Modest Growth Expected for Pacific Economies in 2011, Says ADB

MANILA, PHILIPPINES - Stronger than expected economic growth in resource rich Timor-Leste has resulted in an upgrade of the Asian Development Bank's (ADB) forecast of economic growth in the Pacific region, according to the latest edition of ADB's Pacific Economic Monitor.

The July 2010 edition of the report, a tri-annual economic review of 14 Pacific island countries by ADB, reveals that high economic growth in Timor-Leste, which has resulted in an upgrade of projected economic growth in the Pacific region overall, is driven by continued increases in government expenditure, and improved agriculture production.

Growth projections for Papua New Guinea (PNG) remain unchanged at 5.5% in 2010 and 7.7% in 2011. As anticipated, delays in the construction phase of the Liquefied Natural Gas (LNG) project have shifted some of the growth contribution of this project into 2011.

Pacific island economies, excluding PNG and Timor Leste, are expected to perform slightly better overall in 2011 than in 2010. Projected economic growth for 2010 remains unchanged at 0.5%; however, this performance is expected to improve in 2011, albeit only slightly, with a 1.3% expansion projected.

An upgrade of economic growth in Solomon Islands in 2010, from an earlier expectation of 2.0% to 3.5%, is largely due to stronger than expected recovery in the commodities of logging, cocoa, fish and palm oil.

In contrast to Solomon Islands, The Monitor mentions downgrades in growth for the Cook Islands, Kiribati, Nauru, Tonga, and Vanuatu economies, due to weaker than expected tourism growth outside Fiji, and slower than expected implementation of public investment programs.

The Monitor warns that inflation is now projected to reach 5.9% in the Pacific region overall this year due to the post-crisis rise in world oil prices. The Pacific is particularly vulnerable to rising oil prices, as the region pays more for fuel than other regions.

“Fuel and utility prices are too high in most Pacific countries. This is a problem that can be tackled by policies that enhance competitive pressures and raise efficiency,” said Robert Wihtol, Director General of ADB’s Pacific Department.

The report includes a special article on the ongoing policy discussions in Papua New Guinea as to how sovereign wealth from LNG resources should be managed and utilized. The report says these funds may potentially be used to address a backlog of infrastructure maintenance and to provide a catalyst for PNG’s public-private partnership program.

The relative cost of telecommunications, fuel and electricity is explored in the latest issue. The report notes the good progress made in lifting the performance in telecommunications, notably in Palau and Tonga, and the potential to extend the gains to other countries and other industries.

The report provides an update of recent developments in the region and explores topical policy issues. The ADB publication uses data from Australia, New Zealand, US, and Asia to supplement data from the region and to provide up-to-date assessments and broader coverage of the Pacific island economies.