Transcript Slide 1

Macroeconomic Trends in
the Pacific Region -Implications for Budgeting
and Financing
Pacific Economic Management Technical Assistance
(PEMTA)
November 2011
Pacific
Economic
Management
T.A.
Outline
• Key international and regional
developments
• Fiscal & debt trends in the Pacific
Region
• Monetary trends in the Pacific Region
• Growth and inflation outlook
• Conclusions
Pacific
Economic
Management
T.A.
International developments
• Global economic activity has deteriorated considerably.
World economy is now expected to grow about 4% in 201112, downgraded from an earlier forecast of 4.5%.
• US, EU, and Australian growth forecasts have been
lowered; with US and EU declines driving the global decline
growth (%, annual)
DMC=developing member country, e=estimate, p=projection
Sources: IMF. 2011. World Economic Outlook (Sept). ADB. 2011. Asian Development
Outlook 2011 Update
Pacific
Economic
Management
T.A.
International developments
• Major stock market indices have exhibited greater
volatility
• European debt concerns persist
• US & NZL credit ratings have been downgraded
• Unemployment in major economies remains high
Unemployment in key economies (% of labor force)
AUS=Australia, NZL=New Zealand, US=United States
Sources: Australian Bureau of Statistics (ABS), Statistics New Zealand, and US Bureau of Labor Statistics.
Pacific
Economic
Management
T.A.
Key regional developments
High volatility in value of key imports and exports
Nonfuel exports to the Pacific
(value; y-o-y % change, 3-month m.a.)
Singapore fuel exports to the Pacific
(value; y-o-y % change, 3-month m.a.)
120
60
0
Diesel
Gasoline
-60
Sources: ABS and Statistics New Zealand.
Mar10
Jun
Sep
Dec
Mar11
Jun
Sep
Source: International Enterprise Singapore.
Pacific
Economic
Management
T.A.
Key regional developments
High volatility in value of key imports and exports
Commodity prices
(Index Jan2007=100 based on nominal prices)
350
Crude oil
Coconut oil
Logs
Food index
250
150
50
Jan07
Jan08
Jan09
Jan10
Jan11
Source: IMF, International Financial Statistics database
Continued growth in tourism to the Pacific
Tourism departures to selected Pacific countries (‘000; January–August totals)
Sources: ABS and Tourism Strategy Group, New Zealand Ministry of Economic Development.
Pacific
Economic
Management
T.A.
Pacific Island economies remain
vulnerable to external conditions
• Volatility in key factors contributing to current
account deficits:
• Lower export revenues
• Remittances have fallen from ‘07 highs
• Slow growth in tourism receipts
• Declining terms of trade?
• Exchange rate changes in the economies of key
trading partners
P
acific
Economic
Management
T.A.
External balance
Current account (% of GDP)
Source: IMF, World Economic Outlook and Article IV reports
Pacific
Economic
Management
T.A.
Outline
• Key International and regional
developments
• Fiscal & debt trends in the Pacific
Region
• Monetary trends in the Pacific Region
• Growth and inflation outlook
• Conclusion
P
acific
Economic
Management
T.A.
Fiscal Trends
Government revenue (in million local currency units)
Cook Islands
Fiji
Kiribati
Marshall Islands
Micronesia, Fed. States of
Nauru
Palau
Papua New Guinea
Samoa
Solomon Islands
Timor-Leste
Tonga
Tuvalu
Vanuatu
2007
2008
2009
2010
109.8
1,391.3
91.3
108.2
145.2
24.2
89.4
6,287.0
486.8
1,213.4
1,474.1
171.0
34.2
12,032.8
123.9
1,454.9
101.5
107.1
149.6
35.5
85.7
6,038.7
454.9
1,550.8
2,537.4
171.0
30.3
16,631.5
115.3
1,522.4
93.1
104.9
152.1
56.2
88.9
5,219.3
492.1
1,704.9
2,150.5
225.7
31.3
16,906.2
130.3
1,486.5
88.6
-163.8
57.8
89.0
6,890.6
621.7
2,257.3
2,367.7
192.1
24.9
16,873.4
2011p
101.8
1,673.6
84.1
--44.7
--7,742.0
596.2
-2,593.0
181.9
23.8
17,424.3
2012p
-----65.2
----2,633.0
206.7
23.9
21,191.7
p=projected
-- = not available
Source: ADO 2011 Update database
Pacific
Economic
Management
T.A.
Fiscal Trends
Government expenditure (in million local currency units)
Cook Islands
Fiji
Kiribati
Marshall Islands
Micronesia, Fed. States of
Nauru
Palau
Papua New Guinea
Samoa
Solomon Islands
Timor-Leste
Tonga
Tuvalu
Vanuatu
2007
2008
2009
2010
104.8
1,709.0
85.8
107.8
151.6
22.9
101.7
6,552.4
478.4
1,193.7
408.6
163.5
40.6
12,485.0
121.1
1,426.8
98.7
101.3
154.2
35.4
92.3
7,551.8
481.8
1,552.0
737.1
161.4
30.3
16,765.3
143.6
1,715.2
90.3
107.7
157.6
56.0
95.0
6,706.9
551.1
1,701.0
825.3
220.6
31.4
17,376.9
102.7
1,706.6
87.5
-162.9
57.8
94.3
7,591.2
818.5
1,871.9
1,094.7
230.1
35.8
19,815.8
2011p
101.2
1,841.0
88.5
--44.3
-9,328.2
746.9
-1,460.0
238.0
30.2
17,954.8
2012p
107.4
----66.1
----1,393.1
232.1
31.0
20,734.5
p=projected
-- = not available
Source: ADO 2011 Update database
Pacific
Economic
Management
T.A.
