Pacific economies are losing momentum as rising fuel costs, weaker tourism, inflation and repeated global shocks continue to strain governments, businesses and households, according to the World Bank Group’s new Pacific Economic Update.
“Across the Pacific, growth keeps slowing and is likely to dip below three percent in 2026, amid high uncertainty and rising inflation.”
The report warns that Pacific Island countries are facing a more fragile economic future, with growth this decade expected to remain well below pre-pandemic levels.
“These recurrent shocks and structural constraints are likely to keep growth about one percentage point below the 2010s pace this decade preventing incomes from returning to their pre-pandemic trend.”
The World Bank says repeated crises from natural disasters and the pandemic to fuel and shipping price spikes linked to conflict in the Middle East are no longer isolated events but part of a continuing pattern shaping Pacific economies.
“The May 2026 Pacific Economic Update argues that as repeated shocks become a structural feature of Pacific economies rather than one-off crises, responses must be judged not only by speed and scale, but by how they are designed.”
The report covers 11 Pacific Island countries – Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, Palau, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu.
For Fiji, the World Bank says growth is slowing as the tourism rebound matures and global conditions weaken.
“Fiji’s growth slowed to 3.2 percent in CY25 as tourism rebound matured and is projected to ease to 2.7 percent in CY26 amid higher fuel costs, softer global tourism, and weaker investment.”
The report also warns that public debt remains high.
“Public debt remains high near 80 percent of GDP highlighting the need to strengthen fiscal space and support private sector led job creation.”
Across the region, rising energy costs are adding pressure to already stretched budgets.
“Energy costs have spiked, squeezing households, firms, and budgets.”
The World Bank identifies the Middle East conflict as a major downside risk for Pacific economies because of heavy dependence on imported fuel.
“Heavy reliance on imported fuels leaves Pacific Island countries highly exposed, with petroleum imports accounting for roughly 6–18 percent of GDP and 80–90 percent of electricity generation dependent on diesel.”
It says rising fuel prices are already affecting transport, food, electricity and shipping costs across the Pacific.
“Elevated prices and risks to delivery volumes are already transmitting rapidly through electricity, food, transport, and inter-island shipping, placing acute pressure on households, firms, and public finances.”
The report warns governments against broad subsidies and price controls.
“Policy responses centred on broad price controls or generalised energy subsidies are fiscally costly and often poorly targeted.”
Instead, it calls for targeted support and long-term investment in renewable energy.
“Over the medium term, reducing exposure will require strengthening energy supply security alongside scaled-up investment in renewables.”
The World Bank says one of the Pacific’s biggest opportunities lies in its young population, but job creation remains weak.
“By 2035, today’s youth could account for one-third of the Pacific labor force—yet only about half of working-age adults are employed.”
It warns that many young people remain disconnected from work and education.
“Nearly 20 percent of youth are not in education, employment, or training.”
The report says economic activity remains heavily concentrated in subsistence, informal work and the public sector.
“Private-sector constraints continue to weaken the link between growth and jobs.”
To address this, the World Bank identifies five sectors with the strongest job potential: tourism, agribusiness and fisheries, health and care services, resilient infrastructure, and digital services.
“The following sectors have the strongest potential to create jobs for youth on a large scale and create economic returns for Pacific nations.”
A major focus of the report is the importance of water infrastructure in supporting economic growth and employment.
“Reliable and affordable water and wastewater services underpin productivity, job creation, and resilience.”
The World Bank warns that poor water systems can disrupt economies and weaken resilience.
“When reliability falters, disruptions cascade across key sectors; when it holds, water enables the very sectors with the highest potential for job creation to thrive.”
The report says Pacific governments are finding it harder to rebuild financial buffers after years of repeated crises.
“The Pacific has extensive experience managing shocks, but repeated crises have worn down financial buffers.”
The World Bank says countries need stronger public financial management and more disciplined budgets to prepare for future shocks.
“Rebuilding fiscal space strengthens countries’ ability to manage future shocks and creates room for the investments that support jobs and private sector growth.”
It adds that governments need to focus on restoring buffers and improving financial management systems.
“This means restoring buffers, keeping spending focused, and continuing to improve public financial management.”
While some economies continue to grow, most are expected to slow in 2026.
Samoa’s economy is forecast to ease after strong tourism and remittance-driven growth, while Solomon Islands faces rising debt and inflation despite gains in mining and agriculture.
Tonga’s growth is also projected to weaken under pressure from global costs and climate shocks.
Vanuatu continues recovering from the Air Vanuatu collapse and the 2024 earthquake, while Kiribati faces revenue volatility linked to fisheries and public spending.
The World Bank says the Pacific’s long-term resilience will depend on creating jobs, improving infrastructure and managing future shocks more effectively.
“Business needs clarity and predictability” is the broader message running through the report, which warns that short-term crisis responses alone will not be enough to secure stronger long-term growth across the region.
