Development Effectiveness Brief Pacific Subregion PACIFIC SUBREGION SUBREGIONAL DEVELOPMENT SETTING 1. The Pacific subregion considered in this 3. Economic Growth. Gross domestic development effectiveness brief comprises product (GDP) growth in the Pacific 12 developing member countries averaged only 1.5% annually over the (DMCs)—Cook Islands, Fiji Islands, last decade, causing the subregion to fall Kiribati, Federated States of Micronesia further behind other developing regions (FSM), Marshall Islands, Nauru, Palau, of the world. This low level of economic Samoa, Solomon Islands, Tonga, Tuvalu, growth means that the subregion is and Vanuatu. Papua New Guinea and unable to provide the financial resources Timor-Leste are the subject of separate necessary to keep pace with the briefs. The Asian Development Bank aspirations of its growing population. (ADB) has provided both country level While external factors played a role in and regional level assistance in support of this, internal constraints also hampered development in the Pacific subregion. the generation and management of economic growth. In particular, key 2. Poverty and Human Development. Rapid areas of macroeconomic and financial population growth, limited new formal management need to be strengthened sector employment opportunities, urban across the subregion. drift, and changes in traditional support mechanisms have led to a growing 4. Challenges and Constraints. The very proportion of people in the Pacific nature of the small island states in recognized to be living in poverty. These the Pacific—isolated, with limited people lack access to social services, face resources, reduced land area, and small unemployment, and struggle for housing populations—is already a significant and other basic needs. Per capita gross development constraint. In addition, national product (GNP) figures vary political instability, civil unrest, weak significantly across the Pacific; available governance, and corruption also 2006 data indicate a range from $680 contribute to poverty and low rates in Solomon Islands to $7,990 in Palau. of economic growth. The inefficient However, these figures do not reflect delivery of services and the absence of a actual consumption and welfare levels as competitive private sector further add to they do not account for the high cost of the high cost of living and limit economic living in small island states and the extent diversification. Small islands also remain of subsistence lifestyles. particularly vulnerable to natural disasters and the effects of climate change. It is therefore not surprising that many of the weakly performing countries among ADB’s DMCs are in the Pacific. Indeed, all Pacific DMCs exhibit characteristics of fragile, vulnerable economies. PACIFIC SUBREGION ADB’S CONTRIBUTIONS TO DEVELOPMENT RESULTS Volume and Performance 7. Promote a Conducive Environment for the of ADB Operations Private Sector. Creating an environment in which micro, small, and medium- sized enterprises—formal and informal, 5. Between 1995 and 2006, 39 Asian domestic and foreign—can develop is Development Fund (ADF) loans and critical for the economic and social well grants were approved and $242.8 million being of the Pacific subregion. To ensure was disbursed in the Pacific subregion, a sound basis for ADB interventions, covering all sectors of ADB assistance in-depth private sector assessments (figures 1 and 2). Over this same period, were conducted for five countries, as countries in the subregion also benefited well as for the subregion as a whole. from $60.4 million in technical assistance These assessments commonly identified (TA), aside from assistance at the regional difficulties faced by small businesses in level. Project completion reports were accessing finance. prepared for 35 projects in nine countries. Of these, 1 was rated highly successful, 8. Technical assistance to Solomon Islands 16 were rated satisfactory, 15 were rated and a loan to FSM have supported the generally or partially satisfactory, and 3 implementation of legal, regulatory, and were rated unsuccessful (figure 3). technical secured transactions frameworks that allow for the effective pledging of movable assets and recovery in the event Highlights of ADB Results of loan default. The result has been an increased number of secured loans (in 6. Overall Impact of ADB Assistance to the the first 3 months of operation in FSM, Pacific Subregion. ADB’s traditional role 770 secured loans were filed with the in the Pacific as a project bank in key online registry) and a broader range sectors such as infrastructure is effectively of borrowers. This approach is being complemented by its activities as a replicated in the Marshall Islands and knowledge bank. Through its TA projects, Vanuatu. ADB supports extensive economic, sector, and thematic work, including 9. In Samoa, the Small Business the widely read Pacific Studies Series. Development Project, as of December ADB also plays an important role as a 2006, has supported a total of 546 loans partner in supporting key reform efforts under its small business loans guarantee (e.g. private sector development) and in scheme, and a further 53 loans under policy dialogue and donor harmonization its microfinance facilities. In addition, efforts. ADB’s activities in the Pacific, business training is being provided both at the national and regional levels through its small business enterprise are guided by the Pacific Strategy 2005– center. 