Fiscal trends
 Fiscal balance (% of GDP)
Pacific
Economic
Management
T.A.
Fiscal policy guidelines
 Fiscal deficits have been used by some Pacific
countries to compensate for a perceived lack of
private investment and dissatisfaction with rates of
growth
 Leading to accumulation of debt
 Sustainability of this course of action? Think Greece…
 Fiscal stimulus should be reserved for Keynesian
responses to economic downturns
 Need to recognize structural sources of low growth
and address these…
Pacific
Economic
Management
T.A.
Debt levels & risk of debt distress
• Total debt is high in the region, but so is debt globally
• 59% Total Debt to GDP Ratio globally (CIA estimates)
• High debt is a significant policy concern because it:
• restricts fiscal space and ability to engage in fiscal
stimulus
• has implications for future resources constraints
• Policies to address debt are affected by monetary policy
goals, share of external to total debt, and policy actions can
strongly affect future debt & investment
•For example, Fiji has low external debt but central
government net debt is estimated at more than 50% of GDP
in 2010. Nauru moving in a similar direction as it resolves its
outstanding external debt.
Pacific
Economic
Management
T.A.
Indebtedness
 External debt (% of GDP)
Pacific
Economic
Management
T.A.
Total Debt to GDP
From: IMF Staff Report for the 2010 Article IV Consultation
Pacific
Economic
Management
T.A.
Outline
• Key international and regional
developments
• Fiscal & debt trends in the Pacific Region
• Monetary trends in the Pacific Region
• Growth and inflation outlook
• Conclusions
Pacific
Economic
Management
T.A.
Monetary Trends
 Low growth and high foreign reserves have led
to accommodative monetary policies to
support growth (e.g. Fiji, Tonga, Samoa)
 Concern over inflation has led some central
banks to raise rates (e.g. PNG)
 Recent exchange rate movements have
adversely affected overseas investment
 Capital market developments have affected
valuations of trust funds in the Pacific
Pacific
Economic
Management
T.A.
Outline
• Key international and regional
developments
• Fiscal & debt trends in the Pacific Region
• Monetary trends in the Pacific Region
• Growth and inflation outlook
• Conclusion
Pacific
Economic
Management
T.A.
Prospects for GDP growth
Timor-Leste
Papua New Guinea
Solomon Islands
2011
Nauru
2012
•Pacific region:
6.4% in 2011; 5.5%
Vanuatu
Samoa
Palau
Pacific region
Pacific islands
9
in 20126
•Pacific
islands
3
(excl. 0PNG and
-3
Timor-Leste):
2007 08 09 10e 11p 12p
around 2%
FSM
Fiji
Cook Islands
Marshall Islands
Kiribati
Tonga
Tuvalu
0
2
4
6
Change in real GDP (%)
Source: ADB estimates.
8
10
12
Pacific
Economic
Management
T.A.
Inflation outlook
Papua New Guinea
Timor-Leste
2011
Fiji
2012
Kiribati
Palau
•Pacific region:
Pacific region
8.4% 12in 2011; 5.9%
Pacific islands
FSM
Vanuatu
Marshall Islands
in 20128
•Pacific
islands:
4
6.4% in 2011; 3.4%
in 20120 2007 08 09 10e 11p 12p
Solomon Islands
Samoa
Cook Islands
Tonga
Nauru
Tuvalu
0
2
4
6
8
10
Change in consumer price index (%, annual average)
Source: ADB estimates.
12
Pacific
Economic
Management
T.A.
Outline
• Key International and regional
developments
• Fiscal & debt trends in the Pacific Region
• Monetary trends in the Pacific Region
• Growth and inflation outlook
• Conclusions
Pacific
Economic
Management
T.A.
Conclusions
• The Region remains vulnerable to an
uncertain and challenging global economic
environment.
• Debt has risen as countries have attempted to
stimulate growth. This has restricted the
fiscal space for Keynesian stimulation.
• There is a need to expand the fiscal space so
that the Government has the ability to act in
the case of adverse external shocks.
Pacific
Economic
Management
T.A.
Conclusions (continued)
• Urgent need to focus on fiscal and structural
adjustment to generate resources for
development
• Medium-term budgeting framework provides
an effective tool for resource allocation and
prioritization
• Generating the political will is essential
• Importance of an open policy making process
in which public views are solicited
Pacific
Economic
Management
T.A.
For more information:
http://beta.adb.org/publications/series
/ pacific-economic-monitor
[email protected]
Pacific
Economic
Management
T.A.