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The economic decline in the north Pacific is forecast to end in 2022 as the coronavirus disease (COVID-19) vaccine rollout allows travel and trade to resume, says a new report by the Asian Development Bank (ADB) released today.
The economies of the Marshall Islands, the Federated States of Micronesia (FSM), and Palau contracted by 5.5%, 5.4%, and 10.3%, respectively, in 2020 as the pandemic closed borders, paused international tourism, and impeded trade. According to the Asian Development Outlook (ADO) 2021, ADB’s flagship economic publication, these contractions are projected to improve in 2021 to -1.4%, -1.8%, and -7.8%, respectively, before a return to positive growth in 2022.
“Due to the small size of the north Pacific economies, their people are particularly vulnerable to the economic impacts of travel and mobility restrictions that have left them free of COVID-19,” said ADB Public Sector Economist and ADO report author Rommel Rabanal. “For these countries to recover sustainably, it’s critical that targeted assistance is made to protect those most affected and facilitate the revival of key productive sectors.”
The ADO projects the economies of the Marshall Islands, the FSM, and Palau will grow by 2.5%, 2%, and 10.4%, respectively, in 2022. However, that hinges on the return of tourism and fishing fleets to the north Pacific which, in turn, is dependent on effective vaccine rollouts in larger countries. If these major economic partners continue to experience COVID-19 disruptions after 2021, the projected recovery will be weaker.
In the Marshall Islands, quarantine requirements reduced fishing output and demand for associated services, while travel restrictions harmed hospitality and trade. The reduced economic activity diminished government revenue, while the Marshall Islands’ response to COVID-19—which included assistance to businesses, fishing and farming equipment and food for remote communities, and support for essential services—required a spending increase.
Low revenue amid weak economic activity significantly widened the Marshall Islands’ financing needs in 2020. COVID-19 grants from development partners—including US$23 million from ADB—are helping to bridge near-term financing needs arising from the pandemic’s impacts.
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