A MACROECONOMIC PORTRAIT OF THE PACIFIC: A Presentation for PEGASeS August 16, 2007 Susan J. Adams, PhD IMF-PFTAC Coordinator Compiled by the IMF Asia and Pacific Department Edited by PFTAC
OUTLINE OF PRESENTATION I. Recent Developments and Outlook: GDP and Prices External Sector Monetary Sector Fiscal Sector II. Competitiveness in the Pacific Region III. Factors Impeding Growth in the Pacific Islands IV. Questions/Discussion 2
I. COUNTRY GROUPINGS Used in this Study South Asia East Asia Emerging Asia Pacific Islands Bangladesh Brunei Darussalam China Fiji Bhutan Cambodia India FSM Maldives Lao PDR Thailand Kiribati Myanmar Mongolia Malaysia Palau Nepal PNG Indonesia RMI Sri Lanka Timor-Leste Philippines Samoa Korea Solomon Is Taiwan POC Tonga Singapore Vanuatu Hong Kong SAR 3
I. Recent Developments and Outlook
1. GROWTH AND PRICES Real GDP Growth (year on year % change) 2002-05 2006 2007 2008 average Proj. Proj. South Asia 5.2 6.7 6.2 6.1 Bangladesh 5.8 6.7 6.7 6.8 Bhutan 7.8 7.2 13.6 11.8 Maldives 5.0 19.1 5.5 4.5 Myanmar 1/ 3.8 7.0 5.5 4.0 Nepal 2.3 1.9 3.0 4.5 Sri Lanka 5.4 7.4 6.0 5.5 East Asia 4.6 6.2 5.9 5.3 Brunei Darussalam 1.9 3.8 2.6 3.0 Cambodia 9.6 10.8 9.1 7.6 Lao P.D.R. 6.4 7.6 7.1 7.6 Mongolia 6.9 8.4 8.0 7.5 Papua New Guinea 2.0 3.7 4.3 3.7 Timor-Leste -2.6-1.6 32.0 3.6 Pacific Islands 2.8 3.3-0.2 2.2 Fiji 2.8 3.4-2.5 1.7 Kiribati 1.0 5.8 2.5 1.6 Marshall Islands 3.7 1.0 3.6 3.0 Micronesia, F.S. 0.5-0.7 1.8-0.3 Palau 1.4 5.7 2.5 0.0 Samoa 4.0 1.8 3.0 3.5 Solomon Islands 4.4 6.1 5.4 4.2 Tonga 2.5 1.3-3.5 0.8 Vanuatu 2.0 5.5 5.0 4.0 LISCs 5.0 6.5 5.9 5.8 Emerging Asia 9.3 9.0 8.5 8.1 Sources: IMF, APDCORE and WEO databases; and staff estimates. 1/ IMF staff estimates. 5
Real GDP Growth (In percent, weighted) 10 8 6 4 2 0-2 South Asia Pacif ic East Asia Emerging Asia -4 2002 2003 2004 2005 2006 2007 2008 Sources: IMF, World Economic Outlook ; Country authorities; and Fund staff calculations. 6
Per Capita GDP, 1970 20061/ 4000 3500 3000 2500 2000 1500 1000 500 0 LISCs Emerging Asia Least Developed Countries 1970 1976 1982 1988 1994 2000 2006 Sources: IMF, World Economic Outlook ; and Fund staff calculations. 1/ Excluding Brunei, Micronesia, Marshall Islands, Palau, and Timor Leste. 7
Global Commodity Prices (Index 2002 =100) 300 250 200 150 Crude oil Food Non-fuel 100 50 2002 2003 2004 2005 2006 2007 2008 Source: IMF, World Economic Outlook. 8
Consumer Price Index (Year on year percent change) 2002-05 2006 2007 2008 average Proj. Proj. South Asia 7.5 11.6 11.4 10.0 Bangladesh 5.6 6.8 7.3 5.8 Bhutan 3.6 5.1 4.6 4.1 Maldives 1.9 3.7 7.0 6.0 Myanmar 24.2 26.3 37.5 35.0 Nepal 4.3 8.0 7.0 6.1 Sri Lanka 7.0 17.9 11.0 11.0 East Asia 4.3 2.4 3.4 2.7 Brunei Darussalam 0.0 0.5 1.2 1.2 Cambodia 4.1 2.8 3.5 3.5 Lao P.D.R. 11.3 6.8 4.0 4.5 Mongolia 6.2 5.6 5.3 5.0 Papua New Guinea 7.5 1.3 6.0 2.1 Timor-Leste 4.2 4.1 5.0 3.7 Pacific Islands 3.4 4.0 3.7 3.8 Fiji 2.6 3.8 3.5 3.5 Kiribati 0.4-0.2 0.2 1.0 Marshall Islands 1.0 5.3 2.4 2.4 Micronesia, F.S. 1.4 3.9 3.0 2.5 Palau 1.1 0.0 0.0 0.0 Samoa 6.9 3.3 4.4 4.1 Solomon Islands 8.4 8.1 6.3 7.3 Tonga 10.7 7.0 6.0 6.4 Vanuatu 1.9 1.6 2.5 3.0 LISCs 6.8 9.5 9.5 8.4 Emerging Asia 1/ 2.7 3.4 3.4 2.9 Sources: IMF, WEO databases; and Fund staff estimates. 1/ Average period. 9
Consumer Prices (Year on year percent change) 20 16 South Asia Pacif ic East Asia Emerging Asia 12 8 4 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Sources: IMF, World Economic Outlook ; country authorities; and Fund staff calculations. 1/ Average period for Emerging Asia. 10
