The 11 other Pacific economies (Cook Islands, Fiji Islands, Federated States of Micronesia, Kiribati, Nauru, Marshall Islands, Palau, Samoa, Tonga, Tuvalu, and Vanuatu) are expected to experience much lower GDP growth, at 1.5% in 2011 and 1.9% in 2012.
“The long term growth outlook for the Pacific region as a whole is very modest. If this trend continues, the region risks falling further behind the dynamic economies of developing Asia, resulting in a widening gap in incomes in the two regions,” said Robert Wihtol, Director General of ADB’s Pacific Department. “To avoid this scenario, Pacific governments need to focus on the core functions of good government—investing in infrastructure, improving education and providing an enabling business environment that will encourage investment.”
The July issue of the report raises inflation projections for 2011, due to the sharp rise in commodity prices. It warns that high inflation rates in Fiji, PNG, and Timor-Leste are of particular concern. For the region as a whole, inflation is expected at 8.4% in 2011, but will ease to 5.9% in 2012 as commodity prices stabilize.
The report notes that the smaller, more remote and heavily import dependent Pacific economies, such as those in the northern Pacific, are particularly sensitive to rising international food and fuel prices and are expected to be hit hard by inflation. The depreciation of most regional currencies against the US dollar adds to inflationary pressure across the region.
The ADB report assesses long-term growth prospects in the Pacific region. This assessment shows that Pacific economies can achieve modest growth in incomes in the long term assuming reasonable improvements in the efficiency of their resource use. Two groups of Pacific economies are emerging—those benefiting from their natural resources and those who are not.
To manage price volatility, the ADB report recommends developing safety nets to ensure that the poor in Pacific countries have access to food when prices become unaffordable, diversifying the agricultural base, and exploring alternative energy sources.