KOROR, Palau â€“ Economies of the North Pacific are forecast to have positive growth this year, according to the Asian Development Bank (ADB) annual economic publication, Asian Development Outlook 2016.
â€œThe outlook for the North Pacific economies – the Republic of the Marshall Islands and the Federated States of Micronesia – is generally positive, but hinges on their ability to access capital grants for major infrastructure projects,” said a March 30 ADB news release summarizing the report’s findings. “In Palau, growth is projected to ease this year with tourism facilities reaching capacity limits, but should increase next year when new hotels are scheduled to open.”
However, the report projects lower growth and tighter fiscal conditions this year for many other Pacific economies including Fiji and Papua New Guinea – the region’s largest economies -Â due to low commodity prices and severe cyclones. Overall growth in the Pacific is expected to fall to 3.8 percent this year and further dip to 3.1 percent in 2017.
Despite the slowdown of most economies in the Pacific, Palau was cited as among the countries in the region expected to achieve high growth due to its tourism-driven economy.
Palauâ€™s gross domestic product (GDP) growth rate eases up this year to 3 percent but is expected to rebound next year to 7 percent. FSMâ€™s growth for 2016 is forecast to grow at 2.5 percent and the Marshalls at 1.5 percent. The outlook however, for 2017 will get stronger for both the Marshalls and FSM.
The report said despite the influx of tourists in Palau in 2015, the visitorsâ€™ number would drop due to capacity constraints, but Palau is forecast to rebound in FY2017 with 7.0 percent GDP growth.
The expected increase in rooms will allow for business expansion in hotels and restaurants, retail trade, and transportation and communication.
Infrastructure works such as the Koror-Airai sanitation project and a submarine broadband cable are also expected to contribute to the growth in Palau.
The Marshalls economy is forecast to recover and grow by 1.5 percent in FY2016 and 2.0 percent in FY2017, supported by fisheries and projects financed by development partners, including a water supply and sanitation project in Ebeye. The recent election of a new government reflected public demand for economic revitalization and job creation, but meeting high expectations will be a challenge, according to the report.
The Marshalls and the FSM continue to rely on public infrastructure projects for growth, with economies otherwise characterized by small private sectors and widespread informal employment. The growth, according to the report, will also rely on the countries being able to use capital grants coming from its Compact of Free Association relationship with the United States.
The FSMâ€™s growth was also restricted by the series of typhoons that hit the nation in 2015.
The report stated that all three North Pacific countries continued to post fiscal surpluses, with the Marshalls and FSM surpluses coming from revenues from fishing license fees.
While fishing revenues in Palau contributes less than 9 percent to the GDP, the growth outlook in Palau remains strong due to tourism.