Weak governance in Pacific hinders growth [1]
Friday, April 4, 2008 - 05:04. Updated on Sunday, October 26, 2014 - 16:30.
While the Pacific region is expected to see some economic progress this year - mainly due to increases in commodity prices, tourism and investor-friendly policies - weak governance will continue to hinder the region's ability to make significant gains, according to the 2008 edition of the Asian Development Bank's (ADB) flagship annual economic publication, Asian Development Outlook (ADO).
"Weak governance results in weak economic prospects," says Director General of ADB's Pacific Department, Philip Erquiaga. "Poor use of public resources, capacity constraints, political instability and lawlessness are problems that exist in parts of the region and need to be addressed for the Pacific to meet its economic potential. The recent downturn in international markets is a concern to the region, but these deeply rooted problems pose a far greater concern."
The economic outlook for the region in 2008 is expected to closely reflect the 2007 results, with the Pacific economies projected to grow an overall 4.3% in 2008. In 2007, the Pacific economies grew 3.1%, picking up from 2.3% growth in 2006. Much of the growth in 2007 was due to tourism and favorable developments in world commodity markets. However, the growth came against a background of subdued long-term prospects in many of the ADB's 14 Pacific developing member countries.
The ADO Report says renewed efforts are needed across the Pacific to encourage growth by strengthening the environment for private sector development.
"The need to encourage the private sector is greatest in the weaker economies," says Mr. Erquiaga. "The better performing Pacific developing member countries have shown that private sector friendly policies do lead to better economic prospects."
Resource-rich Papua New Guinea (PNG) and Timor-Leste are expected to record the highest growth rates in 2008 because commodity prices are projected to stay high.
Rising petroleum revenues helped Timor-Leste grow 8% in 2007, and almost all growth in PNG in 2007 is attributable to the surge in world prices of gold, copper, oil, and tree crops. Higher commodity prices have funded a large rise in the government expenditures and lifted rural incomes in PNG, but the economy's underlying weaknesses, which are linked to shortcomings in governance, remain prominent.
The Solomon Islands economic growth of 10% last year was largely due to an unsustainably high rate of logging in native forests. The high logging rates are expected to keep Solomon Islands' growth up this year as well.
Vanuatu and Samoa will continue to benefit this year from reforms that have resulted in increased competition in air travel and a more investor-friendly environment. Private sector-led tourism is behind an expected improvement in growth in the Cook Islands.
In 2007, an increase in tourism-related activities helped support a relatively high growth rate of 7% in Vanuatu, 6% growth in Palau, and modest growth of 3% to 4% in Samoa and Cook Islands.
Although economic prospects in Fiji and Tonga are expected to be subdued in 2008, their economies should rebound as they recover from internal difficulties. Nauru's economy will contract, largely due to the imminent closure of the refugee processing center on the island.
Economic activity will remain weak in Marshall Islands and Federated States of Micronesia (FSM) because past fiscal excesses require ongoing fiscal restraint. Looming fiscal adjustment is expected to contribute to moderate growth in Palau in 2008.
In 2007, economic contraction was seen in the FSM, Nauru, and Tonga, largely due to a need to cut government spending. Fiji...s economy continues to experience weakness, still feeling the negative economic impact of the 2006 coup. Growth was achieved in the Marshall Islands, but at a low level.
ADB, based in Manila, is dedicated to reducing poverty in the Asia and Pacific region through pro-poor sustainable economic growth, social development, and good governance. Established in 1966, it is owned by 67 members ... 48 from the region. In 2007, it approved $10.1 billion of loans, $673 million of grant projects, and technical assistance amounting to $243 million. ADB, 02/04/08.