2. EXTERNAL SECTOR Current Account Balance (% of GDP) 2002-05 2006 2007 average Proj. LISCs 1/ -1.0-0.6-1.5 South Asia -0.5-0.4-0.8 East Asia 1/ -2.9 2.8-1.5 PICs -8.1-16.9-21.3 Emerging Asia 4.0 5.8 6.1 Sources: IMF, WEO databases; and staff estimates. 1/ Exluding Brunei Darussalam. 11
Exports of Goods and Services (US$, year on year percent change) 2002-05 2006 2007 2008 average Proj. Proj. LISCs 23.3 16.4 9.5 8.1 South Asia 4.8 15.2 8.2 7.6 East Asia 60.3 33.9 17.7 8.8 Pacific 10.7 5.4 4.4 7.9 Emerging Asia 24.5 22.8 18.2 15.3 Sources: IMF, World Economic Out look; Count ry authorities; and Fund staff estimates. 12
Export Market Share 1/ (In percent of world exports) 0.22 0.022 0.20 0.020 0.18 0.16 South Asia Pacific, RHS East Asia 0.018 0.016 0.14 0.014 0.12 2002 2003 2004 2005 2006 Sources: IMF, Direction of Trade Statistics; and Fund staff calculations. 1/ Excludes Bhutan, Timor Leste, Marshall Islands, Micronesia, and Palau. 0.012 13
Remittances 1/ (In percent of GDP) 10 8 South Asia Pacif ic East Asia Emerging Asia 6 4 2 0 2000 2001 2002 2003 2004 2005 Sources: World Bank, World Development Indicators; and Fund staff calculations. See IMF (2007) for Pacific Islands definitions. 1/ Excludes Bhutan, Timor Leste, Brunei Darussalam, Singapore, and Taiwan POC. 14
Indicators of External Vulnerability, 2006 1/ (In percent of GDP) 40 30 20 10 0-10 -20 South Asia Pacif ic East Asia Emerging Asia, excl. China Current account Foreign reserves Public external debt Sources: IMF, World Economic Outlook ; Country authorities; and Fund staff calculations. 1/ Reserves exclude government held resource funds invested offshore in Timor-leste, Brunei, Mongolia and the trust funds in Kiribati and the Compact Pacific Island countries. 15
Real Effective Exchange Rates 1/ (Index 2000 = 100, weighted average) 120 (I d 2000 100 i l 115 110 105 100 95 South Asia Pacif ic East Asia Emerging Asia 90 2002 2003 2004 2005 2006 Sources: IMF, Information Notice System; and IMF staff calculations. 1/ Excludes Marshall Islands, Micronesia, Palau, and Bhutan. 16
3. MONETARY SECTOR Banking Sector Assets, 2005 1/ 100 80 60 40 20 0 Fiji Samoa Solomon Is Sri Lanka Bhutan Nepal Bangladesh PNG Timor Leste Sources: Country authorities; and Fund staff estimates. 1/ In percent of total financial sector assets. 17
Broad Money Growth 1/ (Annual percent change) 35 25 South Asia Pacific East Asia Emerging Asia 15 5-5 2002 2003 2004 2005 2006 2007 2008 Source: IMF, World Economic Outlook ; country authorities; and Fund staff calculations. 1/ Excludes Marshall Islands, Micronesia, and Palau. 18
Private Sector Credit 1/ (In percent of GDP) 40 99.0 30 20 98.5 98.0 97.5 10 0 South Asia Pacif ic East Asia Emerging Asia, RHS 2002 2003 2004 2005 2006 Sources: IMF, International Financial Statistics; Country authorities; and Fund Staff calculations. 1/ Emerging Asia excludes China and India. LISCs excludes Brunei, Marshall Is., and Palau. 97.0 96.5 19
Private Sector Credit Growth 1/ (Year on year percent change) 40 35 30 25 20 15 10 South Asia Pacif ic East Asia Emerging Asia 5 2003 2004 2005 2006 Sources: IMF, International Financial Statistics; country authorities; and Fund Staff calculations. 1/ Emerging Asia excludes Vietnam. LISCs excludes Brunei, Timor-Leste, Micronesia, Marshall Is., and Palau. 20
Net private Capital Flows (In millions of U.S. dollars) 1,500 1,000 Pacific ex Marshall Is., Micronesia, Palau East Asia ex. Brunei South Asia 500 0-500 -1,000 2002 2003 2004 2005 2006 Source: IMF, World Economic Outlook ; and Fund staff calculations. 21
