Pacific Island Highlights from World Bank’s East Asia and Pacific Economic Update 2012

The World Bank recently published its second half-yearly economic update for the East Asia and Pacific Economic Update 2012.  Agricultural and forestry-relevant highlights from the Pacific region are below, with parts most relevant to Land Resources Division such as agriculture, forestry and food security, highlighted.

Fiji

“As a consequence of the Global economic Crisis in 2008, Fiji’s economy contracted by 1.3 percent in 2009, and was followed by marginal growth in 2010. The economy picked up in 2011, with growth reaching 1.9 percent. Growth was largely driven by a recovery in tourism and related sectors, as well as in agriculture, which recovered well from the 2010 cyclones. Growth is expected to continue in 2012, led by continued strength in tourism and a pick-up in the industrial sector. However, the Fijian economy remains vulnerable and policy space to respond to future external shocks, such as a global economic downturn or a commodity price shock, is limited.”

“Inflation moderated in 2012 to 3.7 percent in September as the effects of one-off factors—such as the 2011 increase in vaT rate—abated. Food prices have also declined steadily, despite the swings in commodity prices. The large number of items under price control could explain this decline. Inflation is projected to moderate further, to 3.5 percent by year-end.”

“The [Reserve Bank of Fiji] policy rate was reduced to 0.5 percent earlier in 2012 and has remained at that level. Other policy measures, such as increasing bank lending requirements to agriculture and renewable energy sectors, were also employed to encourage credit growth. The accommodative monetary policy has resulted in ample liquidity (F$577 million at the end of September 2012) and a pick-up in credit growth, with private sector credit rising by 6.3 percent in June, after a growth of 3.5 percent in the previous quarter.”

“Net capital expenditure, including capital transfers (estimated 8.1 percent of GdP), fell compared to 2011 because of a smaller allocation for the restructuring of Fiji Sugar Corporation (FSC). The recently announced 2013 budget projects a widening of the deficit (2.8 percent of GdP) which is largely explained by a 30 percent increase in infrastructure spending.”

“Fiji is vulnerable to international commodity price shocks, which may result in a slowdown to mining-related earnings and investments, or a rise in cost of food and fuel imports. although reserve levels remain adequate, fiscal and monetary policy space to respond to exogenous events is limited. rising government debt would tend to constrain the government’s ability to provide fiscal stimulus and the space for further monetary easing is constrained given the low existing policy rate.”

Kiribati

“The economy of Kiribati grew by around 2 percent in 2011, following several years of weak and volatile growth. Growth of 2.5 percent is expected for 2012, driven by a vibrant retail sector and an influx of aid spending associated with major infrastructure projects. Over the medium-term, growth will depend heavily on the implementation of planned donor projects and the commencement and expansion of a new fish processing operation in Betio.”

“Inflation remains subdued, with consumer prices expected to increase by 2.5 percent during 2012. While world prices for most import products are continuing to decline, constraints on shipping capacity may lead to some price pressure in the context of donor project-driven demand. Inflation is expected to remain at similar levels in 2013.”

 

Papua New Guinea

“Papua New Guinea’s (PNG) economy continued to expand strongly through the first half of 2012, albeit less quickly than in 2010 and 2011. over 2012, the economy appears to be on track to grow by around 8 percent, compared with growth of near 9 percent in 2011. Domestic demand remained the key driver, with pre-election spending of government funds augmenting the effects of ongoing construction of the PNG-LNG (liquified natural gas) project and spin- off investments.”

“The appreciation of the kina (PGK) in 2011 and early 2012 and weakening international commodity prices into the second half of 2012 both reduced rural incomes and government receipts, while also slowing the growth in urban consumer prices.”

External conditions have become less favorable for commodity exporters. Copra, cocoa, and coffee farmers all saw their incomes compressed by the falls in international prices through the first half of 2012, amplifying the appreciation of the PGK in 2011. Domestic factors, such as the shut- down of processing mills and supply chain issues, further reduced production.”

“In 2013 and 2014 aggregate gross domestic product (GDP) growth is expected to slow, as construction of the PNG-LNG project and spin-off private sector investments conclude, partially offset by the commissioning of the ramu nickel/Cobalt mine. In 2014 and 2015 aggregate and non-mineral GDP are expected to diverge significantly. Production from PNG-LNG will raise the level of aggregate GDP by around 20 to 25 percent; however, growth of the non-mineral economy will slow further on the decline in construction and transport activity and loss of an important impulse for domestic demand. The stabilization in international commodity prices may abate the decline in cash crop production.”

“The revenue and spending pressures surrounding the 2013 budget are likely to intensify mid-decade. Revenue growth is expected to slow further, while it may be difficult to reverse many of the new spending commitments in the 2013 budget.  The pressure to respond to PNG’s significant human development needs will continue to grow. The 2009-2010 PNG Household Income and Expenditure survey data, released by the government in August, found large ongoing challenges, including high rates of malnutrition among children, limited physical assets for most households, and significant exposure to violent disputes, while also finding areas of change, such as improving literacy among younger Papua New Guineans, and the importance of mobile phones and income transfers for many households.”

