There has been an encouraging upturn in economic growth in the Pacific. After negligible growth in the early years of this decade, regional economic growth increased to 3.5 per cent in 2004, averaged 2.8 per cent between 2005 and 2007, and is forecast to reach 4.5 per cent in 2008.  While not as strong as growth in East and South Asia, the gap between growth rates in the Pacific and sub-Saharan Africa and the Caribbean regions is narrowing.

Vanuatu, Solomon Islands and Papua New Guinea experienced higher average growth in the past three years than they did in the previous fifteen. In Papua New Guinea, as well as rapid growth in the mineral sector, there has been greater activity in the construction and  telecommunications sectors and more recently in agriculture. Further, after a decade of stagnation, formal-sector employment has grown by 25 per cent and non-mineral corporate tax has doubled since 2000.

Growth in Palau and Samoa has also improved in the past three years. Palau’s growth is driven by tourism, which now accounts for 45 per cent of the economy. The country’s liberal immigration policies have also led to a rapid increase in the workforce. There are now more non-Palauan workers in the country than Palauan. Samoa is also benefiting from an expanding tourism sector and fuel prices in Samoa are among the lowest in the Pacific. This is because Samoa has a system which calls for multinational oil companies to compete for the right to import fuel.

After social and political unrest, modest recovery is occurring in Tonga with an increase in tourism, remittances and aid-funded reconstruction activities. Timor-Leste’s unusually strong growth of 19.8 per cent in 2007 reflects the restoration of order, a sharp increase in government expenditure and the re-establishment of a United Nations mission.

Sound macroeconomic policies are helping most Pacific countries. Responsible fiscal policies have reduced deficits, and together with sound monetary polices, have kept inflation low in most countries.

While some countries show improvements in governance, control of corruption has worsened in others. And despite the gains, poverty is still widespread in most Pacific island countries and Timor-Leste. In some places it is increasing. Faster economic growth will help finance basic needs, create employment and provide the resources to deal with health and environmental problems.