In an interview with PACNEWS Senior Journalist Pita Ligaiula, Nada Choueiri, Deputy Director of the IMF’s Asia & Pacific Department based in Washington DC, offered a detailed assessment of the economic landscape facing Pacific Island countries (PICs).
Choueiri, who oversees IMF operations and policy engagement across the region, spoke on the wide-ranging impacts of global trade tensions, inflation, and climate-related shocks.
She also outlined the IMF’s support for Pacific governments through policy advice, capacity development, and financial tools tailored to small island economies.
1.How are rising global trade tensions and surging U.S tariffs expected to affect the economies of Pacific Island countries, both directly and indirectly?
For most Pacific Island countries, the direct effects of the tariffs are likely to be small, because goods exports to the U.S are small. But there will be indirect effects on growth, via the tariff’s negative impact on the economies of major trading partners, such as Australia, New Zealand, Asian economies, and of course the U.S itself. These indirect effects will be stronger for those economies in the region that depend on tourism, and from remittances. Separately, the sharp adjustments in equity markets may affect the performance of sovereign wealth funds in some PI countries, in which case this reduces important buffers that the PI countries depend on for longer term economic sustainability.
2.What does the IMF’s latest outlook project for growth in the Pacific Island economies for 2025 and beyond? Are there countries in the region that are showing stronger or weaker recovery trends?
We have looked at the direct and indirect effects of the tariffs for Pacific Island countries. The typical downward revision to expected growth in 2025 because of the trade tensions is about 0.2 percentage points. In the case of Fiji, it’s about 0.4 percentage points – the US is a major destination for Fiji’s goods exports, and Fiji is very dependent on tourism. But I should emphasise that these projections are subject to significant uncertainty – the situation is complex and very fluid.
Note that there have also been other unexpected shocks affecting Pacific Island countries – when you compare the projections for 2025 in our latest World Economic Outlook database with the projections made in October last year, you will see some large changes. Vanuatu experienced the terrible earthquake, for example. There are also some upward revisions – growth in PNG has been revised up, in part because of increased gold production and prices. So the tariffs are only one reason among others for revisions in our projections.
3.How vulnerable are Pacific Island economies to global inflationary pressures, particularly given their reliance on imports for fuel, food, and manufactured goods?
You are right to point out that Pacific Island economies are very dependent on imports. We expect global oil prices to be lower this year than previously expected, because of lower global demand. All else being equal, we might also see cheaper manufactured goods diverted from other markets. But the question is how global prices will pass through to prices on the ground in Pacific Island countries. That will depend on countries’ exchange rate movements going forward (if they do not have fixed exchange rates or dollarised economies)—for example, should we see a depreciation of the local currency, this would counteract some of the reductions in global prices. It could also be that businesses aren’t able to pass on much price reduction, as they seek to preserve margins as demand falls. At this stage, it’s very uncertain.
4.Can you speak to how remittance flows, a key source of income in many Pacific countries, have been impacted by global economic conditions—and what the IMF sees happening going forward?
Remittance flows would also be expected to shrink, as the trade tensions lower growth in neighbouring countries. But we won’t be able to measure the impacts for some time, because of the time it takes to compile and publish the data.
5.What policy recommendations does the IMF have for Pacific Island governments in terms of managing debt sustainability, particularly for those heavily reliant on external financing and aid?
We pay a lot of attention to debt sustainability. Even before the current trade tensions, it was a major issue for Pacific Islands – indeed, our formal assessments that we include in our country reports showed that half of our Pacific Island members are at high risk of debt distress. In addition, many governments in the region are highly dependent on grant revenues. This is why we have been providing policy advice to mobilise revenues and improve the efficiency and targeting of government spending. We have also been supporting the authorities in the region to with technical assistance, for example on mobilising tax revenues. We have also been emphasising the importance of growth-oriented reforms, to improve debt ratios. Prudent financing strategies will be very important.
