Speech

Remarks at Pacific Islands Forum Economic Ministers Meeting (July 13-14, 2021)

July 13, 2021

Greetings from Washington DC.

Five years ago when I joined the IMF as Deputy Managing Director, my first public event was on the Pacific islands, launching a book prepared by Patrizia Tumbarello and others from our Asia and Pacific Department. Now that I’ve come to the end of my term, it’s a great honor and pleasure for me that my last engagement also will be on the Pacific.

Today, I will focus my remarks on the global and regional outlook. I will then turn to some of the key issues we see facing Pacific Islands.

First, the outlook.

Economies across the world are recovering, but these recoveries are diverging in a potentially dangerous way. Economic activity is gaining steam in advanced economies where vaccinations and policy support are strong but remains sluggish in developing economies where the incidence of COVID-19 remains high and vaccinations are lagging.

Developing economies are thus at risk of falling even further behind the rest of the world. And tragically, the historic income losses are borne mostly by the less advantaged: low-income workers, youth, and women. Without policy actions, the pandemic risks stunted opportunities, rising inequalities, and even social unrest.

In the Asia-Pacific region too we see wide differences across countries.

Overall, exports and manufacturing have benefited from surging global demand for pandemic-related supplies. In China, headline GDP has returned to its pre-pandemic trend driven by strong growth in investment and exports. And advanced economies such as Australia, Korea, and New Zealand are benefiting from strong policy responses, and spillovers from the large US fiscal package.

But some emerging markets, including India, Indonesia, Malaysia, and the Philippines, are facing increased coronavirus cases and renewed lockdowns, and, therefore, weaker recoveries. And undiversified economies, and those dependent on services such as tourism are languishing.

Let me now turn to the Pacific.

Pacific Islands have been hit hard, and the pandemic has imposed a severe social toll, with rising unemployment and poverty.

The pace of recoveries will hinge on vaccine supply and distribution, the external environment, and domestic policy support.

For commodity exporters such as Papua New Guinea and Solomon Islands, a return to positive growth is plausible this year as the external environment improves.

For tourism-reliant countries including Fiji, Palau, Samoa, and Vanuatu, the recovery will take longer. Our best guess is that the region may not get back to 2019 tourism levels before 2023.

Beyond the pandemic, Pacific Islands face several daunting challenges. Let me highlight three.  

First, higher public debt has added to pre-pandemic vulnerabilities in several countries. This issue is all the more pressing given the investment needed to enhance climate and natural disaster resilience and to address infrastructure deficiencies and human capital development.

Second, losses of correspondent banking relationships (CBRs) threaten remittance, business income, and fiscal revenues. The decline in the number of CBRs is a global phenomenon but is particularly problematic in the Pacific and reflects the assessment by banks of the risks relative to the profitability of this business.

Third, Pacific Islands are particularly exposed to the negative effects of climate change. They also have less capacity to adapt to changing climate conditions and the natural disasters that accompany such change. For some of the islands, climate change is an existential threat. Work on the economics of climate change and adaptation in the IMF has already increased substantially.

Let me now turn to policies.

The priority in the Pacific is to end the pandemic, and the key to this is rapid availability and distribution of vaccines. I will come back to this shortly.

Targeted policy support for vulnerable populations must continue. Future support should be geared toward the reallocation of resources toward new dynamic sectors—such as the green economy and the digital economy.

All stakeholders must preserve external financial lifelines. The IMF is helping to find solutions by providing AML/CFT training and facilitating a dialogue among the stakeholders.

Further down the road, key tasks include ensuring sustainable public finances, enhancing resilience to shocks, dealing with excess leverage in corporate and quasi-fiscal sectors, adapting to climate risk, and enhancing the resilience and productivity of the growth model with upgraded infrastructure and human capital.

Global cooperation is vital to avoid developing economies falling further behind the rest of the world.

First, ending the pandemic everywhere requires further coordinated global action.  

IMF staff recently proposed a $50 billion plan to end the pandemic by vaccinating at least 40 percent of people in every country by the end of this year and 60 percent by mid-2022.

The most urgent part of the plan is to redirect excess vaccine doses from advanced economies to the developing world.

About one-third of the plan’s $35 billion in grant financing has now been secured, but the work must continue to raise the rest.

Second, beyond vaccines, ensuring sufficient financial support for weaker economies is essential. This includes grants from bilateral donors and international financial institutions, and debt relief and rescheduling. The Debt Service Suspension Initiative (DSSI) and its extension have provided welcome relief for more than 40 countries; and the Common Framework for Debt Treatments Beyond the DSSI should be made operational.

Third, the proposed general allocation of SDRs of US$650 billion can help meet the need to supplement reserves, and support recovery efforts of vulnerable countries.

Finally, poorer economies will need support to facilitate the transition to cleaner energy sources and invest in climate adaptation that renders them more resilient to climate shocks.

The IMF is committed to all of this important work to promote global cooperation, and I can assure you that we will do our own part to the utmost.

Thank you!