Pacific nations face ‘lost decade’ due to economic cost of Covid

Countries in the Pacific risk a “lost decade” following the Covid pandemic, with the region facing its greatest economic contraction in four decades, according to a new report into foreign aid.

The latest Lowy Institute Pacific Aid Map, which sets out aid spending and donations to the Pacific Islands region, shows US$2.44bn in foreign aid reached the Pacific in 2019, which is about 8% of the region’s GDP.

Australian aid to the region has increased, after growing fears China’s “soft diplomacy” through concessional loans for infrastructure projects was lessening Australia’s influence on the region. While Australia’s total foreign aid budget has shrunk under the Coalition, the Pacific has been the focus of what remains, with Australia “retooling” its budget to increase its contributions to Pacific neighbours.

But China, an emerging force in the region, slashed its contributions that same year, reducing its aid budget from US$246m in 2018 by 31%, delivering US$169m in 2019.

Lowy reports that’s the lowest level of aid China has given to the Pacific region since 2012, with the drop occurring even as Beijing secured new diplomatic alliances. China’s funding to the region is more commonly given in the form of a concessional loan, leaving countries indebted to the government. In 2019, 67% of Chinese aid was given in the form of loans, up from 41% the year before.

The early analysis for 2020 shows no indication China has increased its financial support, leaving governments in the region with financial gaps it has little hope of filling.

The Lowy Institute analysis, to be released on Wednesday, estimates an additional US$3.5bn will be needed for the region to recover from the pandemic, but donors appear in short supply.

All up, aid to the Pacific declined by 15% in 2019, with health spending accounting for just 11% of the US$2.44bn.

Lowy reports Australia accounted for 42% of all aid to the Pacific region between 2009 and 2019, but in more recent years, the amount of money being spent on health has been cut in favour of infrastructure projects.

As part of its pandemic response, Australia established a temporary AU$305m Covid package within the Pacific Step-Up program, which aimed to “to help address the economic and social costs of the pandemic in the Pacific and Timor-Leste, helping to underpin our region’s stability and economic recovery

The package was mostly designed to help Pacific governments maintain essential services, including aviation, during the worst of the pandemic. Vaccines have also been sent to Pacific Island governments, along with specialist teams, to help curb the spread of Covid

But with the world beginning to move on, the Lowy Institute points to more needing to be done to ensure nations within the Pacific region do not fall further behind.

Australia is also facing pressure from its Pacific neighbours to act on climate, with warnings the Coalition’s “inertia” on the issue was undermining its position within the Indo-Pacific, at the same time as scrambling to reassure partners the new strategic Aukus pact would not heighten defence tensions in the region