6.How is the IMF supporting Pacific Island economies in strengthening economic resilience against external shocks—such as commodity price volatility, climate change impacts, or geopolitical instability?
We support our members through providing analysis and policy advice, through capacity development, and, in some cases, through financial support. Our focus is very much on trying to help governments reduce macroeconomic imbalances that can make countries vulnerable to the kinds of external shocks you mention. A lot of our analysis is directed toward the sustainability of government debt and the so-called external position – the trade balance, financial flows into and out of countries, and so on. Our capacity development efforts cover technical assistance on fiscal, monetary, and financial policy implementation, macroeconomic statistics and analysis, and now public financial management specifically on climate adaptation where climate shocks significantly impact the macroeconomy. We have also adapted our lending facilities –the recently introduced Resilience and Sustainability Facility (RSF) can help countries maintain long-term balance of payments stability by supporting policy reforms that reduce risks associated with climate change. PNG became the first in the Pacific region to use the RSF in December last year.
7.In the context of the global “reboot” of the trading system mentioned by the Managing Director (MD), what risks and opportunities do you see for Pacific economies?
As the MD noted, the resilience of countries to large shocks is being tested by the reboot of the global trading system. The big risk for small countries is that they get caught in the crosscurrents as large countries face off against each other. In the case of Pacific Island economies, that could mean not only lower demand from neighbours for exports, but also less of the investment that is crucial to boost potential growth and to become more resilient to natural disasters and climate change. Accelerating reforms, such as revenue mobilisation, would strengthen their resilience to external shocks. But there is potential for an upside: a settlement among the largest players that preserves openness and delivers a more-level playing field could deliver a more stable environment for Pacific Island economies. The IMF is encouraging all countries to join in working toward that goal.
8.What role can digital transformation and financial inclusion play in boosting economic development in the Pacific, and how is the IMF supporting these efforts?
We see great potential from digitalisation to benefit communities in Pacific Islands. Digital innovation means greater connectivity, and hence greater access to services, including financial services: someone can have access to financial services available to them from their phone, no matter where they are. Given the distances between some islands, it’s not surprising that we have seen rapid adoption of apps that allow people to transfer money, settle utility bills, and pay for goods and services. But there are also risks: some people can fall prey to online scams, and there’s a risk of online tools being used to transfer illicit money. So, we are working with the authorities to share lessons from good examples and to guard against the risks of money laundering.
9.Is the IMF concerned about the capacity of smaller Pacific Island nations to absorb and implement fiscal and economic reforms? How is the Fund working with governments to address capacity constraints?
The IMF has paid close attention to the needs of small and developing states around the world. One of the common themes is the need to develop capacity. As I noted earlier, our capacity development efforts cover technical assistance on fiscal, monetary, and financial policy implementation, and macroeconomic statistics and analysis. We regularly provide assessments to governments of public financial management, public investment management, public spending, taxation systems, and governance. And we have training and technical assistance centres around the world – in the case of the Pacific, we have a team of technical experts based in Suva to work with governments in the region to train staff, provide advice on best practices, and help them meet international standards. It’s important to ensure that CD activities are well coordinated, prioritised, and sequenced, so we consult regularly with governments and development partners, including at forums such as the Spring and Annual Meetings.
10. Looking ahead, what are the key areas of focus for IMF engagement in the Pacific—technical assistance, surveillance, or financial support—and how will these adapt to regional needs in the post-pandemic world?
I spoke earlier about the emphasis of the IMF on preventing imbalances and safeguarding macro-economic and financial stability for our members. That will remain the core focus of our surveillance. There are some issues particularly important for Pacific Islands: for example, how to develop the blue economy, which is an important source of growth and revenue; how to increase resilience to natural disasters and adapt to climate change, given the significant macro-economic impact of climate shocks on these countries; and how to make sure that countries have full access to the global financial system, for example to make payments in foreign currencies, while preserving financial stability.
