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PORT VILA, Vanuatu (April 23, 2001 - PINA Nius Online)---Solid medium-term growth prospects are forecast for Pacific developing countries after the sub-region experienced a contraction last year, according to the publication Asian Development Outlook 2001.

Asian Development Outlook is an annual report analyzing and forecasting economic trends. The 2001 edition has just been released by the Asian Development Bank.

The momentum of economic recovery in the Pacific, which began in 1999, was not sustained last year, it says.

Asian Development Outlook 2001 says the slowdown was caused by political problems in some countries, and slower growth in the sub-region’s biggest economy, Papua New Guinea.

Key points include:

Aggregate real gross domestic product (GDP) for the 12 countries in the sub-region contracted by 1.8 percent in 2000, compared to 4.1 percent growth in 1999. But this aggregate GDP figure masks improved growth in some Pacific countries, led largely by tourism and construction.

Kiribati, Marshall Islands, Fiji Islands and Solomon Islands saw their economies contract. Political instability and social unrest in the latter two caused sharp downturns.

Meanwhile, declines in real GDP in Kiribati and the Marshall Islands were largely due to contractions in the industry sector and weaker domestic demand, while Papua New Guinea¹s growth slowed largely due to a contraction in mining.

But Cook Islands, Federated States of Micronesia, Papua New Guinea, Samoa, Tonga, Tuvalu, and Vanuatu saw growth in real GDP.

Cook Islands, Tonga, and Vanuatu gained more visitors due to their weak currencies, promotion activities, and unrest in the Fiji Islands.

GDP growth was led by construction activity in Samoa, Tuvalu, and Vanuatu.

Except for Cook Islands, Marshall Islands, Papua New Guinea, and Vanuatu, the overall balance-of-payments positions deteriorated in the sub-region, mainly due to higher oil costs in 2000. The balance-of-payments positions in 2000 improved markedly due to a stronger U.S. dollar in the Marshall Islands, positive but lower export growth in Papua New Guinea, and increased transfers from international aid agencies in Vanuatu.

"With a gradual return toward normalcy in the Fiji Islands and Solomon Islands, and the expected response of the Papua New Guinea economy to the reforms currently under way, the medium-term growth prospects are solid for Pacific DMCs," according to the report.

"GDP growth of 3-5 percent is possible for 2001 and 2002. However, the report points out that sub-regional macroeconomic stability is fragile, as well as vulnerable to internal and external economic developments.

"Securing and maintaining both macroeconomic and political stability remain crucial for ensuring a strong economic future," it adds.

Inflation is projected to fall in most Pacific countries during 2001 and 2002 in response to a slowing world economy, rebounding currencies, and lower oil prices. The exceptions are Fiji Islands, Marshall Islands, and Samoa, with a buildup of inflationary pressure in the latter expected due to strong economic growth.

Meanwhile, many of the Pacific countries have a low human development index, combined with a high cost of living.

"Rapid environmental degradation, due to increasing populations and overexploitation of natural resources, are issues requiring urgent resolution," Asia Development Outlook concludes.

The sub-region includes Cook Islands, Fiji Islands, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.

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