ADB issues economic analyses for Pacific nations

The Asian Development Bank issued a variety of economic analyses for the island of the Pacific region on April 17. These also contain interesting forward-looking statements.

In the Federated States of Micronesia, the economy expanded by 2.6% in fiscal 2023, reversing the 0.6% contraction in fiscal 2022. “The removal of pandemic-related restrictions, notably border controls, enabled public infrastructure projects and general economic activity to resume. Construction, transportation, hotels and restaurants, and retail trade drove growth,” ADB said.

The economy is projected to grow by 3.1% in fiscal 2024 and 2.8% in fiscal 2025. “The recovery of tourism and increased public investment—supported by the renewed COFA once it enters into force—will likely drive construction, expand output, and stimulate other economic sectors,” the ADB said.

The Marshall Islands economy grew by 2.5% in fiscal 2023 after contracting by 0.7% in fiscal 2022. Growth is projected at 2.7% in FY2024 and 1.7% in FY2025.

“Revived fisheries and construction output contributed significantly to the rebound. The number of purse seine transshipment vessels calling at Majuro Port rose by 15.6% (year-on-year) during fiscal 2023, with the related volume of tuna transshipped up by 4.8%. Public infrastructure projects funded by development partners and preparations for the June 2024 Micronesian Games drove construction output. Spending in the months leading to the November 2023 elections also contributed to the increased economic activity,” the ADB said.

After four consecutive years of economic contraction, Palau’s economy is projected to grow by 6.8% in 2024, picking up further to 8% in 2025. The positive outlook is largely driven by a significant growth in tourism.  Visitor arrivals grew in the 2023 fiscal year by 279.1%, buoyed by the resumption of flights from Taipei, China and Macau. “The construction sector will rebound, and new public infrastructure projects will also contribute to economic growth,” the ADB said.

"Palau's tourism sector is performing strongly, but improved public sector management remains key to using the financial assistance anticipated under the North Pacific economies’ renewed Compacts of Free Association with the United States to improve the quality of public services and build resilience,” Hideaki Iwasaki. Deputy director general of ADB’s Pacific Department, said. “It is critical that public investment management is upgraded, the quality of public investments enhanced, and risks managed to ensure the medium-term outlook for Palau remains positive.”

Palau, along with the other North Pacific economies of the Federated States of Micronesia and the Marshall Islands, have begun implementing domestic resource mobilization measures to help build fiscal self-sufficiency. “Palau introduced a package of tax reforms, including a business profits tax and a reduced wage tax for certain income levels. The reforms update the previous inefficient tax regime while also broadening the revenue base and promoting equity,” the ADB said.

However, despite these favorable outlooks the ADB also offered notes of caution.

“Escalating conflicts and geopolitical tensions could disrupt supply chains and amplify commodity price volatility. Uncertainty about United States monetary policy, property market stress in the PRC, and the effects of adverse weather are other challenges for the region,” the ADB said.

 See www.adb.org for the full outlook. mbj