2009: Responding to the Priorities of the Poor. Key benefits arising from completed and ongoing ADB assistance towards the three objectives of the strategy are illustrated below. PACIFIC SUBREGION Figure 1 Figure 2 Asian Development Fund Disbursements Asian Development Fund Loans and Grants 1995–006 ($ million) Approved, 1995–006 (number of projects) 5 24 Water Education 4 54 21 6 Finance Multisector Water Education 1 Agriculture 12 2 Finance Industry and Trade 3 5 Finance Health 11 1 Transport 9 Health Law 2 100 10 Energy Law Agriculture 10 Multisector 1 4 Industry and Energy Trade Figure 3 Project Completion Report Ratings, 1995–006 Mu Multisector HS He Ag Agriculture He Health Ed Education S Mu Ag He Ed Tr Fi La Wa En Tr Transport Fi Finance PS Mu Ag Ed Fi La Wa La Law/economics Wa Water En Energy U Ag La In In Industry 0 5 10 15 20 HS = high successful, S = successful, Number of loans PS = partly successful, U = unsuccessful. PACIFIC SUBREGION 5 natural disaster. The Post-Conflict Aviation Safety and Security Emergency Rehabilitation Project (PCERP), Road Improvement Project, and Emergency Assistance Project all The Pacific DMCs consist of thousands of islands focus on improving the capacity of the spread across 0 million square kilometers transport network to support rural of ocean. Modern air transport is essential for tourism and trade, which enable economic development, spur economic growth, growth and reduce poverty. The establishment and reduce poverty. More reliable of the Pacific Aviation Safety Office (PASO) by transport services will increase the 10 countries makes it possible to provide the ability of rural people—who make necessary regulation and oversight to ensure that up nearly 80% of the population—to regional aviation operations meet international market their produce, derive additional standards through harmonization of regulations, income from natural resources, and training, and inspections. access health and educational services. Already, the PCERP has provided 95 The direct beneficiaries of PASO include the kilometers (km) of sealed roads and governments of member countries that will be able 50 km of unsealed roads, and has to rationalize their civil aviation administrations and rehabilitated and repaired 50 bridges. lower public sector costs, air transport operators These facilities have provided reliable with a total of 66 aircraft employing nearly ,000 licensed personnel who will experience lower and safe access to about 300,000 regulatory compliance costs and more responsive Solomon Islanders. The other two services, and all users of air transport who will projects have a similar scale of civil benefit from higher safety and security standards. works for roads and bridges. PASO’s mechanism of intergovernmental finance, 12. Enhance the Supply and Demand for its establishment through a treaty, and its Quality Basic Social Services. Access governance by a council of directors, form a to clean water, energy, transport model which could overcome political hurdles services, health services, and education and make other regional projects feasible in the are vital to development and poverty future. PASO also presents a new mechanism for alleviation. ADB’s assistance to ADB support to regional cooperative solutions facilitate the provision of such services that address the well-known problems of scale and in the Pacific subregion—including, capacity in the Pacific region. for example, for HIV/AIDS prevention (see box on next page)—has been changing people’s lives. 10. In such a geographically spread area, 13. In Kiribati, the Sanitation, transport is crucial to development, Public Health, and Environment particularly in allowing the growth of Improvement Project is contributing trade in goods and services. ADB has to improvements in the well-being played a key role in financing essential of people through, among other transport infrastructure, enhancing activities, supporting the efficient capacities to manage transport facilities, management and use of scarce water and creating a policy