Pacific Economic Outlook Ananya Basu Principal Economist Pacific - - PowerPoint PPT Presentation

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Pacific Economic Outlook Ananya Basu Principal Economist Pacific - - PowerPoint PPT Presentation

Aug 03, 2023 34 likes •260 views

Pacific Economic Outlook Ananya Basu Principal Economist Pacific Department Asian Development Outlook 2019 Pacific Roadshow Sydney / Canberra / Auckland / Port Moresby April 2019 Key messages Disasters delayed economic recovery in the

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SLIDE 1

Pacific Economic Outlook

Ananya Basu Principal Economist Pacific Department

Asian Development Outlook 2019 Pacific Roadshow Sydney / Canberra / Auckland / Port Moresby April 2019

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SLIDE 2

Key messages

  • Disasters delayed economic recovery in the Pacific, with growth instead

slowing further to an average of just 0.9% in 2018

  • Earthquake in Papua New Guinea
  • Cyclone Gita in Tonga
  • Tropical Depression Jelawat in Pohnpei, Federated States of Micronesia
  • Cyclone Hola, and volcanic eruption in Ambae Island, in Vanuatu
  • Near-term outlook is for a strong rebound to growth of 3.5% in 2019, with

enough momentum to sustain a further 3.2% expansion in 2020

  • Pacific economies progressing with reforms and other measures to

reduce vulnerabilities, promote fiscal and economic sustainability

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SLIDE 3

External economic environment

  • International fuel prices set to fall from last year’s sharper-than-

expected increase

  • Global food prices projected to be mostly stable
  • World tourism growth to proceed at a brisk pace, continuing

strong growth from previous 2 years

  • Uncertainties in outlook for major partners:
  • Australia and New Zealand: steady growth, but possible risks from ongoing

slowdown in the PRC economy

  • US: growth slowing as stimulus from 2018 tax breaks fade, potential

adverse impacts if trade conflict escalates

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SLIDE 4

A cautious recovery ahead

3 6 9 12 15 2014 2015 2016 2017 2018 2019 2020 % p.a.

GDP growth

Forecasts Sources: Asian Development Outlook and Pacific Economic Monitor databases. Pacific Papua New Guinea Pacific excl. PNG Disasters and declines in key sectors led to easing growth since 2014… … but, the downturn appears to have bottomed out, and near-term growth is seen to exceed 2016–2018 performance

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SLIDE 5

Growth divides re-emerging?

Forecasts Larger economies = FIJ, PNG, SOL, TIM, VAN; North Pacific = RMI, FSM, PAL South Pacific = COO, SAM, TON; Small islands = KIR, NAU, TUV Sources: Asian Development Outlook and Pacific Economic Monitor databases.

  • 3

3 6 9 12 2014 2015 2016 2017 2018 2019 2020 % p.a.

GDP growth

Small islands Larger economies South Pacific North Pacific Larger more resource-rich economies expected to grow at almost double the rate for the smallest islands

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SLIDE 6

Papua New Guinea: Reforms to assist economic recovery

  • Growth slowed to 0.2% in 2018 due to

impacts of February earthquake

  • LNG output fell by 9%
  • Disrupted production in Porgera mine
  • Positive developments in other

mines, incl. small-scale alluvial mines

  • Hosting of 2018 APEC summit helped

keep growth positive

  • Coffee and logging exports also

performed well

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SLIDE 7

Papua New Guinea: Reforms to assist economic recovery

  • Growth to rebound to 3.7% in 2019

and 3.1% in 2020

  • LNG and gold to return to full

production

  • Further major resource extraction

projects in pipeline

  • Fiscal reforms succeeding in raising

revenues

  • But, more progress needed in

controlling expenditure

  • Phasing out distortions in foreign

exchange market key to boosting private investment

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SLIDE 8

Fiji: Sustaining tourism-led growth

  • Growth maintained at 3.0% in 2018,

with broad-based contributions

  • Visitor arrivals up by 3.3%; tourism

earnings at 20% of GDP

  • Increased sugarcane, timber, food

processing output

  • Strong construction activity
  • Despite frequent disasters,

uninterrupted growth since 2010

  • However, fiscal deficit increased to

5.3% of GDP—more than double from previous year

  • Public debt increased to 50% of GDP
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SLIDE 9

Fiji: Sustaining tourism-led growth

  • Growth to accelerate to 3.2% in 2019

and 3.5% in 2020

  • Construction fueled by bank lending for

real estate, infrastructure projects

  • Strong tourism seen to continue
  • 5.5% annual average increase in arrivals

from 2010 to 2018

  • Rising arrivals from Asia with expanding

flight services

  • Sustainable tourism paramount
  • Stronger environmental management
  • Investment planning and promotion
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SLIDE 10

Timor-Leste: Moving past political gridlock?

  • A second consecutive year of

contraction in the non-oil economy

  • Decline of almost 6% through 2017–2018,

after decade of sustained growth

  • Total government expenditures fell by

3% in 2018 (adding to 26% decline in 2017)

  • Lower recurrent spending, but capital
  • utlays recovered
  • Better enabling environment in 2019?
  • Improved political situation with 2019

Budget approved in February

  • Progress in Greater Sunrise development,

Tibar Bay port project

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SLIDE 11

Timor-Leste: Moving past political gridlock?

