Islands’ fiscal challenges to rise in 2014 but it’s not all gloom

2013-08-11T12:00:00Z

A tri-annual review of economic developments in 14 developing countries in the Pacific says fiscal pressures are expected to increase in the Pacific in 2014.<!--more-->

According to the latest issue of the Asian Development Bank’s (ADB) <i>Pacific Economic Monitor</i>, launched last week, Samoa, Fiji, Timor-Leste, Papua New Guinea and several other nations will face mounting challenges next year.

Public spending for post-cyclone recovery in Samoa is likely to slow progress towards fiscal consolidation and drive up debt levels, according to the report. In Fiji, rising capital expenditures by the government and anticipated election-related spending may challenge efforts to keep fiscal deficit in check.

Timor-Leste’s fiscal surplus is expected to diminish significantly due to declining petroleum revenues and continued high levels of government expenditure. Deficit-financed fiscal stimulus is expected to continue in Papua New Guinea (PNG) in an effort to counter the effects of a slowdown in economic growth. However, ongoing problems with the quality of expenditure and timely implementation of projects due to capacity constraints will likely to persist.

In the northern Pacific, the Federated States of Micronesia and Republic of Marshall Islands are expected to continue to struggle in their efforts to accumulate trust funds that will enable them to maintain government expenditure beyond 2023, when annual transfers from the United States under the Compacts of Free Association are set to expire.

Revenue collections have declined in the region’s large resource exporters, but remained strong in the smaller Pacific economies in 2013. Lower commodity prices are weakening revenue collections in PNG. In Timor-Leste, offshore petroleum production appears to have peaked. Falling log exports have decreased revenues from timber export duties in the Solomon Islands. Revenue declines, along with limits in government capacity to implement capital projects, have contributed to delays in budget execution and slowed growth in these economies.

But all is not gloomy: revenues are exceeding budget targets for the second consecutive year in Kiribati, the Republic of the Marshall Islands, Nauru, and Tuvalu, mostly due to increased fishing license fees. Tax collections in the Cook Islands, Fiji, and Vanuatu are also higher than expected due to higher tourism arrivals and other factors.

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