The Economic Costs of the Pandemic for the Pacific Islands

By Katherine Shen

The Covid-19 pandemic has the Pacific island region in a unique bind. On the one hand, the physical isolation of the Pacific islands, coupled with their swift response in the early stages of the pandemic, means that they have been able to minimize Covid-19 infections and transmissions. Twelve of the sixteen countries within the Pacific Island Forum (PIF) have zero cases of Covid-19. Regional cooperation has also been a major contributor to the success of the Pacific’s pandemic response. The PIF established the Pacific Humanitarian Pathway on Covid-19, which worked to expedite assistance and cooperation between member countries. By working on diplomatic clearances, repatriation, and immigration – issues that necessarily complement the delivery of personal protective equipment and medical supplies – the region ensured the provision of medical and humanitarian assistance in a timely, safe, effective, and equitable manner.
 
On the other hand, the border controls and travel restrictions that contributed to the success of public health also plunged the region into an economic crisis. As of August 1, five Pacific Island nations (Nauru, Tuvalu, Tonga, Samoa, and the Solomon Islands) still have a state-of-emergency in place and all international borders are closed. The resulting disruptions to tourism and trade poses novel challenges to a region that relies heavily upon the economic links it has with the rest of the world. This tension between public health and economic well-being suggests that there are no easy solutions to Covid-19 in the Pacific.
 
Forecasts for the Pacific economy are bleak: economists within the PIF Secretariat have predicted a decline of 5.9 percent in regional real GDP – roughly $950 million – and the number of Pacific residents living in extreme poverty could increase by 40 percent. The economic crisis can be partially attributed to the collapse of the tourism industry, which contributes between 20 and 70 percent of GDP across the Pacific region. More alarmingly, Covid-19 poses a longer-term threat to the regional economy given that the pandemic is likely to have a chilling effect on travel even after infection rates drop.
The pandemic’s effects on trade are similarly severe. While the border restrictions implemented by the Pacific Island countries have mitigated the impact of Covid-19 on public health, it has had a depressing effect on both import and export volumes. While Australia, New Zealand, and other key Pacific rim states have committed to keeping international food trade open during the pandemic, Pacific Island businesses have taken a serious hit. The cost of sea and airfreight has increased threefold as most vessels are operating on a reduced schedule; this reduction in mobility, in addition to shrinking global demand, has an outsized impact on resource rich economies and commodity exporters in the region.

Yet another sector affected by Covid-19 is the fisheries industry. The tuna-rich waters around the Pacific mean that fisheries usually earn a significant amount of revenue for countries in the region. In 2007, fleets flagged to Pacific Island countries caught about $170 million worth of tuna. The Secretary General of the PIF, Meg Taylor, notes that the fishery industry has been hit hard by restrictions on transport, delays in licensing fees, closure of ports, and partial closure of processing plants. A report from the Australia-based resources consultancy MRAG Asia Pacific, suggests that Covid-19-related travel restrictions have not resulted in a widespread decline in fishing effort. But the reduction in global demand for fish has created long-term market uncertainty, which suggests that the fishery industry will feel the economic impacts of the pandemic further down the line.
 
In response to the economic challenges posed by Covid-19, Pacific Island countries have adopted fiscal responses such as stimulus packages, liquidity injections, and unemployment assistance programs. Multilateral institutions and developed countries have also been assisting in these economic responses by providing emergency financing and suspending debt. By June 2020, the Pacific’s development partners had announced $ 570 million in Covid-19 related financial support. The Group of 20 economies are also allowing the world’s poorest countries, including those in the Pacific region, to suspend repayment of debt as of May 1.
 
While the policy responses to the Pacific economic crisis have been swift, more must be done. The debt standstill, which only applies to bilateral creditors and is set to expire at the end of the year, could be extended in length and broadened to include multilateral and private sector creditors. The Pacific’s development partners should also look to incorporate vulnerability as a part of the index when providing loans. There are also calls for a trans-Pacific travel bubble to permit the freer movement of people and goods in the region. However, given the relatively high Covid-19 transmission rates in Australia, even a trans-Tasman bubble between Australia and New Zealand remains a distant prospect. Given the realities of the pandemic, the slow opening of the regional economy is currently infeasible and this suggests that the Pacific will be relying heavily upon financial assistance and loans for the foreseeable future.
 
The physical isolation of the Pacific islands has been a double-edged sword throughout the Covid-19 pandemic. While limiting the freedom of travel is undoubtedly an effective public health response, the economic fall out from these measures is severe. However, the solution to these economic troubles cannot be an uncritical rollback of travel restrictions and the reopening of borders. Rather, countries must explore creative alternatives – such as regional trade bubbles – and address the structural economic weaknesses that existed pre-Covid and are being exacerbated by the pandemic.

Katherine Shen is a 2L at Harvard Law School and a former intern with the Asia Maritime Transparency Initiative at CSIS.