AFTER three consecutive years of negative economic growth, Solomon Islands economy will return to growth this year.
This is according to the World Bank’s inaugural Pacific Economic Update, a comprehensive assessment and forward-projection of 11 Pacific Island country economies, launched yesterday in Suva, Fiji.
It said the return of Solomon Islands to economic growth in 2023 is buoyed by a normalisation of borders and the resumption of major infrastructure projects.
Nonetheless, the report said the economic aftermath of the November 2021 unrest in Honiara continued to be felt and that inflation is expected to ease to 3.4 percent in 2023 and remain around that rate into 2024.
On the regional front, the report said after nearly three years of economic contraction, Pacific economies can anticipate a return to growth this calendar year despite ongoing challenges, according to the World Bank.
But while the recovery is expected to continue, it said fiscal balances, debt sustainability and inflation will remain a concern.
As such, it advised that Pacific nations will need to consider reforms and policies to boost equitable growth and sustainable investments, while striking a careful balance between supporting livelihoods and reducing future public debt risks.
It said while nearly all Pacific countries are forecast to grow through 2023, some countries, such as Palau, will even see larger rebounds of around 18 per cent growth in GDP on the back of a resurgent tourism industry.
Others, such as Solomon Islands, are expected to grow more slowly with an increase of around 2.3 percent, it added.
Economic impacts from the COVID-19 Pandemic persist
The new report comes at a critical juncture for Pacific Island countries. Closure of borders from 2020-22 during the pandemic have eased after dealing a severe blow to the tourism-dependent economies of Fiji, Vanuatu, Samoa, Tonga, and Palau.
However, the region is now being buffeted by inflation and global economic uncertainty. In 2022, costs of shipping and imports rose to their highest levels in over 20 years. Although prices have eased modestly in recent months, the shocks are still being felt by the Pacific as global uncertainty has increased.
“After being severely hit by COVID-19, and tepid signs of recovery in 2022, economies across the Pacific can expect growth in 2023, but for many people it will not feel like a return to pre-COVD-19 times,” the World Bank’s Lead Economist for the Pacific, David Gould said. “After three years of economic contraction in Fiji, for example, growth in 2022 is estimated to have climbed to 15 per cent, yet output is expected to remain below 2019 levels until 2024.”
Pacific not immune from fallout of the war on Ukraine
The report notes that the high global economic fallout associated with the war on Ukraine led to a downward revision in growth forecasts for Pacific economies.
“Pacific Island countries have not been immune from the economic impacts of the war on Ukraine,” Mr Gould said. “Just as the Pacific was set to begin its post-pandemic recovery, it has been dealt another shock. Rising global energy and food prices have strained Pacific budgets, added to inflation, and ultimately increased the cost of living for families across the region.”
The report projects that inflationary pressures will peak in the first half of 2023, with consumer prices projected to fall in every Pacific Island country except Samoa, where inflation may reach as high as 12 per cent in the second half of the year, before falling in 2024.
Policymakers urged to boost sustainable growth; minimise debt and fiscal vulnerabilities
The report provides an in-depth look at the challenges of fiscal and debt vulnerabilities faced by Pacific Island countries and how these were made worse during the pandemic. It offers several recommendations that Pacific governments could consider to accelerate their recovery, enhance debt and fiscal sustainability, and further improve living standards across the region.
“COVID-mitigation measures led Pacific governments to expand spending. To reduce the likelihood of falling into a problematic debt situation, Pacific governments should now consider ways to sensibly reduce costs, and begin to responsibly unwind pandemic-era support,” Gould said.
“After three difficult years, the Pacific’s economic prospects are clearly improving. While challenges remain, the Pacific is well placed to accelerate its post-COVID economic recovery throughout 2023 and beyond,” World Bank Country Director for Papua New Guinea and the Pacific, Stephen Ndegwa said.
The World Bank works in partnership with 12 countries across the Pacific, supporting more than 95 projects totaling US$3 billion in commitments in sectors including agriculture, aviation and transport, climate resilience and adaptation, economic policy, education and employment, energy, fisheries, health, macroeconomic management, rural development, telecommunications, and tourism.
By Deli Sharon Oso