Regional : Assessing and Improving Policy Response to Economic Shocks in the North Pacific

Public sector management / Public administration

The COVID-19 pandemic has presented unprecedented health, social, and economic challenges requiring country, regional, and global intervention and collaboration to mitigate its negative effects. To date, the pandemic has resulted in more than 62.4 million confirmed cases and over 1.4 million fatalities worldwide. As fragile and conflict-affected situations (FCAS), the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) struggle to deliver basic services under normal circumstances. Palau, while not classified as an FCAS, shares many of the same limitations. These governments have worked diligently to respond effectively to COVID-19 and address the health and economic impact of the pandemic, but the effort has stretched these countries' capacity even further. While confirmed cases in the North Pacific DMCs have been limited to those identified in border quarantine, governments have had to take a significant steps to mitigate the risk of transmission and make a number of policy decisions to try to protect their economies, and their citizens, from the economic impact of the pandemic. The North Pacific DMCs have imposed lockdowns and travel restrictions to prevent community transmission of COVID-19, and these decisions continue to have a widespread economic impact. As long as travel restrictions persist, the economies of the Pacific DMCs, particularly the smallest and least developed, will continue to be negatively impacted. Each of the North Pacific DMCs are projected to record successive economic contractions during FY2021 and FY2022.

About 1.6% of the population of the North Pacific DMCs migrates to the United States each year under the terms of free movement in their respective Compact Agreements with the United States, and it is uncertain how the COVID-19 pandemic with the challenges in health care and weak health systems in these countries will impact this outmigration going forward. While remittances can increase during crises periods such as the ongoing pandemic, the pandemic's severe impacts on global labor markets, if prolonged, can result in an overall decline in remittances through job losses for migrant workers. As of June 2020, nearly one-third of the world's labor force (32%) were living in countries where workplace closures were required (except for essential industries) and about 42% reside in countries where some workplace closures are required. In 2019, the Republic of the Marshall Islands received the highest remittances in the North Pacific in terms of GDP and per capita share. Inward flows of skilled labor also play a critical role in the north Pacific, being essential to support infrastructure investments which are an important driver of growth in both FSM and RMI. Such projects are expected to be delayed because of ongoing travel restrictions on workers.

An effective response to any significant economic shock, including the COVID-19 pandemic, requires a well-informed multisector approach. Ministries responsible for agriculture, finance, health, small business, social protection, and trade, need to work together, along with the private sector and civil society organizations, to collectively develop and deliver on policy responses. Mechanisms for effective whole of government coordination are weak in the North Pacific, while the communication channels between government and the private sector and civil society are not well developed.

In responding to COVID-19, governments across the Pacific have struggled in understanding the full extent of adverse impacts due to data and information gaps. Filling in these gaps, particularly in the areas of possible demographic shifts, outmigration and remittances trends, and patterns of business activity as reflected in inflows of foreign direct investment and registrations of small and medium enterprises, among others, can help governments better target social assistance measures toward the most vulnerable households and businesses that most need support during economic downturns or crisis periods. Over the longer-term, improved data gathering and analysis will help strengthen evidence-based policymaking toward more responsive governance and efficient public service delivery.

Readiness of the North Pacific DMCs to respond to COVID-19 and future pandemics improved.

Knowledge and awareness to improve policy responses to future economic shocks in the North Pacific DMCs enhanced

Assessments of the policy response to the COVID-19 pandemic responses conducted

Data collected on key economic indicators for future shocks