Slow 2% growth for region, bank predicts



The outlook for Pacific Islands economies for 2005-07, as predicted by the Asian Development Bank (ADB), is, as usual, not very good. In some areas it is depressingly bad.

ADB's predictions are for slow growth of about two percent, worsening unemployment, worsening hardship for poor people in rural and town areas, and the failure of Pacific Islands governments to attract more private investment by fixing up bad habits of governments as quickly as they should do.

While the growth for islands members should grow slightly to about two percent, their Asian neighbours will hit an overall expansion of 6.5 to 6.9 percent, the bank says.

A “major” slowdown of growth of Fiji, the region's second biggest economy, is expected due to falling production by its waning garment export industry and the pain of reorganising its fading sugar industry.

Papua New Guinea, the largest economy in the region, should maintain a modest growth, but at a slightly lower average of 2.4 percent because some of the country's big mines are nearing the end of their lives and logging is curtailed.

Inflation in the island region will hover in the range of 3.4 to four percent in the medium term, the ADB says in the seventeenth of the annual outlook reports it produces for member countries in the Asia/Pacific region covered by its work.

Aggregate growth for the Pacific Islands in 2004, an estimated 2.6 percent, didn't move from 2003.

Increases in GDP ranged from 1.6 percent for Tonga to 4.6 percent for the Solomon Islands, where the economy, based mainly on fishing, forestry and agriculture, began to recover from the collapse that began in 2000.

The economies of the Federated States of Micronesia, the Marshall Islands and Tuvalu shrank because of reductions in public sector activity.

Vanuatu picked up a little more growth from agriculture, which contributed to a pick-up of growth for Fiji.

Papua New Guinea's mining and agriculture industries expanded. But growth was dragged down by the depletion of production from the country's small oil fields. Growth fell from 2.8 percent in 2003 to 2.6 percent.

The ADB notes that the region's biggest industry, tourism, grew generally due to intensifying airline competition that brought airfares down. Services and construction businesses benefitted from that trend.

The Cook Islands, Fiji, Samoa and Vanuatu did particularly well from tourism.

At the other end of the measure, the small Micronesian industry shrank due to the high cost of flying into the Micronesian region caused by a lack of airline competition.

The buoyancy of the international financial markets boosted earnings by the long-established Kiribati and Tuvalu trust funds (national investment funds) and new funds established by the Federated States of Micronesia and Marshall Islands as a condition of future aid from the United States.

Although employment throughout the region grew slightly, it was way below population growth rate.

Samoa and Tonga had double-digit inflation rates (more than 10 percent), but elsewhere inflation fell overall, mainly to a sharp drop in Papua New Guinea.

Fiscal management generally improved through the region except in Federated States of Micronesia and the Marshalls.

Export accounts generally improved with export growth outpacing import growth, and tourism earnings improved.

A number of its Pacific members continued to experience political uncertainties, the ADB says, with corruption and poor governance remaining as the big impediments to healthier development.

The ADB regards Vanuatu as having been the shakiest of countries in the region in 2004. But in Nauru voters replaced a bad government with a reform-minded one.

For most of its Pacific members, the ADB says, “physical infrastructure development and the creation of an effective legal and regulatory environment for business, including property rights, remained the major challenges.

“Relatively large civil services still needed rightsizing and refocusing on performance, and the importance of public enterprise reform was underlined by the bankruptcy of Royal Tongan Airlines.”