A Growing Concern in the Pacific: Debt-Related Development Funding

A new report from Australia’s Lowy Institute has highlighted growing concerns about debt-related development funding in the Pacific region. The seventh edition of the Pacific Aid Map, released last month, covers official development finance (ODF) from 2008 to 2022 and includes data on over 37,000 projects.

Debt Financing on the Rise

One key concern mentioned in the report is debt, with growing use of loans rather than grants that do not need to be paid back. The report notes that “some 60 percent of infrastructure financing in the Pacific is now being financed by loans.” While this may seem like a positive trend, the fact that most of these loans are directed towards the region’s largest economies, such as Papua New Guinea (PNG) and Fiji, raises concerns about the sustainability of these projects.

Impact on Smaller Economies

The report also highlights that “the remaining quarter is allocated to smaller economies, a majority of which already face elevated debt risks.” This means that these smaller economies are not only taking on significant debt burdens but also facing an uncertain future due to their limited economic capacity.

Australia Remains the Largest Donor

Despite concerns about debt-related funding, Australia remains by far the region’s largest donor. The report notes that total ODF to the Pacific has remained above pre-pandemic levels in 2019. However, Australian grants have dropped slightly below their pre-pandemic average.

New Players Enter the Scene

China has emerged as a major player in ODF spending, displacing the United States and ramping up its project commitments. The report notes that “after a pandemic lull, Beijing has narrowly displaced the United States in ODF spending.”

Uncertain Outlook for Development Support

The outlook for development support in the Pacific is uncertain. The report states that despite a three-year pandemic-induced surge in ODF, development support in the region has become “increasingly inadequate” and “caught between elevated regional needs, economic fragility, and heightened geopolitical pressures.”

Forecasting Challenges

The report also highlights forecasting challenges for bilateral donor aid budgets. It notes that forecasting of major bilateral donor aid budgets indicates ODA (which includes grants and concessional loans) will flatline in coming years.

Conclusion

In conclusion, the growing concern about debt-related development funding in the Pacific is a pressing issue that requires immediate attention. The report highlights the need for more sustainable and equitable funding arrangements to support development efforts in the region. With Australia remaining the largest donor and new players entering the scene, it is essential to address these challenges to ensure critical development wins and secure a brighter future for the Pacific nations.

Sources

* Lowy Institute: Pacific Aid Map
* United Nations: Sustainable Development Goals