  • 2019 State Budget
  • Strong fiscal stimulus, full

implementation will result in 22% increase in public spending

  • Significant increases for education and

health programs

  • Infra spending mostly on roads and

bridges, Tasi Mane project

  • But, excess withdrawals to erode

Petroleum Fund to $15.1 billion by 2020 (from $16.9 billion in 2016)

  • Sustainable forestry development of

could contribute to medium-term growth and job creation

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SLIDE 12

Solomon Islands: Toward a sustainable reinvigoration of growth

  • Further slowdown in growth to 3.0%

in 2018

  • Reduced fiscal stimulus, particularly

capital projects

  • Lower exports of most crops, e.g.,

copra and coconut oil

  • However, logging and mineral exports

continued to rise

  • Growth seen to continue to fade in

near-term

  • El Nino impacts on crops and fisheries
  • Construction of large infrastructure

projects to support modest growth

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SLIDE 13

Solomon Islands: Toward a sustainable reinvigoration of growth

  • Forestry Sustainability Policy 2018
  • Export caps to reduce log production to

sustainable rate

  • Expected to result in reductions in

government revenues (e.g., logging export duties to fall by 16% in 2019)

  • Ongoing tax reform measures

showing progress

  • First phase focused on tax

administration

  • Next phase to lower marginal income

tax rates to expand tax base and encourage compliance

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SLIDE 14

Vanuatu: Inclusive growth through tourism linkages

  • Growth eased to 3.2% in 2018 as

agriculture suffered from disaster impacts

  • Cyclone Hola and volcanic eruption in

Ambae Island

  • Strong construction activity on

major transport projects

  • Wharves in Port Vila and Luganville,

airports, roads

  • Robust tourism performance
  • Visitor arrivals up 7.8% to historic high of

358,000

  • Travel and tourism contributed about

45% of GDP

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SLIDE 15

Vanuatu: Inclusive growth through tourism linkages

  • Although GDP growth is seen to ease

in the near-term, tourism is expected to remain strong

  • Completion of tourism-related

infrastructure projects

  • Prospects for increasing flight

connections and frequency

  • Tourism-led growth can be made

more inclusive by:

  • Strengthening linkages with local

suppliers and communities

  • TVET programs focusing on hospitality

and transport sectors

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SLIDE 16

North Pacific: Managing economic volatility

  • Flooding and landslides slowed growth

in the FSM, but capital investment to support better near-term performance

  • Growth easing in the RMI due to project

implementation capacity constraints

  • Tourism downturn persisted in Palau,

but economic recovery underway

  • Highly volatile economic performance,

even relative to Pacific peers, calls for:

  • Fiscal buffers or trust funds to smoothen

government spending

  • Stronger public investment planning and

implementation

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SLIDE 17

South Pacific: Ensuring sustainable growth in tourism

  • Strong growth in the Cook Islands

underpinned by robust tourism performance and infra projects

  • Impact of Cyclone Gita slowed growth in

Tonga, but reconstruction to boost near-term prospects

  • Growth also eased in Samoa with the

closure of a large manufacturing firm; buoyant tourism to support acceleration

  • Safeguarding the environment—and

infrastructure development to encourage industry diversification— keys to sustainable tourism-led growth

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SLIDE 18

Small islands: Reforming state-owned enterprises

  • Infrastructure development driving

steady expansion in Kiribati and strong growth in Tuvalu

  • Economic stagnation in Nauru amid

scaling down of RPC

  • SOEs provide essential services,

particularly for remote communities, but operating costs tend to be high

  • Need to recalibrate utility tariffs to

reflect cost recovery

  • Targeted community service obligations
  • Strengthen SOE governance
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SLIDE 19

Thank You

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SLIDE 20

Summary: Growth performance and outlook

2014 2015 2016 2017 2018e 2019p 2020p Pacific 9.6 8.0 2.5 2.4 0.9 3.5 3.2 Cook Islands 3.2 4.5 6.0 6.8 7.0 6.0 4.5 Fiji 5.6 3.8 0.7 3.0 3.0 3.2 3.5 Kiribati

  • 0.7

10.4 5.1 0.3 2.3 2.3 2.3 Marshall Islands, Rep. of

  • 0.7
  • 0.6

1.8 3.6 2.5 2.3 2.2 Micronesia, Fed. States of

  • 2.2

5.0 0.7 2.4 2.0 2.7 2.5 Nauru 36.5 2.8 10.4 4.0

  • 2.4
  • 1.0

0.1 Palau, Rep. of 3.1 10.4 0.5

  • 3.7

0.5 3.0 3.0 Papua New Guinea 12.5 10.5 2.0 3.0 0.2 3.7 3.1 Samoa 1.2 1.7 7.2 2.7 0.9 2.0 3.0 Solomon Islands 1.8 2.6 3.4 3.2 3.0 2.4 2.3 Timor-Leste, Dem. Rep. of 4.1 4.0 5.3

  • 5.4
  • 0.5

4.8 5.4 Tonga 2.1 3.7 3.1 2.8 0.4 2.1 1.9 Tuvalu 2.2 9.1 3.0 3.2 4.3 4.1 4.4 Vanuatu 2.3 0.2 3.5 4.4 3.2 3.0 2.8 FIJ, PNG, SOL, TIM, VAN 10.4 8.5 2.2 2.3 0.7 3.7 3.3 North Pacific

  • 0.3

4.9 1.0 0.9 1.7 2.7 2.6 South Pacific 1.9 2.8 5.8 3.5 1.9 2.8 3.0 Small islands 10.7 8.4 6.3 1.6 1.3 1.6 1.9 GDP growth (% change) e = estimate, p = projection.

