Avoiding a Pacific lost decade: Financing the Pacific’s COVID-19 recovery

Abstract

The Pacific is staring at a potential lost decade. The region has been among the most successful in the world in terms of limiting the domestic spread of COVID-19. Despite this public health success, the grim reality is that the economic and social devastation in the Pacific is likely to be among the world’s most severe and long lasting. Barring an ambitious and urgent increase in outside assistance, the Pacific will never recover the lost ground and will be set on a permanently lower economic and developmental trajectory. In this Policy Brief, we estimate that the Pacific will need a package of at least US$3.5 billion (A$5.0 billion) over three years in additional international assistance to get through and recover from the pandemic.1 This is the minimum figure, with significant risks that more will be needed. This should be met with an increase in international grants to the extent possible. Yet, there is limited political appetite in donor countries to increase international financial assistance at a time when they are themselves facing domestic crises. We therefore argue that the use of appropriately structured loans is also feasible as a lower cost option for meeting the full scale of recovery financing required. Concerns about excessive public debt are less relevant given the sheer scale of the crisis, with the economic returns from investing in the recovery likely to be very large. Other concerns about the ‘moral hazard’ of international bailouts (i.e. that they could encourage irresponsible policymaking in future) make little sense when responding to a once-in-a-century emergency for which even advanced economies were ill-prepared.