Countries and Regions

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p. 3 of 7 BACK | NEXT Executive Summary I. Current Development Trends and Issues II. Assessment of Development Strategies from a Regional Perspective III. Asian Development Bank Development Experience IV. Asian Development Bank Strategy V. Asian Development Bank Assistance Program VI. Risks and Performance Monitoring and Evaluation

Country Strategy and Program 2004-2006: The Pacific

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II. Assessment of Development Strategies from a Regional Perspective

A. Economic Goals and Performance

18. The overall development goal adopted for the current regional strategy (1997) of PIFS is sustainable economic growth leading to improvements in the quality of life for the peoples of the Pacific Islands. This broadly captures the economic goals of the individual Pacific countries. In addition, FEMM in July 2002 identified several key principles and actions that could support the attainment of the overall regional goal: good governance, broad-based consultations, socioeconomic impact assessments, improvement of business environment, greater consultation and partnership between public and private sectors, and incorporation of environmental and social issues into economic planning and budgeting processes.

19. The economic performance of the Pacific in the 1980s and early 1990s was disappointing, despite a high investment ratio supported by generous aid flows. During 1985-2001, aggregate GDP and per capita GDP of the Pacific grew at average annual rates of 2.9% and 0.7%, respectively (Table 3). Although 1990-1995 was a high-growth period, it was associated with unsustainable exploitation of natural resources. The more recent period of 1996-2001 saw worsening economic performance, with an average annual GDP growth rate of only 1.2% associated with a declining annual per capita GDP of 0.9%. The most important factors contributing to the slowdown during 1996-2001 were political instability and the declining stocks of natural resources in low-income, resource-rich countries (footnote 1). While the other two groups of countries experienced near stagnation, the higher-income countries recorded modest average economic growth above 2.2% per annum during 1996-2001, above the rate of population growth. The overall disappointing performance largely reflects country-level failures; however, regional cooperation also failed to play a major catalytic role. Apart from being affected by the general inefficiencies of the Pacific described above, the effectiveness of regional cooperation was also undermined by the inadequate focus on private sector development, weak regional institutional capacity, limited transfer of skills, and lack of genuine consensus on some issues.

20. Major economic reforms were initiated in the Pacific toward the end of the 1990s, mainly triggered by fiscal difficulties. These reforms focused on fiscal discipline, downsizing government, private sector development, and strengthening governance. However, with a few exceptions, the Pacific has achieved very limited success in these efforts. With a background of generous aid over the last three decades, the Pacific seems to have failed to address the core issues constraining productivity and socioeconomic development. Most underlying problems of the Pacific are common to all countries, with the lack of appropriate knowledge and technology a major problem. Regional cooperation has a strong role to play in addressing these common problems and providing economies of scale in efforts to build knowledge and technology for addressing country-level issues. The FEMM held in July 2002 reaffirmed the importance of regional cooperation in the Pacific to meet the challenge, and to make better use of the opportunities of globalization.

B. Social and Environmental Performance Assessment

1. Social Performance Assessment

21. Although the Pacific has made significant progress in human resources development (HRD) over the last three decades, most low-income, resource-rich countries fall far behind the other PDMCs. The quality of education is deteriorating in some countries, and school retention rates in rural areas and outer islands are generally low everywhere. There is a mismatch between skills and employment opportunities. Poor quality of public service delivery is a major concern in the rural areas and outer islands in most Pacific countries. Population growth⁹ in low- income, resource-rich countries is a major challenge, given the high proportion of young people in the population. In low-income, resource-rich countries, gender discrimination is also a major concern. Another social concern in the Pacific is the increase in both non-communicable and communicable diseases, particularly HIV/AIDS (in the case of Papua New Guinea). This situation has led the main funding agencies to continue assigning a high priority and resources for HRD in country-specific as well as regional operations. ADB also supports HRD in its operations in many countries. However, ADB's support to HRD at the regional level has been limited partly to avoid overlap and duplication with other funding agencies.

22. The country-wise picture of the Pacific with respect to MDGs has been described in a recent ADB publication¹⁰. There is a wide variation in the achievement of MDGs across the Pacific. Papua New Guinea, Solomon Islands, Timor-Leste and, to a lesser extent, Vanuatu are lagging far behind in achieving most of the MDGs, and there are significant discrepancies between rural and urban areas, and the gender gap is particularly noticeable in education. These countries have generally experienced limited progress on most counts and have experienced deterioration with respect to some MDGs in the recent past. The maternal mortality ratio is alarmingly high (and deteriorating) in Papua New Guinea and Timor-Leste. While malaria and tuberculosis remain the major causes of morbidity in these countries, the incidence of HIV/AIDS is increasing rapidly in Papua New Guinea. Access to sanitation and safe drinking water has improved, but is still low. The higher-income countries-Cook Islands, Fiji Islands, Samoa, and Tonga-have almost achieved the MDGs relating to universal primary education and gender equality in primary and secondary education and in literacy rates. Despite good progress in reducing child mortality and maternal mortality ratios, further progress is required in these countries to achieve the MDGs. In terms of access to both clean water and improved sanitation, the Federated States of Micronesia lags behind others in this group. Among island atoll countries and Nauru, the highest incidence of poverty is in Kiribati, which also has low access to safe water and sanitation, and a high maternal mortality ratio. On the other hand, many parameters related to education are relatively good in these countries. In general, across the Pacific, achievement of MDGs appear linked to economic growth and quality of public service delivery. They also reflect the availability and quality of management of natural resources. These common underlying issues offer an important agenda for regional cooperation.

