about the potential for acceleration in the region’s growth, emphasizing the need for collective action and strategic policy formulation to capitalize on growth opportunities.