Debt Management, Investment Planning Critical for Pacific — ADB

News Release | 13 December 2018

MANILA, PHILIPPINES (13 December 2018) — Countries in the Pacific should improve their debt monitoring systems and strengthen investment prioritization to better manage the risk of debt distress, according to the latest issue of the Asian Development Bank’s (ADB) Pacific Economic Monitor launched today.

The Monitor says six of ADB’s 14 Pacific developing member countries—Kiribati, the Marshall Islands, the Federated States of Micronesia, Samoa, Tonga, and Tuvalu—are facing elevated risk of debt distress due to their narrow economic bases, vulnerability to economic shocks, and exposure to climate change. However, these risks can be mitigated by strengthening institutional capacities to sustainably manage debt.

“ADB and development partners are working with Pacific governments to strengthen debt management while also promoting long-term solutions to the challenge of expanding access to basic services,” said ADB Director General for the Pacific Ms. Carmela Locsin. “While debt financing can play an important role in responding to substantial infrastructure needs in the Pacific, strong project due diligence, investment planning, and improved debt monitoring frameworks are needed to safeguard against future repayment concerns.”

This is the 25th issue of the Monitor—the ADB Pacific Department’s flagship economic publication, which was launched in 2009 to provide more regular economic reporting on the Pacific Islands which were being severely impacted by the global economic and financial crisis. The December issue focuses on debt sustainability—amid clear financing needs to help address infrastructure and services gaps in the Pacific.

The Monitor says the subregion’s growth outlook for 2019 is maintained at 3.1%, due largely to an expected rebound in Papua New Guinea, the Pacific’s largest economy, and projections of stable or higher growth in most of the smaller economies.

The Monitor focuses on country issues as well as critical policy themes. The debt sustainability theme of this edition features country articles, including an assessment on Papua New Guinea’s public debt and focuses on trends and limitations. Other articles address the rising debt in Solomon Islands, and the current debt situations in Nauru and Vanuatu. The Monitor examines how natural disasters have compromised Fiji’s efforts to consolidate and remain within its targeted debt levels.

Other articles in the Monitor look at maintaining low debt distress in the Cook Islands and assess the impact of natural disasters on debt sustainability using Kiribati, Tonga, and Tuvalu as case studies. The Monitor also discusses risks to public debt dynamics in the North Pacific. Public debt, which is largely from external sources, has been stable in the Federated States of Micronesia and Palau, and is declining steadily in the Marshall Islands.

Topical policy briefs featured in this 25th issue of the Pacific Economic Monitor include a look at how ADB and development partners are working with Pacific governments to strengthen public debt management by supporting key reforms through policy-based operations.

A policy brief by the New Zealand Ministry of Foreign Affairs and Trade draws lessons from the challenges of managing public debt in Melanesia, Micronesia, and Polynesia. Another contribution, from the International Monetary Fund, explains the recent revisions to the country debt sustainability framework applicable to Pacific economies and its likely future implications. A final policy brief by the World Bank details the need for sustainable borrowing to finance large infrastructure investment and climate adaptation requirements across the Pacific.

The December 2018 Pacific Economic Monitor is the latest issue of ADB’s bi-annual review of economic developments and policy issues in ADB’s 14 developing member countries in the Pacific. In combination with the Asian Development Outlook series, ADB provides quarterly reports on economic trends and policy developments in the Pacific. The Monitor welcomes contributions of policy briefs from external authors and institutions.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members—48 from the region. In 2017, ADB operations totaled $32.2 billion, including $11.9 billion in cofinancing.