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

MACROECONOMIC PERFORMANCE AND POLICY CHALLENGES AT THE SUBREGIONAL LEVEL CHAPTER 2
remittances cannot help in the provision of public
goods, such as roads, water supply and power supply,
as well as education and health-care services. Aid
will also be important in helping the countries in
dealing with the impacts of climate change.
Despite their small size and remote location, Pacific
island developing economies have growth potential
but unlocking this requires the development of
appropriate institutional environments, including
reforming the investment and communication
technologies sector (ADB, 2012c). For example,
Fiji, Samoa, Tonga, Solomon Islands and Vanuatu
have introduced competition among mobile phone
service providers, leading to substantial reductions
in costs. Thus economic reforms that lead to
productivity increases, such as opening internal
telecommunications and airline services for
competition, opening trade and investment channels
and improving education and training, become even
more critical for these small island economies if they
are to exploit fully their growth potential.
For the Pacific island economies, the effects of
climate change and natural disasters are well known.
For some of them, the implications are serious as
they not only affect their short-term growth and
development prospects but could threaten their very
existence if predictions of a rise in sea levels are
borne out. A policy challenge for them is to focus
on adapting to climate change and reducing their
vulnerability to its effects, rather than on trying
to mitigate it. However, the resources available to
these economies to implement national adaptation
programmes are scarce. It is now accepted that,
for the Pacific islands developing economies with
sufficient resources and technology transfer, adapting
to climate change can be turned into an opportunity
to create a new approach to development based
on sustainability. Applying improved agricultural
practices, adopting clean technologies, enhancing
energy efficiency and making modern and clean
energy available to the poor would help to
simultaneously fight climate change and promote
sustainable development in these countries.
To deal with some of the above challenges, Pacific
island developing economies need to strengthen
cooperation among themselves. They are part of
various regional organizations and discuss many
issues of interest. However, the achievement of
better and deeper regional integration would be
in the long-term interest of these economies.
Regional cooperation will enable them to reduce
the cost of doing business and improve public
services. These economies are strongly linked to
the neighbouring major economies of Australia and
New Zealand. Some bigger countries, such as Fiji,
Papua New Guinea and Solomon Islands, have
undertaken several initiatives for enhancing trade
and investment links with their Asian neighbours.
Papua New Guinea is currently a member of Asia-
Pacific Economic Cooperation and has observer
status in the Association of Southeast Asian Nations
(ASEAN). Papua New Guinea’s exports to China,
for example, increased from $122 million in 2001
to $817 million in 2011 on the back of increasing
Chinese demand for Papua New Guinea’s petroleum
products. Meanwhile the exports of Solomon Islands
to China, dominated by timber logs, reached $348.4
million in 2011. Many countries also import at least
10% of their total imports from China. Infrastructure
investment in many of these economies has been
bolstered by funding from the Government of China.
Trade and investment linkages between Pacific
island developing economies and Asia are likely
to continue to expand due to low transportation
costs. However, their long-term economic prospects
will depend more heavily on their capacity to seize
opportunities in a changing global landscape.
Australia and New Zealand
Growth performance improved steadily
In Australia, GDP growth accelerated to 3.6% in
2012 from 2.5% in 2011 when the country suffered
from severe floods (see figure 2.10). Total fixed
investment growth surged to a multi-year high in
mid-2012 on stellar resource investment that benefited
from high commodity demand from Asia. However,
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