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Tuna Income Make Pacific Islands Economies Outperform 2012 Expectations Pacific Islands Nations, December 20, 12

Many of the small Pacific Island nations posted significant gains in earnings in 2012, and for some, tuna was the main contributing factor in their strong performance, according to economist Emma Veve.

Tonga, Samoa, Kiribati, Nauru and Tuvalu, have all performed better than expected, according to the Asian Development Bank’s latest Pacific Economic Monitor.

Perhaps surprisingly it is the faster growing countries, such as Papua New Guinea, Solomon Islands and Vanuatu that have underperformed the most on revenue.

The ADB’s Principal Pacific Economist, Emma Veve, told Radio Australia’s Jemima Garrett that tuna is the source of the strong revenue performance in Kiribati, Nauru and Tuvalu.

Interestingly enough one of the main driving factors behind it was the switch to a new system of licensing fees for the access to their fisheries, moving from a payment for seasonal use of the fisheries to a Vessel Day Scheme. So in combination with the El Niño weather patterns which actually put more fish stock into the waters of these countries, they’ve made significant revenue gains from their fisheries.

The El Niño thing is transitory, so how much of the improved performance is expected to continue into 2013?
Well certainly the licensing fees system will continue into 2013, and the improved earnings from that is expected to be maintained. Of course the weather is always hard to tell, but we’ll have to keep our fingers crossed for next year.
Budget balance has also improved in Samoa and Tonga, what do you put that down to?
The higher revenues in these countries were because of the stronger focus on administration of tax systems and really getting their health in order, as well as progress in what we economists call fiscal consolidation, so that’s really putting a tight eye over where your expenditure is going and making sure you’re only spending what’s absolutely necessary.
Fiji is expected to achieve a smaller budget deficit than expected, why is that?
It has adopted again some factors on the tax side. It has actually put in a place a system where companies are paying taxes earlier than they have been in previous years, so in 2012, they’ve brought forward what would have typically been later revenue and that’s put them in a better position than had been expected.
Despite the lower than expected deficit, Fiji is still of concern, you say, because of debt levels. Why?
Fiji is one of the larger economies in the Pacific and certainly the largest in the south Pacific. Its debt is relatively high, over 50% of the value of its gross domestic product, so we need to keep an eye on how government is able to afford to repay that debt, so for example, the amount of revenue they have to spend on repaying debt. Also, very necessary to keep an eye on, is the amount of debt that’s been taken on board by the state-owned enterprises, because government puts its guarantee behind that debt and the risk of course is if any of these state-owned enterprises get into trouble with paying back that debt, it comes onto the government’s books and that was what we saw happen in the case of the Fiji sugar corporation’s debt, it’s been moved onto government books and that substantially worsened the overall debt position. Obviously debt can be a very good thing for development if it’s used effectively for infrastructure projects, for example, that help boost the growth of the economy, but if debt is taken on to pay people’s salaries, to just keep the mechanics of government ticking over, that’s not such a good thing looking forward.
In contrast to the small Pacific states, revenue collections in Papua New Guinea, Solomon Islands, and Vanuatu, are less than expected in their budgets. Why?
These are all commodity-dependent economies and so what we saw during 2012 is that the very high levels of commodity prices of 2011 started to fall, particularly in the first half of 2012, and so the earnings from commodity exports, for example, logs from the Solomon Islands was not as high as expected and so their revenues are slightly below their forecasts.
As you say, the global economy has been softening, what sort of impact has that had on other Pacific island economies?
The Pacific island economies have been relatively buffered from the global economic weakening. Tourism has actually been quite strong, relatively robust in the Pacific to date, and really a lot of this is because of the good performance relatively of the Australian economy. Tourism comes predominantly from Australia in the south Pacific and those numbers have really held up and so we’ve seen the south Pacific economies in particular buffered from the global economic condition.
And where do expect that to go in 2013?
I think we’ve got good expectations for the Australian economy to continue and we certainly hope that this will continue to play the important role in driving some of the growth in the tourism-dependent economies. Of course, we have our eye to what’s happening in Asia, the flow on of the effects in Europe and America to the Asian economies, which they purchase a lot of their resources from Australia, so if those economies start to soften significantly, then we would expect the Australian economy to also feel effects and this to eventually flow through to the Pacific islands and of course, more directly through commodity prices to those few Pacific islands that are significant commodity exporters.