Improved Budget Management Protects Pacific Countries Against Global Effects

SUVA, FIJI – Fiscal positions in small island economies of Kiribati, Nauru, Samoa, Tonga, and Tuvalu improved in 2012, largely due to improved budget performance in the face of a weakening global economic environment, according to the December issue of the Pacific Economic Monitor (PEM), released today.

“The improved fiscal performance in several smaller Pacific economies is encouraging, particularly in the context of a weaker global economy," said Xianbin Yao, Director General of ADB’s Pacific Department. “The weakening in the fiscal performance of larger resource exporting Pacific economies, which are showing ill-effects from the weaker global economy, highlights the need for all Pacific economies to continue to work to improve their fiscal management and public service delivery while investing in vital infrastructure to enhance their long term economic prospects.”

Revenue collections in Kiribati, Nauru, and Tuvalu were boosted by a new fishing license scheme and transitory effects of El Niño on fish harvests. Higher revenues and continuing fiscal consolidation contributed to the improved fiscal performance in Samoa and Tonga.

Fiji is expected to achieve a narrower deficit than budgeted due to its adoption of an advance payment scheme for company taxes, but other measures – such as rising commitments to expenditure on capital works and the national airline’s purchase of new aircraft – raise concerns about rising debt.

The fiscal positions of Papua New Guinea (PNG), Solomon Islands, and Vanuatu all deteriorated in 2012. Reduced commodity export earnings arising from softer global demand resulted in lower than budgeted revenue collections. Vanuatu’s reduced revenue is prompting measures to control expenditure and keep fiscal balances close to the government’s budget target.

The PEM, published three times a year, shows PNG’s 2013 budget continues to shift from new capital expenditure to recurrent spending on priority social sectors and infrastructure maintenance. Timor-Leste, meanwhile, underspent on an ambitious capital budget in 2012, leading the government to reallocate funds to recurrent expenditure. In contrast, Fiji’s 2013 budget allocates a substantially higher proportion of expenditures on capital works.