4. FISCAL INDICATORS (% of GDP) Central Government Gross Debt Central Government Fiscal balance 2005 2006 2007 2005 2006 2007 Proj. Proj. South Asia 60.2 59.5 57.8-4.4-4.6-5.4 Bangladesh 47.1 45.4 44.0-3.2-3.3-4.2 Bhutan 84.8 86.8 78.7-6.5-0.8-4.6 Maldives 52.6 51.7 69.7-10.9-7.3-23.9 Myanmar......... -3.8-4.9-4.7 Nepal 59.5 56.7... -0.8-1.8-3.0 Sri Lanka 93.9 94.1 90.9-8.5-8.4-8.8 East Asia 31.4 27.2 26.0 8.5 12.0 10.4 Brunei Darussalam 0.0 0.0 0.0 18.3 22.7 23.4 Cambodia 37.2 33.0 30.6-1.0 0.6-1.5 Lao P.D.R. 73.1 69.2 61.4-4.3-3.3-1.2 Mongolia 67.4 50.0 45.6 2.9 9.0-2.0 Papua New Guinea 47.5 39.4 40.0 4.1 6.4 2.1 Timor-Leste 0.0 0.0 0.0 115.1 157.8 164.4 Pacific Island Countries 49.9 48.9 48.8-2.6-2.4-1.8 Fiji 51.2 51.0 52.8-3.6-3.3-2.0 Kiribati......... -24.4-25.3-21.2 Marshall Islands 76.9 71.5 66.7-3.7-0.8 1.0 Micronesia, F.S. 25.3 24.7 23.2-5.4-1.6-2.5 Palau......... -3.4-1.3-2.8 Samoa 39.3 39.4 37.9 0.3-0.5-0.5 Solomon Islands 81.3 72.8 66.7 2.0 4.0 0.5 Tonga 50.5 48.1 47.6 2.5-3.5-2.3 Vanuatu 32.2 30.6 27.3 1.9-0.5-0.5 LISCs 53.8 51.9 49.9-1.8-1.1-2.0 Emerging Asia 65.6 62.5 59.7-2.2-1.6-1.8 Sources: IMF, APDCORE and WEO databases; and Fund staff estimates. 22
Total Government Debt (In percent of GDP) 70 60 50 40 30 South Asia Pacif ic East Asia Emerging Asia 20 2002 2003 2004 2005 2006 2007 2008 Sources: IMF, World Economic Outlook ; country authorities; and Fund staff calculations. 1/ Excludes Myamnar, Kiribati, Palau, Korea, Vietnam, and China. 23
Government Revenue Excl. Grants (In percent of GDP) 35 30 25 20 15 10 5 0 South Asia East Asia Pacif ic Emerging Asia 2002 2003 2004 2005 2006 2007 2008 Sources: IMF, World Economic Outlook ; country authorities; and Fund staff calculations. 24
Conclusions of Part I: Main Risks Balance of near-term risks is tilted to the downside: Heavy dependence on a narrow export base, increases vulnerability to external shocks; Demand pressures from higher fiscal spending and rapid credit growth risk stoking inflation; The region faces a number of security and political risks; Institutional and governance constraints could slow progress on structural reforms needed to create a more vibrant, diversified private sector. 25
II. Competitiveness in the Pacific Region
National Consumer Prices Vs Trading Partner Prices (Index 2000 = 100) 160 150 Tonga 140 130 PNG Solomon Islands 120 110 100 Vanuatu Fiji Samoa 90 2000 2001 2002 2003 2004 2005 2006 27
Real Effective Exchange Rates (Index 2000 = 100) 130 120 110 Vanuatu Fiji Samoa 100 90 Tonga PNG 80 Solomon Islands 70 2000 2001 2002 2003 2004 2005 2006 28
Market Share Index: Export of Goods (Index 1996 = 100) 180 160 140 120 100 80 60 40 Papua New Guinea Solomon Islands Samoa Vanuatu 20 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Sources: IMF, World Economic Outlook ; Country authorities; and Fund staff estimates. 29
Trade Openness 1/ (In percent of GDP) 110 100 90 80 70 South Asia East Asia Pacif ic 60 50 40 2002 2003 2004 2005 2006 Sources: IMF, Direction of Trade Statistics and World Economic Outlook ; and Fund staff calculations. 1/ Excludes Bhutan, Timor Leste, Marshall Islands, Micronesia, and Palau. 30
Tourism Receipts 1/ (In percent of GDP) 24 20 16 12 8 4 South Asia Pacific East Asia 0 1995 2000 2003 2004 2005 Sources: World Tourism Organization; and Fund staff calculations. 1/ Excludes Brunei, Timor Leste, Marshall Islands, Micronesia and Palau (1995, 2000), Kiribati (2003-05), PNG(2005), Myanmar (2005), Sri Lanka (2005), and Vanuatu (2004-05). 31
