Public Debt in the Pacific—A Rising Concern

Abstract

A number of Pacific Island countries (PICs) will have to contend with large public debts in the aftermath of the global pandemic—possibly too large for them to manage. More than half of PICs are at high risk of debt distress, one is deemed to be in an unsustainable position, those assessed as sustainable or at moderate risk are also generally seen as facing significant downside risks and vulnerability to external shocks (including frequent natural disasters in the region) (Table 6). These countries—among the most remote and vulnerable countries in the IMF membership—had limited fiscal and external buffers even prior to the COVID-19 crisis, limited or no external market access, and thin domestic debt markets. Rising levels of public debt were already a concern, particularly given a history of low economic growth, limited capacity with respect to revenue generation and debt management, and a high vulnerability to external shocks (such as natural disasters) combined with a pressing need to invest in climate resilience.