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Economic growth in the Pacific is predicted to lag behind other emerging markets following the post-Covid boom caused by borders reopening.
The latest Pacific Economic Update report from the World Bank said growth decelerated to 5.5 percent in 2023 after a historically high rate of 9.1 percent in 2022.
The report includes 11 Pacific island economies of Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, Palau, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
The strong post-Covid rebound can be largely attributed to Fiji which had 20 percent growth and accounts to more than half of the region's economic output. In 2023, Fiji's growth rate slowed to 8 percent and is now moving toward its medium-term trend of around 3 percent.
Excluding Fiji, the rest of the Pacific island nations experienced a rebound of 2.7 percent in 2023, following three consecutive years of contractions.
In 2024 and 2025, Pacific island countries are anticipated to experience continued deceleration in growth to 3.5 percent in 2024 and 3.3 percent in 2025.
Reforms necessary
The report said excluding Fiji output in Pacific islands are only projected to surpass pre-pandemic levels in 2025, lagging behind many other emerging markets and developing economies, the report said.
World Bank senior economist and one of the authors of the report, Reshika Singh, said the slow growth is due to country specific factors like timing of borders reopening, flight disruptions and natural disasters.
"More than half of the countries that are covered by this report are projected to experience slower per capita growth than advanced economies and resulting in a widening income gap," Singh said.
"Without fundamental reforms and continued international support, growth is expected to plateau at this lower rate amid a subdued investment outlook, and this is what we are worried about."
Singh said Pacific nations in the report need to improve productivity.
"This would be including through investments in health, education, skills, and effective social protection programs, and also building quality infrastructure that is resilient to climate change."
She said one of the key recommendations is for Pacific nations to diversify there economies, "basically we should not be putting all our eggs in one basket".
Singh said inflation "continues to be an enemy for the Pacific".
"Global commodity prices have fallen but remain above their pre-pandemic levels and inflation remains high in our neighbouring trading partner countries, that is Australia and New Zealand.
"Pacific Island countries rely heavily on commodities from outside the region."
The average inflation has dropped from 7.5 percent in 2022 to 6.5 percent in 2023, it is expected to remain above 4 percent in the medium term, she said.
Singh said the poor and vulnerable were the hardest hit during the Covid-19 pandemic.
"Economic recovery in these specific countries will be crucial in supporting poverty reduction efforts," she said.
"What we are seeing is that the Pacific countries are expected to continue reducing poverty in the next few years."
The report said Fiji is projected to return to pre-Covid-19 levels of poverty by 2024.
The report said education will allow Pacific countries to find solutions to economic challenges.
'Education is key'
World Bank lead economist Lars Sondergaard said the most important asset the Pacific has is its people and not natural resources.
"There's compelling evidence out there that education is key, not only for individuals, but also for societies and for economies," Sondergaard said.
"If you do the right things and you could do them well the returns to education can be massive."
He said the World Bank had worked out each dollar invested in a programme designed to improve teaching in Tonga should result in about a $12 return.
Sondergaard said many students in the region were not acquiring the basic literacy and numeracy skills.
"More than half of students where not meeting international benchmarks in reading and of course Covid related school closures make this situation even worse."
He said teachers and teaching quality are the most important factors that affect how well a student does.
Sondergaard said the region is struggling to attract and retain teachers, He said half of Samoa's schools have pupil teacher ratios exceeding 30.
The report includes 11 Pacific island economies of Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, Palau, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.