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SLIDE 21

Summary: Inflation performance and outlook

e = estimate, p = projection. 2014 2015 2016 2017 2018e 2019p 2020p Pacific region 3.8 4.2 4.7 4.2 4.0 3.7 4.0 Cook Islands 1.6 3.0

  • 0.1
  • 0.1

0.4 1.0 1.5 Fiji 0.5 1.4 3.9 3.3 4.1 3.5 3.0 Kiribati 2.1 0.6 1.9 0.4 2.1 2.3 2.2 Marshall Islands, Rep. of 1.1

  • 2.3
  • 1.5

0.0 0.7 0.5 1.0 Micronesia, Fed. States of 0.7 0.0

  • 0.9

0.1 1.0 0.7 1.5 Nauru 0.3 9.8 8.2 5.1 3.8 2.5 2.0 Palau, Rep. of 4.0 2.2

  • 1.3

0.9 1.1 0.5 1.5 Papua New Guinea 5.2 6.0 6.7 5.4 4.5 4.2 4.7 Samoa

  • 1.2

1.9 0.1 1.4 3.7 2.0 1.5 Solomon Islands 5.2

  • 0.5

1.1 0.1 3.3 2.5 2.5 Timor-Leste, Dem. Rep. of 0.7 0.6

  • 1.3

0.6 2.1 3.0 3.3 Tonga 2.5

  • 1.0

2.6 7.4 5.3 5.3 5.3 Tuvalu 1.1 4.0 2.6 4.4 1.8 3.4 3.5 Vanuatu 1.0 2.5 0.8 3.1 2.2 2.0 2.0 FIJ, PNG, SOL, TIM, VAN 4.1 4.5 5.2 4.4 4.2 3.9 4.2 North Pacific 1.7 0.0

  • 1.2

0.3 0.9 0.6 1.4 South Pacific 0.4 1.3 0.7 2.8 3.5 2.7 2.6 Small islands 1.5 3.2 3.7 2.1 2.5 2.5 2.3 Inflation (%, annual avg.)

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SLIDE 22

Summary: CAB performance and outlook

e = estimate, p = projection. 2014 2015 2016 2017 2018 2019 2020 Pacific region 13.3 13.5 11.7 12.0 15.6 12.3 9.8 Cook Islands

  • 5.3
  • 1.4

0.6 1.9 2.2 2.8 3.4 Fiji

  • 6.2
  • 2.3
  • 2.8
  • 5.8
  • 5.2
  • 4.7
  • 4.2

Kiribati 54.0 45.6 20.4 14.5 13.4 7.6 4.0 Marshall Islands, Rep. of

  • 1.7

14.4 9.7 4.8 7.0 8.0 7.5 Micronesia, Fed. States of

  • 0.9

1.6 3.9 7.5 2.0 1.0 1.5 Nauru

  • 13.4
  • 9.4

1.6 0.5 1.0 0.5 1.5 Palau, Rep. of

  • 13.8
  • 6.5
  • 10.5
  • 17.9
  • 17.5
  • 16.3
  • 16.0

Papua New Guinea 10.5 19.6 24.0 22.5 26.7 22.5 18.5 Samoa

  • 8.6
  • 2.7
  • 4.5
  • 1.8

4.7

  • 3.5
  • 3.0

Solomon Islands

  • 5.5
  • 3.4
  • 4.6
  • 3.9

3.9

  • 1.4
  • 2.6

Timor-Leste, Dem. Rep. of 75.2 14.9

  • 30.7
  • 17.5
  • 11.8
  • 12.0
  • 12.0

Tonga

  • 6.8
  • 14.8
  • 13.8

3.1 1.8

  • 12.2
  • 11.2

Tuvalu 5.0

  • 52.0

24.0 6.7 4.8

  • 0.9
  • 11.0

Vanuatu

  • 0.1
  • 8.9
  • 4.6
  • 1.5

0.5 1.0 1.5 FIJ, PNG, SOL, TIM, VAN 14.8 15.2 13.3 13.5 17.4 14.2 11.4 North Pacific

  • 4.8

2.9 1.1

  • 0.9
  • 2.5
  • 2.2
  • 2.1

South Pacific

  • 7.4
  • 6.0
  • 6.1

0.3 3.4

  • 4.7
  • 4.0

Small islands 29.5 22.1 15.7 9.9 9.1 4.8 1.7 Current account balance (% of GDP)