World Bank Identifies Six Pacific Countries with High Probability of Debt Crisis

Surfers on the shores of Kiritimati Island watched the sunset after finishing their surfing sessions on April 5, 2016. The Pacific island nation of Kiribati is part of Pacific-six, where the government spending to respond to the coronavirus crisis has remained unchanged according to a report from the World Bank. This unchanged spending places Pacific-six at high risk of falling into a debt crisis. “Growing Pacifica,” the report, highlights the need for fiscal consolidation in Kiribati. The Marshall Islands, Federated States of Micronesia, Samoa, Tonga and Tuvalu lack access to domestic debt and international capital markets, while Vanuatu is rated as medium risk among other countries in the region. In contrast, Palau and Nauru’s debt is sustainable.

Debt has surged in the region since 2019 as tourism-dependent economies have been hit by border closures due to COVID-19, trade has faced logistical challenges and weather events have caused damage. The World Bank reported last month that Fiji also needed to take urgent steps to reduce its debt burden. Stephen Ndegwa, Country Director for Papua New Guinea and Pacific Islands at the World Bank, said debt reduction, revenue enhancement and improving the quality of government spending are key.

The report recommends improvements and more efficient spending, along with continued access to subsidies in line with pre-pandemic trends to find capital investment projects for sustainable development and climate resilience. Addressing tax collection must be a priority for Pacific governments to ensure that individuals and businesses contribute fairly to the region’s economy. He also said Pacific countries should allocate more funds to social assistance and protection measures. “These investments will help reduce poverty and inequality.”

The Trust Principles of Thomson Reuters edits content from Lucy Kramer and Kim Coghill.

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