Samoa

“The economy of Samoa grew by around 1.5 percent in FY2012, with growth of 1.9 percent expected in FY2013. Subdued growth reflects the winding down of stimulus from reconstruction spending following the 2009 tsunami. Continued remittance growth (10 percent year-on-year increase for the first eight months of FY2012) has partially offset the impact of declining agriculture and fisheries exports, and falling tourism receipts. Over the medium-term, growth is expected to return to around 2.5 percent, but this is subject to substantial downside risks, given the possibility of weakening global demand impacting the Samoan economy through declines in exports, tourism receipts, and remittances.”

“Inflation has fallen over the recent months with ongoing declines in global food and fuel prices and recent recovery of local fruit and vegetable production after weather-related disruption early in the year. It is expected to average 6 percent for 2013.”

Solomon Islands

“The Solomon Islands economic growth slowed through the middle quarters of 2012. This was largely because of weaker prices of exports and stabilizing output from earlier drivers of growth, such as logging and the opening of the Gold ridge mine. Meanwhile, fiscal policy took a more expansionary stance, raising concerns around the sustainability and the quality of spending. Inflationary pressures slowed, and external balances remained relatively strong.”

“The Solomon Islands economy is on course to expand by around 5 to 5½ percent in 2012, following growth near 10½ percent in 2011. Mining is estimated to again contribute around 2 percentage points to 2012 growth. The slowdown in aggregate growth is due to lower production across a range of major commodities.”

As global prices weaken and the incremental appreciation of the Solomon Islands dollar (SBD) relative to the U.S. dollar (in which most exports are denominated), producers are reducing output. The central bank’s index of production of major commodities declined for three consecutive quarters leading to the second quarter, before rebounding in the third quarter, but was still 7.6 percent lower than a year earlier.

“Farmers have been responding to lower prices. Copra production was one-quarter lower in the first half of 2012 than in the corresponding period in 2011, as domestic prices fell from a record high of over SBD 6 per kilogram in March 2011 to SBD 2.35 per kilogram in June 2012. Cocoa production, the other key source of rural cash incomes, followed a similar pattern, with output in second quarter 2012 one-quarter lower than a year earlier as prices weakened. In contrast, palm oil production rose slightly, while prices were only a little weaker (palm oil in Solomon Islands is mostly produced on larger plantations). Lower copra and cocoa prices and production are reducing revenue received by farmers, who are largely in rural areas where there are few alternative sources of cash income: for example, farmers received SBD 20 million from copra in second quarter 2012, 60 percent less than in the corresponding period in 2011, according to Central Bank estimates.”

“Other key drivers of Solomon Islands production and revenue growth stabilized through mid-2012. Log production was affected by rains in second quarter, but overall exports were comparable to the first half of 2011, at almost 1 million cubic meters (well above most estimates of sustainable logging rates). Receipts, however, weakened over the four quarters to mid-2012 because of lower international prices, attributed by the central bank to weaker demand from China.”

Resurgent international prices for wheat, corn, and some other foods have not affected Solomon Islands. Indeed, inflation has slowed on improved local growing conditions and stable import prices for rice (the main imported food, which is especially important for poorer urban households lacking access to gardens), wheat, and fuel (which affects all prices through high transport and electricity generation costs). The food component of the CPI peaked in April 2012 and, combined with the fall in local fuel prices, overall CPI inflation has slowed to 4.4 percent.”

“The outlook is for a further moderation in the rate of growth of the Solomon Islands economy. a modest further increase in production from the Gold ridge mine is expected in 2013, but this is likely to be offset by some unwinding from recent, unsustainable logging rates associated with weaker global timber prices and improvements in revenue collection. Demand in the non-resource economy has benefited from both donor flows and government spending; both are likely to follow cash crop receipts to be weaker in coming years than in the recent past. This weaker outlook emphasizes the importance of returning fiscal policy to a sustainable footing after the slippages in 2012, with growing demands for better service delivery met through increasing the effectiveness of spending, rather than the amount.”

Tonga

“Tonga’s economy grew by only 1.3 percent in FY2012, down from 4.7 percent in FY2011.”

“Inflation peaked at 8.5 percent in FY2011, and has since been on a downwards path. Inflation declined to 4.6 percent in FY2012 due to moderating global food and fuel prices and exchange rate appreciation. Moderate inflation of 4.5 percent is expected in FY2013.”

Tuvalu

“After two years of contraction, Tuvalu’s economy grew by 1.1 percent in 2011. Growth of 1.2 percent is expected in 2012.  Growth of 1.2 percent is expected in 2012. Increased competition in the retail sector has driven recovery, while remittances from seafarers (Tuvalu’s primary source of private- sector employment) continue to lag in the context of uncertain international economic conditions. Inflation is expected to remain moderate (2 to 3 percent) in 2012, although up from 0.5 percent in 2011. Increased retail competition and currency appreciation have helped to keep prices down in light of movements to global commodity prices.”

“The current account deficit reached 8 percent of GDP in 2011, with a trade deficit of 58 percent of GdP financed largely by donor grants and income from foreign assets and fishing revenues.”

“Downside risks are significant given Tuvalu’s exposure to external economic shocks and natural disasters (vulnerabilities include further declines in demand for seafarer labor and further declines in trust fund asset values). The only policy instrument for dealing with external shocks is fiscal policy, given Tuvalu’s use of the Australian dollar, heavy reliance on imported goods, and minimal financial diversification.”

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