When a 7.3-magnitude earthquake ruptured across Vanuatu in 2024 it laid bare how quickly disasters can erase livelihoods in Pacific small states: nearly 80,000 people — roughly one quarter of the country’s population — were affected, with homes, schools, hospitals and roads damaged, businesses shut and tourism and agriculture grinding to a halt. That shock, and the persistent vulnerability it exposed, are central to the World Bank Group’s new Small States Strategy, which places jobs and tailored, regional responses at the heart of its approach for Pacific island economies.
The strategy concentrates resources on six “Lighthouse Initiatives” — health, connectivity, energy, resilient infrastructure, fiscal sustainability and small-business support — and stresses selectivity, differentiation and efficiency to convert any growth into sustainable private-sector-led employment. In the health example set out by the plan, Fiji’s Colonial War Memorial Hospital is earmarked to become a regional tertiary-care hub, linked by tele-health networks and cross-border referral systems to Kiribati, Tonga and Tuvalu, allowing regional public goods to be built once and shared to lower costs for each country.
A key development arising from those principles is an unprecedented collective effort to shore up correspondent banking across the Pacific. Eight economies — Fiji, Kiribati, the Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu — are coordinating with the Pacific Islands Forum Secretariat and the World Bank Group on a contingent regional cover arrangement. That facility would be activated if any participating country loses its last correspondent banking relationship; a regional provider is expected to be contracted in the coming months to act as a backstop.
The contingent cover is intended to preserve the flow of trade, remittances and investment by preventing a sudden cut-off from global banking services. It also lays the groundwork for the Pacific Payments Mechanism, a dedicated regional platform still under development that aims to aggregate cross-border transactions over time and create the volume global correspondent banks require to operate commercially in small markets.
Alongside payments fixes, the World Bank Group and its private-sector arm are moving to unlock credit for firms that sustain jobs. The International Finance Corporation has committed to share 50 per cent of portfolio risk with local banks in some Pacific markets — a move backed by the International Development Association’s Private Sector Window — to improve lending to small and medium enterprises long viewed as too risky by domestic banks. Building on that model, a recently signed facility will enable BRED Bank in Fiji to participate in the risk-sharing programme and expand credit to MSMEs.
Those measures are designed to tackle the twin binding constraints that surface in post-disaster recovery: limited fiscal space for governments and high costs or lack of access to private finance. By pooling scale regionally — in health services, payments infrastructure and banking cover — the World Bank argues small states can lower the unit cost of essential services and reduce the chance that a single shock will cascade into mass unemployment.
The new strategy and the contingent banking and payments initiatives come amid active diplomacy from Pacific leaders pressing for stronger development partnerships. Fiji’s Deputy Prime Minister and Minister for Finance, Professor Biman Prasad, has in recent forums urged deeper World Bank engagement to help position Fiji as a regional economic hub, priorities that align with the strategy’s hub-and-spoke delivery model. For countries still recovering from disasters such as Vanuatu’s 2024 quake, the upcoming roll-out of the regional provider, the payments mechanism and the IFC-backed lending facility represent immediate, tangible steps intended to protect jobs and sustain economic recovery.
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