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 for investment to expand economic opportunities in the region.
The report, titled “Diminishing Growth amid Global Uncertainty: Ramping up Investment in the Pacific,” indicates that growth in the Pacific has significantly decreased 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 pandemic recovery, particularly in Fiji, which constitutes more than half of the economic output of the covered PICs, as well as structural challenges in the Solomon Islands.
Fiji’s growth is expected to decline to 3.1 percent, a sharp contrast to the 8 percent experienced in 2023 as the economy stabilizes following the pandemic. However, a mild recovery is anticipated in 2025, returning to pre-pandemic trends.
After a temporary rise to approximately 5.2 percent this year, fueled by adjustments to VAT and other taxes, inflation in Fiji is projected to align with the Reserve Bank of Fiji’s goal of 3 percent by 2025.
The report reveals that Fiji’s public debt, estimated at 79.4 percent of GDP in 2024, ranks among the highest in the region. Although increased revenues are expected to lessen the fiscal deficit, public debt will likely remain around 79 percent of GDP in the medium term, approximately 27 percent higher than pre-COVID levels.
Additional findings include a notable decline in inflation across the region, with the median rate falling from 6.8 percent in 2023 to 4 percent in 2024. In Fiji, inflation is anticipated to average 3.6 percent in 2025-26 after a temporary spike this year due to tax adjustments; however, essential goods continue to be costly due to earlier high inflation.
Fiscal balances as a share of GDP have improved in several PICs as COVID-19 support measures have concluded and tax revenues have risen. Despite improvements, the risk of debt distress remains significant due to ongoing disaster threats.
The report indicates that medium-term growth prospects for the region have declined from an annual average of 3.2 percent during 2000-2019 to 2.7 percent expected from 2020-2029, largely due to increasing natural disasters, the effects of climate change, and insufficient investment. Investment growth is projected to be only 1 percent annually from 2020-29, which is well below the 4.2 percent average from 2010-19.
To counteract slowing economic growth, the World Bank advocates a significant increase in investment. The report emphasizes the urgent need for targeted investment to create jobs, improve infrastructure, and enhance resilience to climate change in light of global uncertainty. These efforts are vital for enhancing the livelihoods of Pacific communities and reducing income disparities with wealthier nations.
World Bank senior economist Dana Vorisek emphasized the need for sustainable investment strategies to stimulate medium-term growth in the Pacific, noting a broader trend of reduced investment in emerging markets and developing economies, including the Pacific.
The October report presents six key recommendations aimed at fostering investment and ensuring local communities benefit economically:
1. Promote investment in high-potential sectors by modernizing agriculture with a focus on high-value crops, advancing the ‘blue economy,’ and diversifying the tourism sector.
2. Address infrastructure deficiencies by improving road connectivity, upgrading port and airport facilities, and enhancing access to energy and internet services.
3. Build resilience against disasters by investing in climate-resilient infrastructure and improving fiscal management.
4. Establish supportive regulatory frameworks to attract private investment, including robust oversight of state-owned enterprises and streamlined processes to reduce bureaucratic hurdles.
5. Enhance the availability of financing and insurance products for infrastructure projects and disaster recovery.
6. Seek global support by securing timely funding and expertise from international financial institutions for impactful projects.
Despite current slow growth and investment rates, World Bank senior economist Ekaterine Vashakmadze remains optimistic that growth will eventually pick up, emphasizing the importance of collaborative efforts to develop policies that enable PICs to capitalize on emerging opportunities.