2. Environmental Performance Assessment

23. There is much to be done in the Pacific to improve environment and natural resources management at both the national and regional levels. There has been some improvement in community-based approaches and the areas covered by formal systems of protection. Further, ecotourism, charging of user fees, and the certification of wood and marine products are being introduced. However, this has not been sufficient to reverse the declining productivity of land, forest, coastal, and marine ecosystems. While there have been positive recent steps through landfill development (Cook Islands, Fiji Islands, Samoa, Tuvalu), waste management remains a critical challenge in many PDMCs. Efforts to remove stockpiles of hazardous wastes should be combined with the reduction of wastes at their source and encouragement of both domestic and industrial recycling. Sea-based sources of pollution are also increasing. In response to these needs, the Australian Agency for International Development (AusAID) is supporting a major waste management program in the Pacific. Another critical area for prudent management of the environment and natural resources is environmental governance. Weak environmental legal and regulatory frameworks associated with a lack of environmental legislation constrain these efforts. Progress in expanding information management and the limited use of information technology has also been slow. While the Pacific environment is fragile, there has been limited progress in the use of renewable energy. The common and critical fisheries resources suffer from weak management, resulting in diminished economic benefit to the region and doubtful long-term sustainability.

24. Even the most optimistic forecasts of future reductions in greenhouse gas emissions still leave the Pacific facing sea-level rise, changing rainfall patterns, a hotter average climate, and increasingly intense storms. With most of the region's population living in coastal areas, the development of appropriate, affordable, and cost-effective adaptation measures is urgently required. Governments are attempting to better understand and respond to climate change, but the capacity to appropriately and cost-effectively incorporate vulnerability into development patterns remains an enormous challenge. There is a need to strengthen and focus regional cooperation on selected subjects, where the benefits of collective efforts are greater. The exercise related to ADB's forthcoming Pacific Regional Environment Strategy has already identified such areas.

C. Resource Mobilization

25. The financial contributions of PDMCs to regional activities have been focused on the core budgets of regional IGOs for their day-to-day operations. The funding agencies largely fund the balance of the core funds and work program budgets of these IGOs, including specific regional cooperation projects and programs. In addition to funding these regional projects, funding agencies also directly implement similar regional projects in the Pacific. Because of variation in program periods (for example, annual, 3-year, and 5-year), specific-year data are difficult to compile for regional assistance. According to data provided by PIFS, the average annual flow of grant funds to the Pacific for regional projects has been about $67 million¹¹. The top two sources were Australia and New Zealand, which provided close to 60% of the total funds. These funds were applied to a wide spectrum of activities. Agriculture, forestry, and marine resources topped the list and accounted for about 17% of the total. Other prominent areas were health, education, and economic reforms and governance, each accounting for about 10% or more of the total. Private sector development and environment each received about 5% of the total. It is notable that HRD is a priority for all three main sources of funds (Australia, New Zealand, and European Commission) of regional activities in the Pacific¹². The European Commission is also providing ?9 million over 5 years for trade integration. The priority regional activities of the various funding agencies, which have also been considered in the formulation of this strategy, are in Appendix 2.

D. ADB Assessment of the Role of Regional Cooperation in Developing Member Country Development Strategies

26. The Pacific does not lend itself to the types of regional cooperation found elsewhere in Asia, due to the dispersed geography and low level of economic integration. At the same time, however, a well-developed institutional framework for regional cooperation exists in the Pacific. All governments in the Pacific generally support these regional organizations, although most funding is from industrial countries.

27. Regional cooperation in the Pacific appears to be driven by a vastly different set of reasons from other parts of the world. These key drivers appear to be the following: (i) the need for a collective voice in a world dominated by large countries and economic and political blocs (as buyer, seller, and a political bloc); (ii) the challenges arising from isolation; (iii) the need for economies of scale, particularly in building appropriate knowledge and technology for the specialized but common needs of the Pacific; (iv) the lack of specific skills in individual countries; (v) the sharing of knowledge and experience; and (vi) funding agencies' interest in cooperation among PDMCs due to cost and strategic considerations. While some of these are beyond the scope of the activities of multilateral organizations, it is imperative that ADB builds selectively on these existing foundations of regional cooperation in the Pacific.

28. In the Pacific, many international best practices have been accepted and applied at the country level only after their acceptance at the regional level. Often, acceptance of reforms and good practices is easier at the regional level as it generates competitive behavior among countries in terms of their international image. Regional initiatives complement the development efforts undertaken at the country level, and command a strategic importance from an external agency perspective. It is notable that most major regional organizations are substantially or fully funded by external agencies.

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