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

ECONOMIC AND SOCIAL SURVEY OF ASIA AND THE PACIFIC 2013
Figure 2.7. Inflation in selected Pacific island developing economies, 2010-2012
12
10
8
6
Percentages
4
2
0
-2
-4
-6
Cook Islands
Fiji
Kiribati
Marshall Islands
Micronesia
(Federated States of)
Nauru
Palau
Papua New Guinea
Samoa
Solomon Islands
Tonga
Tuvalu
Vanuatu
Sources: ESCAP, based on national sources; International Monetary Fund, 2012 Article IV Consultation reports. Available from www.imf.org/external/
ns/cs.aspx?id=51; International Financial Statistics online database. Available from http://elibrary-data.imf.org/ (accessed in March 2013); and Asian
Development Bank, Asian Development Outlook 2012 (Manila, 2012).
Note: Data for 2012 are estimates.
2010 2011 2012
Inflation in Solomon Islands fell from 7.4% in 2011
to 5.9% in 2012, despite pressure from wage
increases and a significant increase in the income
tax-exemption limit. The liquidity position of the
country’s banks improved but credit growth remained
weak and had a dampening impact on inflation.
Samoa experienced a lower inflation rate of 2.1%
in 2012 compared with 2.9% in 2011. Because of
slower growth of GDP in 2012 and the winding
down of tsunami-related construction, inflationary
pressures are expected to subside in 2013. In
Tonga, inflation decelerated from 6.2% in 2011 to
1.2% in 2012. Appreciation of domestic currency
against the currencies of its major partners served
to contain imported inflation.
Vanuatu had a relatively low inflation rate of 0.8%
in 2011. However, it climbed to 1.4% in 2012.
National elections held in 2012 led to higher than
expected spending in the economy, which put
pressure on prices. To promote investment and
GDP growth, extension of credit to the private
sector was increased. This also contributed to
upward pressure on prices.
Diverse budget performance
Budget deficits were generally low in 2012, except
in the case of Kiribati and Samoa where they were
above 8% of GDP (see figure 2.8). Both Fiji and
Papua New Guinea recorded a slight increase in
budget deficit in 2012 but still it was well below 2%
of GDP. On the other hand, Tonga and Tuvalu
recorded budget surpluses in 2012, benefiting from
foreign aid and grants and also higher fishing license
revenues and lower spending in the case of Tuvalu.
In Papua New Guinea, the budget deficit increased
to 1.2% of GDP in 2012 from 0.2% of GDP in 2011.
The deterioration in the budget outcome reflects lower
revenue collection as a result of declining commodity
prices, particularly for gold and copper, combined with
overspending, mainly related to national elections. It
is planned that the 2013 budget will be increased by
23% in nominal expenditure, which will raise the size
of the expected budget deficit to 7.2% of GDP. This
significant economic stimulus is well timed to counter
falling domestic demand as construction of the LNG
project begins to wind down. Under the 2013 budget,
the priority sectors of health, education, infrastructure
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