Australian Tourists to Selected Pacific Islands (In thousands) 50 Samoa Tonga 250 40 Vanuatu Fiji (RHS) 200 30 150 20 100 10 50 0 1991 1993 1995 1997 1999 2001 2003 2005 0 Source: Australian authorities. 32
New Zealand Tourist to Selected Pacific Islands (In thousands) 120 100 Fiji Tonga (RHS) Samoa Vanuatu (RHS) 12 10 80 8 60 6 40 4 20 2 0 1991 1993 1995 1997 1999 2001 2003 2005 0 Source: New Zealand authorities. 33
Ease of Doing Business Ranks, 2006 Timor-Leste Cambodia Bhutan Micronesia Nepal Sri Lanka Global, median Bangladesh Marshall Islands Em. Asia, median Solomon Islands Palau Kiribati Vanuatu PNG Maldives Tonga Mongolia Samoa Fiji 0 20 40 60 80 100 120 140 160 180 Sources: World Bank, Doing Business Report. Countries are ranked out of 175. A higher rank reflects a more difficult business environment. 34
Political Environment, 1990-2006 Change in number of : government s governing part ies Fiji 3 4 Papua New Guinea 6 6 Samoa 2 0 Solomon Islands 5 6 Vanuat u 11 5 Source: World Bank, Political Institutions Dat abase. 35
Country Policy & Institutional Assessments (Overall, quintile; Solomon Islands Vanuatu Tonga PNG A higher score indicates better policies and institutions Kiribati Samoa 0 1 2 3 4 5 Source: World Bank, IDA Country Performance and Ratings. 36
Real GDP per capita vs. Business Climate (Average annual growth 2000-06 vs. World Bank Doing Business 2007 ranking) 4 Real GDPper capita 3 Samoa Tonga 2 Fiji 1 Kiribati 0 Vanuatu -1-2 PNG -3 Solomon Islands -4 30 35 40 45 50 55 60 65 70 Ease of Doing Business Ranking (higher= more costly) Source: IMF, World Economic Outlook ; and World Bank, Doing Business. 37
Structural Indicators Fiji PNG Samoa Solomon Islands Tonga Vanuatu MIC New Zealand Paved roads (in percent of total roads), 2000 49... 42... 27 24... 64 Aircraft departures, 2004 1/ 45,669 18,712 10,538 11,512 1,336 1,477 5,010,732 196,657 Telephone mainlines per 100 residents, 2005 12 1 7 2 11 3 19 44 Mobile phone subscribers per 100 residents, 2005 17-13 2 16 6 29 75 Cost of three- minute call to US (US$), 2004 3.0... 1.0... 1.0 7.0 1.5 1.3 Internet users (per 1000 people), 2004 73 21 33 6.4 29 36 91 788 Electricity costs (US$ per kwh), 2003 0.2... 0.2... 0.3 0.3... 0.05 Improved sanitation facilities (percent of population with access) 72 44 100 31 96 50 62.7... Improved water facilities (percent of population with access) 47 39 88 70 100 60 84... Sources: Vanuatu authorities, Energy Information Administration; International Telecomunication Union, World Telecomunication Development Report (2006); and World Bank, World Development Indicat ors (2006). 1/ Registered carrier departures for Papua New Guinea and Solomon Islands. 38
Real Lending Rate (Percent per annum) 15 10 5 0-5 -10 Australia Tonga Fiji Samoa Solomon Islands Papua New Guinea Vanuatu 1995 2000 2005 Sources: Samoan authorities; and IMF, International Financial Statistics. 39
Interest Rate Spread (Lending rate minus deposit rate, in percent) 16 14 12 10 8 6 4 2 Australia Fiji Vanuatu Solomon Islands Tonga Samoa Papua New Guinea 0 1995 2000 2005 Sources: Samoan authorities; and IMF, International Financial Statistics. 40
Conclusions of Part II: Impediments to private sector activity in the Pacific Islands Very open economies with limited sources of comparative advantage outside of tourism. Customary land ownership, prevalent throughout the Pacific, limits the economic use of land. Political instability, weak institutions, and inadequate infrastructure. Business costs are high and the environment to get things done quickly is difficult in some countries. The cost of financing is high, and its availability limited. 41
