The Asian Development Bank (ADB) has indicated that tourism is poised to remain a significant contributor to growth in the Pacific region. The latest Asian Development Outlook has slightly increased the growth forecast for Developing Asia to 5 percent for 2024, while maintaining the estimate at 4.9 percent for 2025. Specifically, the growth projection for the Pacific has been revised upward to 3.4 percent, driven by an influx of tourists.
Developing Asia includes 46 members of the ADB, among which are 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 report predicts the Pacific will grow by 3.4 percent in 2024 and 4.1 percent in 2025, although it notes that limited fiscal capacity and high levels of debt distress continue to pose challenges. The economic outlook for the Pacific is heavily influenced by Papua New Guinea (PNG) and Fiji, which together represent 90 percent of the subregion’s GDP.
In PNG, growth is expected to be slightly lower than initially projected for both 2024 and 2025, primarily due to decreased production in the resource sector. However, this decline has been counterbalanced by stronger-than-anticipated growth in other economies, particularly Fiji, which has seen a surge in tourist arrivals and higher government spending than expected.
The GDP growth forecast for PNG in 2024 has been adjusted to 3.2 percent, down from the previous forecast of 3.3 percent. This revision is largely due to reduced production of liquefied natural gas, gold, and nickel in the first half of 2024.
Looking forward, the economic recovery of businesses impacted by social unrest in January 2024, along with the planned commencement of the multibillion-dollar Papua LNG project in 2025, is expected to drive investment and economic growth, albeit constrained by underperformance in the resource extraction sector.
In Fiji, visitor arrivals have surpassed expectations. The economy is projected to see a growth of 3.4 percent in 2024, up from the earlier estimate of 3 percent, buoyed by fiscal stimulus measures anticipated to enhance economic activity.
The report indicates that growth forecasts have also improved for the Cook Islands, Kiribati, Nauru, Samoa, and the Solomon Islands compared to April projections. In the Cook Islands, tourism has been a key driver of growth, while increased public wages in Kiribati have had a greater-than-expected impact on domestic demand.
Nauru’s improved forecast is linked to the reactivation of the Regional Processing Centre, while Samoa’s growth is expected to benefit from ongoing tourism and remittances. In Solomon Islands, the upward revision is attributed to data updates.
Conversely, the growth outlook for Tonga has decreased for 2024, affected by El Niño’s impact on agriculture, and for Vanuatu, this is due to the detrimental effects of suspended operations of Air Vanuatu.
The ADB highlighted ongoing challenges for future growth, including the threat of natural disasters and labor shortages, as well as financial constraints and debt distress in the Pacific. According to the International Monetary Fund’s definition, debt distress occurs when a country cannot meet its financial obligations, necessitating debt restructuring.
Currently, seven of the 14 Pacific developing member countries are classified as being at high risk of debt distress, including Kiribati, the Marshall Islands, PNG, Samoa, Tonga, Tuvalu, and Vanuatu. The other seven are at moderate risk, which includes the Cook Islands, Fiji, the Federated States of Micronesia, Nauru, Niue, Palau, and the Solomon Islands.
In a separate development, the ADB has entered into a grant agreement with the Marshall Islands valued at $52.5 million to enhance urban services in Majuro and Ebeye.