[1/2] Surfers watch the sun set after surfing along the coast of Kiritimati Island, part of the Pacific Island nation of Kiribati, April 5, 2016. To match Feature PACIFIC-JUSTICE/ REUTERS/Lincoln Feast
WELLINGTON, May 18 (Reuters) – Six Pacific countries are at high risk of debt distress, in part because of public spending to respond to the COVID-19 crisis, the World Bank said in a report on Thursday.
The report, titled Raising Pasifika, said fiscal consolidation was needed in Kiribati, the Republic of the Marshall Islands, the Federated States of Micronesia, Samoa, Tonga and Tuvalu because these countries lack domestic debt markets and access to international capital markets.
Among other countries in the region, Vanuatu is rated medium risk, while Palau and Nauru’s debt is sustainable, the report noted.
“While the level of public debt as a share of GDP remains modest in most of the region, the PIC9’s economic geography and volatile revenue bases mean that risks of debt distress remain high,” it said.
Debt has risen in the region since 2019 as tourism-dependent economies were hit by COVID border closures, trade was hit by logistical challenges and weather events caused damage. The World Bank said last month that Fiji must also take swift action to reduce its debt burden.
Stephen Ndegwa, World Bank country director for Papua New Guinea and the Pacific Islands, said reducing debt, strengthening revenue and improving the quality of public spending are critical areas for Pacific countries to address.
The report said continued access to grants in line with pre-pandemic trends is also critical to finding capital investment projects for sustainable development and climate resilience.
The World Bank report recommends that improvements in tax collection, along with more efficient spending, must be a priority for Pacific governments to ensure that individuals and businesses contribute their fair share to the region’s economies.
It also said Pacific countries should spend more on social assistance and protection measures.
“These investments will help reduce poverty and inequality while supporting communities in difficult times, including in the wake of climate-related disasters or major economic shocks, as the region saw from the COVID-19 pandemic and the recent natural disasters in Tonga and Vanuatu ,” it said.
Reporting by Lucy Craymer; Editing by Kim Coghill
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