III. Are There Factors Impeding Growth in the Pacific Islands?
Paved Roads, 2004 (In percent of total) 100 80 60 40 43 Solomon Is. Mongolia PNG Bangladesh Philippines Lao PDR Cambodia Vanuatu Tonga Brunei D Samoa Fiji Nepal Indonesia Bhutan Korea Malaysia Sri Lanka Thailand Singapore 20 0 Source: World Bank, World Development Indicators database.
Adult Literacy, 2004 (In percent of total) 44 Nepal PNG Lao PDR Cambodia Vanuatu Malaysia Indonesia Sri Lanka Singapore Philippines Thailand Brunei Maldives Mongolia 100 80 60 40 20 0 Source: World Bank, World Development Indicators database.
Reserve Accumulation 1/ (In billions of U.S. dollars) 18 16 14 12 10 8 6 4 2 0 South Asia East Asia Pacif ic 2002 2003 2004 2005 2006 Sources: IMF, World Economic Outlook ; country authorities; and Fund staff calculations. 1/ Excludes Kiribati. 45
Government Capital Expenditure 1/ (In percent of GDP) 10 South Asia East Asia Pacif ic 9 8 7 6 5 2002 2003 2004 2005 2006 2007 2008 Sources: Country authorities; and Fund staff calculations. 1/ Excludes Myanmar and Kiribati. 46
Public Debt in the Pacific, 2002 06 (In percent of GDP) 120 100 External Domestic 80 60 40 20 0 47 Fiji, 2002 2006 Kiribati, 2002 2006 Marshall Is, 2002 2006 Micronesia, 2002 2006 Palau, 2002 2006 Samoa, 2002 2006 Solomon Is, 2002 2006 Tonga, 2002 2006 Vanuatu, 2002 2006 Sources: IMF, World Economic Outlook ; Country authorities; and Fund staff calculations.
Population Growth, 2006 (In percent) 2.5 2.0 1.5 1.0 0.5 0.0 Pacific Emerging Asia South Asia East Asia Least Developed Countries Sources: United Nations; and Fund staff calculations. 48
Population Below One Million, 2006 (In millions) 1.0 0.8 0.5 0.3 0.0 49 Palau Marshall Is. Kiribati Tonga Micronesia Samoa Vanuatu Maldives Brunei Solomon Islands Fiji Sources: United Nations; and Fund staff calculations.
Population Above One Million, 2006 (In millions) 125 100 75 50 25 0 50 Timor-Leste Bhutan Mongolia PNG Lao PDR Cambodia Sri Lanka Nepal Myanmar Bangladesh Sources: United Nations; and Fund staff calculations.
Human Development Indicators 1/ (Index values, 2004) 0.9 0.8 0.7 0.6 0.5 0.4 51 Brunei Darussalam Emerging Asia Timor-Leste Papua New Guinea Nepal Bangladesh Bhutan Lao PDR Myanmar Myanmar Cambodia Solomon Islands 0.3 0.2 Vanuatu Mongolia Maldives Sri Lanka Fiji Samoa Tonga 0.1 0 Source: UNDP. 1/ Index ranges between 0-1, with higher values indicating better levels of human development. Composite indices from UNDP definitions.
Conclusions to Part III: Are there Factors Impeding Growth in Pacific Islands? Human development indicators in some Pacific Islands are lagging behind the MDG targets, but overall compare well to Asian developing countries. Population growth and capital expenditure, two key inputs to improved quality of life, are reasonably good in the Pacific as well. SO: the delimiters to private investment, rather than demographic or other core indicators, may be the reason for slower-than-expected growth in the Pacific. 52
IV. Questions/Discussion THANK YOU! For more information, please visit: www.imf.org or www.pftac.org 53