Pacific Islands debt: financing post-COVID-19 recovery amid precarious sustainability

The Pacific has been hard hit by the coronavirus disease (COVID-19) pandemic. Despite most countries in the region having fared among the best of the world in containing the domestic spread of the virus itself, the economic ramifications are likely to be severe. Debt sustainability is a perennial concern owing to the Pacific's extreme geography. Collapsing growth and government revenue due to the pandemic are substantially worsening this situation. Nonetheless, we show that the outlook for Pacific debt sustainability appears less troubling than in many other parts of the developing world. Erasing old loans and avoiding new debt is not the urgent priority. Instead, the focus needs to be on unlocking sizable new financing to aid the Pacific's economic recovery. We estimate that a $2.3 billion-$3.5 billion "recovery package" from development partners is needed and could be financed with semi-concessional loans without materially worsening the Pacific's debt sustainability outlook.