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Pacific Islands face challenges as growth slows, says World Bank

FILE PHOTO: 2023 Spring Meetings of the World Bank Group and the International Monetary Fund

SYDNEY (Reuters) - Growth in Pacific Island economies slowed last year to 5.5%, with tourism and remittances from overseas workers recovering in some countries, while shocks from cyclones and drought hampered others, the World Bank said on Wednesday.

The opening of borders after the COVID-19 lockdowns boosted tourism and the movement of Pacific workers who could send back remittances from overseas, playing an important factor in the rebound in countries including Samoa and Tonga, an economic outlook report from the World Bank said.

Tourism and remittances played an important role in Fiji, which posted 8% growth in 2023, less than half of the strong 20% economic rebound seen in 2022, but above pre-pandemic levels. Fiji accounts for half of the Pacific Islands output, the report noted.

Excluding Fiji, the Pacific Islands recorded 2.7% growth, up from 0.5% in 2022. Nauru, which is feeling the economic impact of Australia downsizing an immigration processing centre on the island, and Vanuatu, which suffered two cyclones and political instability, lagged.

The World Bank divided Pacific Island countries into two groups: those reliant on tourism and remittances, where the economic benefit is spread through the population, and those countries who rely on grants or fees paid by other countries.

Samoa's recovery led the first group with 5.6% growth in 2023.

In the second group, including Kiribati, Tuvalu, Nauru, Marshall Islands and Micronesia, revenue goes to the state and is dollarised.

Nauru's growth slowed to 1% in 2023 as Australia scaled down the regional processing centre for asylum seekers there, it said. Taiwan diplomats said last month that Nauru's decision to switch diplomatic ties to Beijing in January was caused by the need to replace revenue lost from Australian fees generated by the centre.

A drought and climate change reduced fisheries revenue in Kiribati, it said.

Pacific Islands countries are projected to expand 3.5% in 2024 and 3.3% in 2025.

"The potential growth for these countries is pretty low and because of all these shocks the region is really lagging in terms of returning to pre-pandemic trends growth," said Ekaterine Vashakmadze, the World Bank's senior economist in the Pacific.

Investment, particularly in education, is essential, she said.

In Kiribati, Tonga and Tuvalu, two-thirds of 10-year-olds do not meet international benchmarks for reading, the report said, urging a greater focus on teacher training across the region to reduce poverty.

It is "vital" for the U.S. Congress to pass legislation to renew funding agreements for the three Compact of Free Association States, Palau, Micronesia and Marshall Islands, she added.

In 2022, as the COVID-19 pandemic eased, the region's economy grew 9.1%.

(Reporting by Kirsty Needham; Editing by Richard Chang)