This week, the World Bank unveiled its October 2024 Pacific Economic Update, which assesses the economies of 11 Pacific island countries (PICs). The report emphasizes the potential of investment to expand the economic opportunities in the region.
Titled “Diminishing Growth amid Global Uncertainty: Ramping up Investment in the Pacific,” the report notes that overall 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 accounts for over half of the output of the 11 PICs mentioned, as well as structural challenges in the Solomon Islands.
Fiji’s growth is expected to slow to 3.1 percent, a steep decline from 8 percent in 2023, as economic activities return to pre-pandemic levels. However, a slight recovery is anticipated in 2025, aligning with pre-pandemic trends.
Inflation in Fiji is projected to drop toward the Reserve Bank of Fiji’s target of 3 percent in 2025, following a temporary increase to an estimated 5.2 percent this year due to VAT and other tax changes.
The report highlights that Fiji’s public debt, which stands at 79.4 percent of GDP in 2024, is among the highest in the region. While improved revenues are expected to help reduce the fiscal deficit, debt levels are likely to remain around 79 percent of GDP in the medium term, approximately 27 percent higher than pre-COVID levels.
Key findings from the report include:
– Inflation across the region has declined markedly, with the median rate falling from 6.8 percent in 2023 to 4 percent in 2024.
– Inflation in Fiji is expected to average 3.6 percent in 2025-26, following a short-term spike due to tax adjustments. However, the prices of essential goods remain high due to prior inflation rates.
– Fiscal balances as a share of GDP have improved in several PICs, aided by the phasing out of COVID-19 support measures and increased tax revenue. While public debt to GDP has decreased in over two-thirds of PICs since 2022, the risk of debt distress remains significant due to ongoing disaster threats.
– Medium-term growth prospects in the region have decreased from an annual average of 3.2 percent (2000-2019) to 2.7 percent (2020-2029), driven by natural disasters, climate change effects, and weak investments. Investment growth is anticipated at just 1 percent annually for 2020-2029, significantly lower than the 4.2 percent average from 2010-2019.
The World Bank has called for a significant increase in investment to counteract the region’s slowing economic growth. The authors of the report stress the urgent need for targeted investments to generate jobs, enhance infrastructure, and build resilience against climate change amidst global uncertainties. These measures are essential for improving living standards in Pacific communities and reducing the income gap with wealthier nations.
To stimulate medium-term growth, World Bank senior economist Dana Vorisek emphasized the necessity for the Pacific to adopt sustainable investment strategies. She pointed out that investment in emerging markets has slowed, and the Pacific has been affected similarly.
Vorisek noted, “Another major trend we’ve observed in the Pacific is that investment tends to decline significantly when comparing year-to-year trends,” during a press conference in Suva.
The October report offers six key recommendations to facilitate investment and ensure that local communities reap the benefits of economic growth:
– Enable investment in high-potential sectors by modernizing agriculture with a focus on high-value crops, advancing the blue economy, and diversifying tourism while promoting sustainable practices.
– Address infrastructure deficits by improving road networks and building up port and airport facilities to enhance trade, competitiveness, and energy and internet accessibility.
– Build resilience against disasters by investing in climate-resilient infrastructure and promoting sustainable land use to mitigate vulnerability and support long-term economic growth.
– Establish a supportive regulatory environment to attract private investment, including transparent reporting and effective public-private partnerships.
– Improve financing and insurance products to provide stable funding for significant investment projects, climate-related initiatives, and disaster recovery.
– Secure global support through timely financial backing from international institutions and collaboration with global partners to enhance investment strategies.
World Bank senior economist Ekaterine Vashakmadze stated that, despite the slowdown in growth and investments, projections indicate an acceleration. She highlighted the need for collective regional efforts to develop policies that will allow PICs to capitalize on upcoming growth opportunities.