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The cost of infrastructure in Pacific is high, but can we afford it?

Suva – Of all the regions of the world, the Pacific requires the largest investment per person in infrastructure.

But the cost is high, especially as the region is extremely vulnerable to natural disasters.

Fiji Attorney-General and Minister for Economy, Civil Service, and Communications Mr. Aiyaz Sayed-Khaiyum this week said the cost of infrastructure is a challenge to the Pacific, even for more developed countries such as Fiji.

Despite contributing a small fraction of the pollution which causes climate change the small economies of the Pacific face serious threats from its impacts.

Typhoon Haiyan devastated Palau in 2013. causing the collapse of small infrastructure. Photo by Richard Brooks.

Asian Development Bank (ADB) estimates that the Pacific needs USD$3.1 billion a year for infrastructure every year through to 2030.

Building infrastructure that can withstand stronger storms, sea surges, floods and earthquakes can cost as much as three times as much as ordinary infrastructure.

Because of the high cost, some Pacific island nations have to borrow money to build these new more resilient roads, bridges, schools, wharves and so on. Most of the time, the money will come from external resources but it comes with a hefty interest rate.

Fourteen Pacific countries—Kiribati, the Marshall Islands, the Federated States of Micronesia, Samoa, Tonga, and Tuvalu—are facing elevated risk of debt distress “due to their narrow economic bases, vulnerability to economic shocks, and exposure to climate change.”Sili Epa Tuioti Minister of Finance and Head of Delegation for Samoa at FEMM said

“When major disasters hit Pacific Island countries it impacts the economy, shrinking GDP,” he said.

“We’re listed by the World Bank and ADB and others as debt stress economy. But the only reason why we incurred debt was to ensure that we restore necessary economic infrastructure for our people,” Tuioti said.

Cook Islands Minister for Finance Mark Brown said that Pacific nations, need not drown in debt to build resiliency.

You gotta be innovative of finding ways to be able to build the resilience but without building up the debt level as well. So for us, climate finance, grant finance, blended finance that we’re looking at to build that resilience but in a way that reduces debt is vitally important. So under traditional banking terms and conditions, that doesn’t help us. So we have to look at non-traditional means of terms and conditions from financing and even non-traditional donors and contributors to help us build this development finance,” he said.

Palau and Cook Islands

From grants to loans. The Cook Islands and Palau are classified as high-income countries despite having small economies, with this classification, the two small nations are ineligible to get grants from multilateral banks.

Brown said “So, I guess, (we) performed economically to the extent that we are regarded as a middle to a high-income country. And under the OECD criteria, we will graduate to developed nation status which in some cases means, we’re no longer eligible for developmental assistance or countries can no longer use their contributions to us as declarable in terms of the developmental assistance index,”

Palau has seven major loans with an outstanding balance of $59.7 million, but debt management is stable.

Palau President Tommy Remengesau Jr. said that because of the high-income status, the country’s infrastructure “needs can no longer be financed from foreign grant sources.”

In Palau, Remengesau noted during his State of the Republic Address last month that Risk assessment projections say that Palau can expect more frequent inclement weather events that the World Bank estimates will cost on average approximately $2.7 million per year in damages.

For the next 50 years, Palau has a 50 percent chance of incurring damages totaling over $30 million, and a 10 percent chance of incurring catastrophic damages exceeding $247 million.

Pacific island nations are trying to establish a “homegrown” regional initiative that will provide financing options for resilient infrastructure in response to the impacts of climate change.

Pacific Islands Forum (PIF) Secretariat had been hoping the Economic Ministers Meeting (FEMM), that the design for the proposed Pacific Resilience Facility (PRF) would be approved by Ministers at their meeting this week.

However, Ministers took the view that more work was needed. They will reconvene at a Special meeting in July in the hope of having a design ready for the Pacific leaders meeting in August.

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