Rising fiscal challenges in Pacific in 2014 -ADB

WELLINGTON, New Zealand: Fiscal pressure is expected to increase in the Pacific in 2014, according to the latest issue of the Asian Development Bank's (ADB) Pacific Economic Monitor, launched last week at the office of the New Zealand Aid Program.

Public spending for post-cyclone recovery in Samoa is likely to slow progress towards fiscal consolidation and drive up debt levels. In Fiji, rising capital expenditure by the government and anticipated election-related spending may challenge efforts to keep fiscal deficit in check.

Timor-Leste's fiscal surplus is expected to diminish significantly due to declining petroleum revenue and continued high levels of government expenditure. Deficit-financed fiscal stimulus is expected to continue in Papua New Guinea (PNG) to counter the slowdown in economic growth. However, ongoing problems with the quality of expenditure and timely implementation of projects due to capacity constraints are likely to persist.

In the north Pacific, the Federated States of Micronesia and Republic of Marshall Islands continue to struggle to accumulate trust funds to maintain government expenditure beyond 2023, when annual transfers from the United States under the Compacts of Free Association are set to expire.

"While there is some impetus to spend for growth in the region, it remains important to proceed with public financial management and structural reforms to build economic resilience," said Director General of the ADB's Pacific Department, Xianbin Yao.

"The looming impact of climate change makes resilience even more crucial, with added focus on adaptation and disaster risk management," he said.

Revenue collection has declined in the region's large resource exporters, but remained strong in the smaller Pacific economies in 2013.

Lower commodity prices are weakening revenue collection in PNG. In Timor-Leste, offshore petroleum production appears to have peaked.

Falling log exports have decreased revenue from timber export duties in the Solomon Islands. Revenue decline, along with limits in government capacity to implement capital projects, has contributed to delays in budget execution and slowed growth in these economies.