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Annual Report 2002

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Pacific

• Cook Islands
• Fiji Islands
• Kiribati
• Marshall Islands
• Federated States of Micronesia
• Nauru
• Papua New Guinea
• Samoa
• Solomon Islands
• Timor-Leste
• Tonga
• Tuvalu
• Vanuatu

Real GDP for the Pacific countries—Cook Islands, Fiji Islands, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu—grew in 2002 by a weighted average rate of 0.9%. The recovery reflected the strengthening of international commodity prices, a rise in tourist arrivals, and a gradual return toward normalcy in the crisis-affected countries in the Pacific. Generally expansionary fiscal policies were accompanied by accommodative monetary policies in most countries. Market perception of the Pacific as a safe destination seems to have helped boost tourism in the region. However, some Pacific DMCs still suffered from the ethnic tensions that erupted in 2000. Internal problems accompanied by weak macroeconomic management in many countries prevented the region from posting a higher rate of recovery overall. With an annual population growth rate of 2.7%, the per capita GDP continued to decline in the Pacific in 2002 for the third consecutive year. Labor market conditions improved slightly in some countries but unemployment of educated youth continued to be a concern.

Nearly all Pacific DMCs faced fiscal stability, vulnerability, or sustainability challenges. The average inflation rate increased from 6.9% in 2001 to 7.1% in 2002, reflecting weakening of most Pacific currencies, and increasing local food and transport prices. Despite an increase in exports in several Pacific DMCs, overall merchandise exports declined by about 10%, largely reflecting a sharp fall in Papua New Guinea (PNG) exports due to declining oil production. Imports also declined (-5.8%), reflecting the impact of depreciating currencies. The overall current account for the region recorded a small deficit for the first time since 1997, primarily reflecting deterioration in the current account in PNG. The flow of remittance, vital to the economy of some countries including Samoa and Tonga, remained strong in 2002. In several cases, trust funds suffered capital losses in 2002, reflecting weakness in global equity markets.

A partnership of the South Pacific Applied Geoscience Commission, multilateral and bilateral agencies, private sector, NGOs, and ADB produced a regional action plan for sustainable water management in the small island DMCs. Another agreement, the Pacific Island Countries Trade Agreement, signed by 11 Pacific DMCs and ratified by 4, is expected to be effective soon.

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