The whole Pacific region is in recession, according to a late-2021 International Monetary Fund report. Income is down and spending is up. Global demand for regional exports has declined, and COVID-19 shut down the vital tourism sector. Meanwhile, countries have had to meet the expense of managing both the pandemic and climate change. It has all pushed Pacific nations into greater risk of debt distress. But austerity measures are only likely to undermine the region’s economic recovery.
GDP declined by an average of 2.4 percent in 2021, on top of a 3.7 percent slide in 2020. The COVID-19 pandemic hit tourism-dependent economies such as Fiji, Palau, Samoa, Tonga and Vanuatu hard — they saw an average economic contraction of 6.5 percent in 2021. Declining global demand also adversely impacted commodity-exporting countries such as Papua New Guinea (PNG), Solomon Islands and Tuvalu.
With falling GDP and a rise in public spending to cushion the ravages of the pandemic, Pacific countries find themselves in a sovereign debt crisis. United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) country reports show that for Pacific countries, the debt-to-GDP ratio, a commonly used benchmark, has increased from an average of 32 percent in 2019 (before COVID) to 42.2 percent in 2021. Fiji and Palau have a debt-to-GDP ratio of over 80 percent and 70 percent, respectively.
