Pacific Islands: Economic Outlook PFTAC Steering Committee 27 - - PowerPoint PPT Presentation

Pacific Islands: Economic Outlook

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PFTAC Steering Committee 27 March 2018 Regional Resident Representative’s Office

Recap – October 2017 WEO Projections

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Source: World Economic Outlook Update, October 2017.

Real GDP (percent change y/y) 2015 2016 2017 2018 2019 Fiji 3.8 0.4 3.8 3.5 3.4 Kiribati 7.5 4.2 2.8 2.3 2.3 Marshall Islands 1.9 2.0 1.9 1.8 1.7 Micronesia 3.7 3.0 2.0 1.4 0.9 Nauru 2.8 10.4 4.0

• 4.0

0.2 Palau 11.4 1.9 1.0 5.5 4.5 Papua New Guinea 9.2 2.4 3.1 2.9 2.6 Samoa 1.6 7.1 2.1 0.9 1.8 Solomon Islands 2.5 3.3 3.0 3.1 2.8 Timor-Leste 4.0 5.0 4.0 6.0 6.0 Tonga 3.5 3.1 3.1 3.2 2.9 Tuvalu 9.1 3.0 3.2 2.5 2.2 Vanuatu 1.6 4.0 4.5 4.0 3.5

Factors affecting Pacific Island economic growth outlook and risks

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• External environment
• Oil and commodity prices
• Remittances
• Natural disasters and climate change
• Fishing license fees
• Tourism
• Correspondent banking relationships
• Labor mobility (World Bank, “Pacific Possible”)
• Cryptocurrency

Lower oil prices slowed growth for some, but also contributed to relatively low inflation

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Source: World Economic Outlook. 50 100 150 200 250 20 40 60 80 100 120 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Crude oil, spot price Energy price (right axis)

Energy prices

(In USD) (Index, 2005=100) 1 2 3 4 5 6 7 8 Tonga Papua New Guinea Fiji Vanuatu Tuvalu Kiribati Samoa Palau Timor-Leste Solomon Islands Micronesia Marshall Islands

Inflation - APD small states and Pacific islands, 2017

(In percent)

Factors affecting Pacific Island economic growth outlook and risks

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• External environment
• Oil and commodity prices
• Remittances
• Natural disasters and climate change
• Fishing license fees
• Tourism
• Correspondent banking relationships
• Labor mobility (World Bank, “Pacific Possible”)
• Cryptocurrency

Remittance costs to the Pacific remain high

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Remittance costs to the Pacific remain high

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Factors affecting Pacific Island economic growth outlook and risks

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• External environment
• Oil and commodity prices
• Remittances
• Natural disasters and climate change
• Fishing license fees
• Tourism
• Correspondent banking relationships
• Labor mobility (World Bank, “Pacific Possible”)
• Cryptocurrency
• Trade – Pacer Plus

Rise in number of natural disasters since 1980s

9 2 4 6 8 10 12 14 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Total occurrence of natural disasters Total occurrence of natural disasters (3-year moving average)

Occurence of Natural Disasters in PICs

• Forthcoming Working Paper

(Lee et al, 2018)

• EM-DAT database
• Objective: estimate effects and

probability of severe natural disaster; build natural disaster risk into baseline projections

Frequency of severe natural disasters has varied across countries

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Probability of Severe Natural Disasters in PICs

Note: The size of circle denotes the probability that each country is hit by a severe (above 75th percentile) natural disaster.

• Preliminary estimates based on historical data for natural disasters –

shows Vanuatu, Samoa particularly vulnerable.

• Does not fully reflect climate change.

Factors affecting Pacific Island economic growth outlook and risks

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• External environment
• Oil and commodity prices
• Remittances
• Natural disasters and climate change
• Fishing license fees
• Tourism
• Correspondent banking relationships
• Labor mobility (World Bank, “Pacific Possible”)
• Cryptocurrency

VDS has resulted in strong growth in fishing revenue

12 100 120 140 160 180 200 220 240 260 280 2013 2014 2015 2016

Fishing License Revenue

(In USD million) Note: Countries included are Kiribati, Marshall Islands, Micronesia, and Tuvalu

• Supporting improved fiscal

positions in some countries

• Opportunity to build buffers

and smooth spending to extend benefits

• Fishing revenues depend on

weather conditions (Kiribati AIV) and fish migration patterns

Factors affecting Pacific Island economic growth outlook and risks

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• External environment
• Oil and commodity prices
• Remittances
• Natural disasters and climate change
• Fishing license fees
• Tourism
• Correspondent banking relationships
• Labor mobility (World Bank, “Pacific Possible”)
• Cryptocurrency

Tourism – scope for further growth

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100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 Samoa Vanuatu Palau Fiji 2013 2014 2015 2016

Tourist Arrival

(Annual visitor number)

External buffers: FX reserves have increased in many countries

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• 15.0
• 10.0
• 5.0

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 PNG Samoa Timor-Leste Palau Solomon Is. Tonga Fiji Tuvalu Vanuatu

Reserve levels - changes from 2015 to 2017

(In percent, year-on-year)

• 25
• 20
• 15
• 10
• 5

5 10 15 20 25 Tuvalu Tonga Palau Vanuatu Timor-Leste Samoa Nauru Solomon Islands Fiji Micronesia Marshall Islands Papua New Guinea Kiribati 2000-15 Average 2016-17 Average

Current Account Balance

(In percent of GDP)

Fiscal buffers: Several countries have reduced public debt

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20 40 60 80 Samoa Tuvalu Fiji Tonga Papua New Guinea Marshall Islands Vanuatu Palau Kiribati Micronesia Solomon Islands Timor-Leste 2017 2014 2012 PIC 2017 Average

Pacific Islands: Total Public Debt

(In percent of GDP)

Integrating Surveillance and Capacity Development

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• Increased focus on making ensuring policy

recommendations are practical and feasible

• Fund CD (TA and training) supports policy

recommendations / surveillance priorities

• E.g. Surveillance priority: build fiscal buffers to increase

resilience to shocks => Fund can provide TA on increasing fiscal revenues; improved PFM and investment management, etc.

IMF work agenda

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Themes: ⇒ Building resilience ⇒ Increasing growth Underway and upcoming, includes:

• Natural disasters included in macro-frameworks and

DSAs / forthcoming WP on natural disaster impact

• Financial inclusion (departmental paper)
• CBR
• Review of low income facilities