By Judith Ugwumadu | 2 December 2013

Governments in the Asia Pacific region will face increasing fiscal challenges over the next year as revenues continue to fall, the Asian Development Bank warned today.

In its latest Pacific Economic Monitor report, the ADB said that the fall in revenues would mean that public sector debt would increase across the region.

Revenue collection has declined in the region’s large economies, the report found, but it has remained strong in some smaller nations.

Among the nations hit by falling tax revenues were Papua New Guinea, which had seen a decrease due to lower commodity prices, while lower petroleum exports were affecting Timor-Leste. Falling log exports have reduced timber export duties in the Solomon Islands.

The ADB warned that these declines in revenue, along with limits in government capacity to implement capital projects, had slowed growth in economies across the region.

Xianbin Yao, director general of the ADB’s Pacific department, said: ‘While there is some impetus to spend for growth in the region, it remains important to proceed with public financial management and structural reforms to build economic resilience.’

Among the bank’s 14 developing member countries, the report also noted that public spending for post-cyclone recovery in Samoa would slow the government’s fiscal consolidation and drive up debt levels. It also found that rising capital expenditures by the government in Fiji, alongside anticipated election-related spending, could challenge efforts to keep fiscal deficit under control.

The bank also predicted that deficit-financed fiscal stimulus would continue in Papua New Guinea in an effort to counter the effects of a slowdown in economic growth. But the bank noted that ongoing problems in ensuring projects are completed on time would also continue.