ECONOMIC AND SOCIAL SURVEY OF ASIA AND THE PACIFIC 2009
of monetary policy settings and cuts to Government expenditure have kept international reserves within the target range of three to four months of imports. Its international reserves could be exposed, however, given the impact of the financial crisis on its trading partners, a weak outlook for the sugar industry, loss of garment exports and the need to repay in 2011 an offshore bond equivalent to one month’s worth of exports. Although Kiribati’s current account deficit equalled 31.1% of GDP in 2007, with revenue from fisheries fluctuating in recent years, the weakening of the Australian dollar against the United States dollar has strengthened earnings. The disbursement of grants, primarily through the Compact of Free Association with the United States, has enabled the Marshall Islands to maintain its balance of payments, while external stability is likewise is not an issue in the Federated States of Micronesia, since external debt remains about 30% of GDP and the country has access to Compact funding. Australia was also expected to sustain high levels of official assistance to Nauru. A trade surplus was expected in 2008 in Papua New Guinea, where mineral exports comprise more than four fifths of its exports. Australia accounted for two fifths of Papua New Guinea’s exports in 2007, followed by Japan, Germany and the Philippines. Exports to China rose in the first half of 2008. This was due to China’s increase in demand for raw materials and its strategy of diversifying its sources. Australia also accounted for four fifths of Papua New Guinea’s total imports, followed by the United States, Singapore and Japan. Since the kina closely follows the United States dollar, the appreciation of the real exchange rate in late 2008 could reduce Papua New Guinea’s international competitiveness and lower its exports. At the same time, the strength of the kina was expected to reduce the costs of imports from Australia as well as inflationary pressures. International reserves, equivalent to 4.7 months worth of imported goods and services at the end of 2007, were projected to rise to the equivalent of 5.2 months of imports by the end of 2008. Exports from Samoa declined by 19.3% in the first quarter 2008 over the corresponding period a year earlier, led by a significant fall in fish exports. Australia and American Samoa together accounted for three quarters of Samoa’s total exports in 2008. Due to increased economic activity and a rise in public sector wages, imports – primarily petroleum and food products from New Zealand, Fiji and Singapore – increased rapidly. In the first quarter of 2008, petroleum imports rose by more than 50% over the corresponding period in 2007. The trade deficit was expected to
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widen in 2008. Remittances from Samoans working overseas accounted for more than one fifth of GDP in 2006 and 2007. In the first quarter of 2008, remittances increased by 5.3% over the corresponding period in 2007, largely from overseas workers in the United States. The global economic slowdown, however, could lead to a decline in remittances. International reserves increased from the equivalent of 4.7 months import coverage in June 2007 to 5.2 months import coverage in June 2008, along with a tightening of fiscal and monetary policies.
Effective macroeconomic policies at the disposal of small, open economies in the Pacific are generally limited
Exports from the Solomon Islands continued to rise in 2008. Timber accounted for two thirds of total exports in 2007; this indicates that the Solomon Islands needs greater diversification of exports. After delays owing to land ownership issues, gold production was expected to commence in the next two or three years. Asia accounted for more than four fifths of Solomon Islands’ exports. Costs of imports, primarily from Australia and Singapore, continued to rise owing to high fuel prices and growth in domestic demand. The trade deficit was expected to decline to 22.6% of GDP in 2008. International reserves, equivalent to 3.9 months of imports in 2007, was projected to rise to the equivalent of 4.1 months of import cover in 2008 due to receipts from log exports, aid inflows and FDI to the mining sector. Rising import costs due to high fuel prices and sharp credit growth, however, could lower the country’s international reserves below projected figures. Tonga’s trade deficit widened in 2008 due to a decline in exports and a growth in imports caused by an increase in remittances and business and household credit. Japan accounted for more than half of the country’s exports, followed by the United States and New Zealand. Exports declined due to lower production of root crops, bananas, watermelons and squash. Although fish exports, which had been doing poorly for several years, recovered in 2007, they were expected to fall in 2008. Depletion of fish stocks, harsh weather, shortage of cargo space in airlines and lack of credit for fishermen led to the fall in agriculture and fisheries production. Large inflows of remittances sustain the economy, since more Tongans now live abroad than in Tonga, and their number is increasing. Private transfer receipts rose by 15% annually between