By Nick Mann |10 December 2012

Higher-than-expected revenue collections and continued progress in deficit reduction have helped to improve the fiscal positions of several smaller Pacific island economies this year, according to the Asian Development Bank.

In its latest Pacific economic monitor, published today, the bank highlighted particularly strong performance by Samoa, which reduced its budget deficit in the year to the end of June to 7.3% of gross domestic product, compared with 9.3% a year earlier. This is expected to fall further to 6.1% of GDP in the current year.

It also highlighted the progress made by Tonga, where improved tax compliance increased revenues by 10.7% more than budgeted for. Grants from overseas helped the country to record a 1% surplus last year, with just below 1% expected this year.

In Kiribati, Nauru and Tuvalu, fishing licence revenues increased this year as a result of a new licensing scheme and the positive effect of the El Niño climate pattern on fish stocks, the report added.

Xianbin Yao, director general of the ADB’s Pacific department, said: ‘The improved fiscal performance in several smaller Pacific economies is encouraging, particularly in the context of a weaker global economy.’

The report noted, however, that the fiscal positions of Papua New Guinea, Solomon Islands and Vanuatu had all deteriorated this year. Revenue collections were lower than expected because commodity export earnings had fallen as a result of softer global demand, it explained.

In Vanuata, the government has taken measures to address this by controlling spending in a bid to keep its fiscal balance close to the target set in its budget.

Yao added that this ‘highlights the need for all Pacific economies to continue to work to improve their fiscal management and public service delivery while investing in vital infrastructure to enhance their long-term economic prospects’.

The ADB also raised concerns over Fiji, which is expected to post a deficit equivalent to 2.8% of GDP next year, compared with 1.6% forecast for the current year, as a result of increased capital expenditure on infrastructure. The deficit will be financed through domestic borrowing and loans from large Asian banks, which ‘raises long-standing concerns about the sustainability of government spending and debt levels’, the bank said.