Smallest Pacific Economies Must Build Links, Boost Connections to Thrive - ADB

News Release | 10 December 2012

SUVA, FIJI - The smallest Pacific island economies can overcome economic growth challenges related to isolation and low populations by expanding economic links and using technology to build connections, according to the December issue of the Asian Development Bank's (ADB) Pacific Economic Monitor (PEM), released today.

"Changes in the global economy will place greater pressure on the smallest Pacific island states to find ways and means of sustaining themselves," said Xianbin Yao, Director General of ADB's Pacific Department. "By building greater links within Asia and the North Pacific - and looking for opportunities for generating jobs through information technology - small island states can help unlock their potential for growth in the face of unique economic challenges."

Three special articles in the latest PEM focus on growth prospects in the Cook Islands, Federated States of Micronesia, Kiribati, Marshall Islands, Nauru, Palau, and Tuvalu, noting that geographical isolation, high transportation costs, low connectivity, and small and often dispersed populations can inhibit private sector job creation and public service delivery. Growth in these economies usually reaches only 1-2% per year, making significant reductions in poverty difficult.

Sound macroeconomic policy is essential to support economic growth, but the first article acknowledges that these countries have limited monetary policy options due to their use of foreign currencies. High public debt can also limit a government's ability to spend their way to higher growth, making structural reforms -- such as streamlining regulations on investment and services trade, or easing access to land and finance -- critical.

A second article shows ties between the North Pacific and economies in Asia are likely to become increasingly important, but small island states will need to build up the appropriate supporting institutions to take full advantage of opportunities for growth.

Finally, a third article argues that geography need not be the barrier to growth it has been presented as by some and, as such, reliance on development assistance need not be a permanent feature of the smallest Pacific economies. It suggests a "second industrial revolution" triggered by new information and communication technologies, and the easing of the barriers to labor movement, could pave the way to a brighter economic future for the smallest Pacific economies.