Full Report - Subregional Office for East and North-East Asia - escap

MACROECONOMIC PERFORMANCE AND POLICY CHALLENGES AT THE SUBREGIONAL LEVEL CHAPTER 2
4.3% growth rate achieved in 2011. This reflects
lower than expected tourist numbers and a decline
in international prices of some of Vanuatu’s key
exports, such as coconut oil, cocoa and kava, and
slow progress in implementation of major public
works projects.
The economic prospects of Nauru appeared weak until
the recommencement of phosphate mining in 2007.
Phosphate exports grew strongly in the first half of
2012 and contributed to the economy’s 4.9% GDP
growth in 2012 compared with 4% growth in 2011.
Samoa’s economy, which is heavily dependent on
tourism, remittances and foreign aid, grew by just
1.2% in 2012 compared with 2.1% in 2011. The
country continued to receive increased levels of
remittances, which grew by about 10% in 2012.
However, tourist arrivals declined in 2012. Tourism
growth in Fiji has been significant in the last two
years and this could have deflected some tourists
away from Samoa.
Tonga has not been able to improve its economic
growth significantly since 2007. GDP growth was
only 0.8% in 2012 falling from 2.9% growth in 2011.
Remittances account for about 30% of GDP and
a declining trend in these in recent years is partly
responsible for low growth of the economy.
The economy of Kiribati is dominated by the public
sector, with the main sources of income being
derived from fishing licence fees, aid, remittances
and the Revenue Equalization Reserve Fund, which
was established with proceeds from the extraction
of now-exhausted phosphate deposits. The economy
grew again by 3% in 2012 which is unchanged from
the growth in 2011, partly due to faster construction
activities, funded by development partners. The
Fund has been an important source for financing
government expenditures when needed.
Largely driven by the tourism sector, the Cook Islands
virtually maintained its economic growth at 3.3% in
2012. The Marshall Islands slowed to 1.9% growth
in 2012, largely driven by public sector activity and
the continued good performance of the fishing sector.
Palau’s GDP growth at 4% in 2012, also driven by
the tourism sector with strong growth from East
Asian countries, was somewhat lower than in the
previous year. The economy of Tuvalu, dominated
by public sector activity, grew at a slightly higher
rate of 1.2% in 2012, while Federated States of
Micronesia also grew by only 1.4%.
Inflationary pressures subside
Inflation has always been a concern in many of
the Pacific island developing economies despite
the fact that many of them have had modest
economic growth. Inflation in these economies
is largely influenced by changes in external food
and energy prices. Owing to slower economic
growth and relatively lower global prices of food
and energy, inflation slowed in 2012 in a number
of economies in the subregion, including in Fiji,
Kiribati, the Marshall Islands, Federated States of
Micronesia, Nauru, Papua New Guinea, Samoa,
Solomon Islands and Tonga (see figure 2.7). Kiribati
and Nauru experienced deflation in 2012 mainly as
a result of the appreciation of the Australian dollar.
Papua New Guinea recorded a lower inflation rate
of 4.1% in 2012 compared with 8.5% in 2011. The
appreciation of the domestic currency coupled with
the country’s tariff reduction programme helped in
containing imported inflation. Tightening of monetary
policy also contributed to lower inflation. The
education programme of the Government, which is
free of tuition fees, curtailed the cost of education.
Tightening of monetary policy
contributed to lower inflation in Fiji
and Papua New Guinea
In Fiji, inflation declined from 7.7% in 2011 to
3.5% in 2012. Monetary policy continued to focus
on safeguarding foreign reserves and maintaining
stable prices to support growth and investment.
More recently, the liquidity position of the banks
has increased significantly. Moderation in inflation
in recent years was helped by more stable wages.
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