Pace of Pacific economies to slow down, says ADB
The fastest growing economies in the region, Papua New Guinea and the Solomon Islands are tipped to slow down starting this year, putting the brakes on regional growth overall, according to an Asian Development Bank (ADB) report, titled Asian Development Outlook 2012 released last week.<!--more-->
On the back of slowing growth rates in PNG (from 10 percent of GDP in 2011 to eight percent in 2012) and the Solomon Islands (from 9.3 percent to six percent of GDP), the region’s economic growth rate is expected to slow to six per cent this year, further slowing down to four per cent in 2013.
Several factors are contributing to this slowdown according to the report. Among these are declining revenue from resource exports, softening of tourism growth, and continuing weak remittances reflecting the effects of the ongoing precarious global financial situation. Domestic factors include a decrease in infrastructure projects that stimulate growth and falling credit growth rates in most countries around the region.
“Delivering inclusive growth in an uncertain global environment requires Pacific governments focus on maintaining basic public services by investing in vital infrastructure, education and health services, as well as measures to improve government fiscal management and public sector efficiency,” said Xianbin Yao, director-general of ADB’s Pacific department.
Accelerating reforms to the public sector and state-owned enterprises are essential to take the pressure off expenditure demands on Pacific governments, the report notes. Debt levels are already above target ceilings in Fiji, Nauru, Samoa, and Tonga. Kiribati has been drawing down its trust fund at an unsustainable rate and Tuvalu cannot rely on its trust fund earnings in the foreseeable future.
But it’s not all doom and gloom – at least for the remainder of 2012. Some countries are expected to boost their economic growth rates. Resource-rich Timor-Leste, for instance, will continue at 10 per cent growth through 2012, though it is expected to slow down to eight per cent in 2013.
Other positive performers will be the Cook Islands, Samoa and Tonga, which will see accelerated growth through this year, before slowing in 2013. After experiencing its ninth consecutive year of expansion in 2011, Vanuatu is going against the moderating trend, with ADB forecasting acceleration of growth to 4.5 percent in 2012 and five percent in 2013. “Government efforts to put in place a sound environment for the private sector are showing clear dividends. Vanuatu is on track to achieve a decade of uninterrupted growth,” the report says.