Page 17 - IB July 2021

Economy

Pacific Islands finance and trade ministers have high hopes for high-value crops such as kava. Photo: PHAMA Plus
DEBT TRAPS AND DOING BUSINESS

WHAT REGIONAL ACTION CAN REBUILD OUR ECONOMIES?

By Samantha Magick gionally,” Vice Chairperson Jennifer Ula-Fruen asked. “What
systems and facilitation is needed to get this off the ground
Tourism may be the poster child of the Pacific’s post-COVID and working practically, cost-effectively and most important-
economic crisis, but it’s not the only sector that has suf- ly, safely? We in the private sector are still of the view that
fered. A stark example of the challenges that border closures there seems to be no reasonable forecast for when we can do
are causing came in reports from Cook Islands this month, business again beyond our borders, and intra-regionally. Of
where farmers are reportedly being forced to kill off oysters particular interest is business travel and engagement, albeit
because off a lack of highly-skilled Japanese technicians in a phased or transitional approach - which in our view is at the
country. heart of economic recovery.”
It’s a story that is repeated across the region. And it’s
prompted business leaders to ask the region’s governments Avoiding debilitating debt
to state clearly what a pathway for economic recovery looks The meeting heard that the level of debt being carried by
like. After vaccinations, then what? a number of countries is of collective concern. Ahead of the
Debt forgiveness, resilience funding, e- commerce, freight meeting, Pacific Islands Forum (PIF) Senior Adviser- Econom-
costs, correspondent banking and the vaccine roll-out were ics, Denton Rarawa told journalists: “Pacific Island countries
amongst the many economic issues concerning Pacific Islands have incurred new additional debt of $1.6 Billion; that’s just
finance and trade ministers this month. because of their responses to the COVID-19 pandemic.”
All the Pacific is suffering, but each nation it seems, is suf- Fiji appears to have the biggest exposure, with a total
fering in its own unique way. debt stock-to-GDP ratio of almost 92% based on the 2021-
Tao Zhang, International Monetary Fund Deputy Managing 2022 budget delivered in mid-July. Figures collated from the
Director said at the start of the Forum Economic Ministers International Monetary Fund and other national sources, show
Meeting (FEMM): “For commodity exporters such as Papua Tuvalu will have the lowest ratio at 11.8% in Tuvalu, while
New Guinea, and Solomon Islands, a return to positive growth Cook Islands, Palau, Papua New Guinea, Samoa, Tonga and
is plausible this year, as the external environment improves. Vanuatu will all have projected debt as a percentage of GDP
For tourism-reliant countries including Fiji, Palau, Samoa, and of between 40 and 50% this year.
Vanuatu, the recovery will take longer. Our best guess is that The finance ministers have directed the Pacific Islands
the region may not get back to 2019 tourism levels before Forum Secretariat (PIFS) to explore options to address the is-
2023.” sue, including debt-for-climate, or debt-for-resilience swaps,
The FEMM was chaired by Tuvalu’s finance minister, Seve where debts related to COVID could be cancelled by creditors
Paeniu, who noted that under the Pacific Humanitarian Path- if Pacific countries invest in resilience activities.
way, 121 tonnes of health and humanitarian supplies, and 130 They further called for “instruments to be simple, manage-
technical personnel had been transported around the region. able and implementable given FICs’ limited resources, the
There are hopes this pathway and the agreements that under- time-bound nature of debt instruments and the increasingly
pin it may be used to bolster economic activity. constrained development finance landscape worldwide.”
Pacific Islands Private Sector Organisation (PIPSO) represen- “If the majority of that debt can be forgiven, that would
tatives told the ministers they were keen to see more details be the first preference by our Forum countries,” said Minister
on pathways to recovery. Paeniu after the meeting.
“How will business and tourism bubbles be created intra-re- The FEMM also endorsed plans for a regional debt confer-

Islands Business, July 2021 17