Tourism-Driven Economies in the Pacific to Feel Brunt of COVID-19 Pandemic — ADB
MANILA, PHILIPPINES (3 April 2020) — The economies of the Cook Islands, Fiji, Palau, Samoa, and Vanuatu are the Pacific countries likely to feel the brunt of the novel coronavirus disease (COVID-19) pandemic, according to a new report by the Asian Development Bank (ADB) released today.
Assuming even just a 3-month interruption in travel and trade, the tourism-based economies are all seen to contract this year, with Tonga forecast for zero growth, according to the latest Asian Development Outlook (ADO) 2020, ADB’s flagship economic publication. Growth of ADB’s Pacific developing member countries (DMCs) in 2020 is forecast to contract by 0.3%, as the COVID-19 pandemic directly impacts tourism and trade flows, while also affecting construction activity. The recovery in 2021, at 2.7%, will rely on improvements in tourism numbers, the commencement of delayed construction projects, and the resumption of labor mobility and cross-border trade.
“While most Pacific countries moved quickly and decisively to restrict travel from a fast-growing list of COVID-19 affected countries, such restrictions can come with a high economic cost,” said ADB Director General for the Pacific Leah Gutierrez. “ADB is committed to supporting the Pacific cope with the COVID-19 pandemic and help address immediate needs. We are providing grant financing and support to procure needed medical goods and equipment in selected countries. We are also working with Ministries of Finance to assess their budget support needs and coordinating on these closely with other development partners. Strengthening social protection will be key to safeguarding vulnerable groups during this downturn and will also help support the eventual recovery process.”
Economic growth in Papua New Guinea (PNG) in 2019 was 4.8%, tempered by the deferral of large investment projects. Agriculture, forestry, and fisheries continued to expand, but construction is estimated to have declined. The ADO 2020 says the government faces important challenges in managing public debt. The COVID-19 pandemic is an added shock for the PNG economy and is already negatively affecting commodity prices. Growth in PNG is expected to remain weak at about 0.8% in 2020, rising to 2.8% in 2021.
After uninterrupted growth for the past nine years, growth in Fiji is estimated to have slowed to 0.7% in 2019, a hangover from the effects of Cyclone Winston. Fiji’s economy is projected to further decline by 4.9% in 2020 due to the COVID-19 pandemic. The tourism and air transport sectors are expected to be the worst hit. The report suggests the government must strengthen and empower the private sector to innovate, diversify, and drive the economic recovery after COVID-19, while finding the right balance between investing in climate resilient infrastructure, limiting debt exposure, and building fiscal buffers. As a priority, Fiji needs to improve its business and investment climate, while encouraging business innovation. The report says growth will improve in 2021 and reach about 3.0%.
Economic growth in Solomon Islands is expected to slow to 1.5% in 2020, slightly down from 2.6% in 2019, as exports fall because of the COVID-19 pandemic. Growth is expected to recover to 2.7% in 2021 as construction on large infrastructure projects offsets a continuing decline in logging. ADO 2020 says that with the logging sector contributing less to growth over the longer term, reforming the tax system will become critically important to ensure that it supports broad-based growth in other areas.
Vanuatu’s economic growth is forecast to contract from 2.8% in 2019 to -1.0% in 2020 as travel restrictions arising from COVID-19 undermine tourism. Growth should recover and reach 2.5% in 2021. The report notes that with more workers accessing labor mobility schemes, policies must ensure that the benefits are both broadly enjoyed and sustainable.
The COVID-19 pandemic will severely hit tourism, with the South Pacific economies the most affected. Growth and fiscal outcomes will be undermined in the Cook Islands, Samoa, and Tonga. The Cook Islands’ economy is expected to contract from 5.3% in 2019 to -2.2% in 2020 due to a collapse in tourist arrivals. Growth is forecast to recover in 2021 to 1.0%. Samoa’s economy is expected to contract from 3.5% in 2019 to -3.0%, before slightly rebounding to 0.8% in 2021. Tonga, where economic growth was 3.0% in 2019, will see zero growth in 2020 due partly to a plunge in visitor arrivals. Growth will likely reach 2.5% in 2021, buoyed by tourism recovery and faster government implementation of rehabilitation and recovery from Cyclone Gita.
The outlook for the North Pacific economies is mostly weak this fiscal year from the impact of the COVID-19 pandemic, with cautious recovery anticipated in 2021. The ADB report says over the longer term, pension fund reform is critical for containing fiscal risks in the Federated States of Micronesia (FSM), the Marshall Islands, and Palau. In the FSM, GDP growth is projected to slow from 3.0% in 2019 to 1.6% in 2020. The start of new capital projects supported by development partners will now be pushed back, supporting higher growth of 3.0% in 2021. Economic growth in the Marshall Islands is forecast to decelerate from 3.8% in 2019 to 2.5% in 2020 as travel and transport restrictions caused by the COVID-19 pandemic depress growth—notably in construction, agriculture and fishing, and trade. Growth is forecast to rebound to 3.7% in 2021 as most restrictions are gradually eased. Palau’s growth in 2019 of -3.0% is expected to fall again in 2020 to -4.5%, with visitor arrivals falling further because of the COVID-19 pandemic. Palau’s economy is expected to recover as travel restrictions are gradually lifted, with growth projected to rebound to 1.2% in 2021.
Growth in the Central Pacific economies of Kiribati, Nauru, and Tuvalu will slow in 2020 before recovering in 2021. ADO 2020 says weak fiscal frameworks and a reliance on external revenue make sustainable trust funds vital for securing the economic future of these economies. Kiribati’s growth is forecast to decelerate from 2.4% in 2019 to 1.6% in 2020, before recovering to 1.8% in 2021. Growth in Nauru is forecast to slow from 1.0% in 2019 to 0.4% in 2020, and recover to 1.1% in 2021. Growth in Tuvalu is projected to moderate from 4.1% in 2019 to 2.7% in 2020, before rising to 3.2% in 2021.
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 68 members—49 from the region.