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Up In The Air

The Village Explainer
Up In The Air
By Dan McGarry • Issue #40 • View online
The Village Explainer is a semi-regular newsletter containing analysis and insight focusing on under-reported aspects of Pacific societies, politics and economics.

Mike Thompson (c) says his zipline business is running at only 4% capacity
Mike Thompson (c) says his zipline business is running at only 4% capacity
Earlier this week, I contributed to a Guardian story about the impacts on tourism of the COVID-19 pandemic.
The news was—as expected—pretty depressing. But it didn’t cause complete despair, so there’s that. In the course of my research, I knocked together a few tables and charts to help my own understanding of the trends, and although we didn’t use them in the story, they strike me as useful. Most importantly, they illuminate a couple of subtle but important points about doing analysis on Pacific economies.
First, an apology to my colleague Barbara Dreaver, who quite rightly went off on a poorly made point about Cook Islands. I incorrectly used the phrase ‘travel bubble’ to describe the travel currently allowed to Cook Islanders. Barb rightly pointed out it is not a travel bubble, as such things were advertised. The point I was attempting to make—poorly—was that not all travel rules are created equal. We turned the tap off in an instant. But it will take a lot longer to turn it on again. Anyway, sorry Barb. Mea culpa.
Tourism flows plummeted in mere weeks. It will take far longer to get them back
Tourism flows plummeted in mere weeks. It will take far longer to get them back
Samoa is heading into a general election in a few days, and it is set to be the most hotly contested in years, possibly in a generation. Some are wondering if Prime Minister Tuilaepa Sailele Malielegaoi has served his last term in office.
There are numerous points of political contention, but the economy may not be the sword he falls on—if he falls at all. Samoa is more reticent than some nations about sharing detailed economic and financial reports, but there’s enough data in the public domain to suspect that although tourism has suffered, its impact on the economy has not been as dire or as long-lasting as elsewhere.
Tax revenues are at record lows, but they're climbing back
Tax revenues are at record lows, but they're climbing back
Quarterly tax revenues more or less fell off a cliff after the borders were closed, but they’ve already started climbing. The absolute numbers may be the worst in years, but it’s harder to make the case that Samoa is heading in the wrong direction than Vanuatu or Fiji, for example.
Samoa’s debt situation is significantly better than others’, too. That’s partly in penance for past sins. It got into hot water sooner and, er, hotter than other Pacific nations. By the mid-2010s, it was already being forced by circumstance to rethink its debt strategy.
I’d very much like to see how much of Samoa’s lost revenue derived from remittances, which are a major source of income, and how much is directly attributable to tourism.
If any country can make the case for a V-shaped recovery, Samoa can. Maybe. We’ll know better after they’ve release a few more quarterly revenue reports.
Fiji, meanwhile, is clearly on the ropes. There’s no nice way to say it. They’re desperate to get back to normal, as we can see from their precipitate—some say rash—announcements of travel plans for the rich and famous.
But who wouldn’t be when faced with these financials:
With revenues cratering and deficits ballooning, it's hard to see a way out for Fiji
With revenues cratering and deficits ballooning, it's hard to see a way out for Fiji
Fiji's tax numbers are showing no sign of a V-shaped recovery
Fiji's tax numbers are showing no sign of a V-shaped recovery
As James Taylor famously said, I don’t feel much like laughing. The impact of the pandemic is going to be felt in Fiji for years, possibly decades to come. Massive budget holes are creating debt that will constrain the nation into the long term.
Vanuatu is in a slightly more mixed position. Revenues are actually fairly solid, thanks to our passport revenues. We had a VT 7 billion surplus last year (almost US $70 million), due in part to the fact that we couldn’t ramp up stimulus spending fast enough.
DIY has real limits when the ‘Y’ is as small and under-resourced as we are.
The government has spent considerable time and effort to retool the local economy to increase opportunities for agriculture-related business. They’ve had decidedly mixed results, but that could be said about virtually every major policy endeavour in the last two decades.
But as any fitness expert will tell you, you can put on good weight, or bad weight. Right now, we’re living on chips and beer, so to speak. Our revenues are cheap, intoxicating and unhealthy. Worse, we’re relying on income streams that could dry up overnight.
Even after years of financial reforms, we still can’t shake our high-risk status. Our banks are losing correspondent accounts. We face sanctions due to our tax blacklisting by the EC. We are going to lose our visa-free access to the Schengen countries. The only question is when.
I expect that sooner rather than later, we’ll be rueing the day we opened up our passport scheme to everyone and their dog, passed out forex licenses like candy, and gave a pass to our best buddies when due diligence was required.
With the transition to a more agriculture-driven economy in its nascent stages, the loss of tourism revenue has left us down, if not out.
Tax revenue losses are bad, but not terrible, measured year to year...
Tax revenue losses are bad, but not terrible, measured year to year...
Year on year, tax revenues fell nearly twice as far as some experts were hoping from 2019 to 2020. But if we only measure the COVID-affected months, things look far worse. Nearly twice as bad, actually.
...but when limited to pandemic-affected months, the picture is much darker
...but when limited to pandemic-affected months, the picture is much darker
Worst of all, the trend line is descending steeply. If something doesn’t happen soon—or if anything happens to our other revenue streams—the government is going to face some extremely tough decisions.
For Samoa, Fiji and Vanuatu, I fear the tensions we face today may stretch our social fabric to the tearing point. I sincerely hope I’m wrong.
Finally, I think we need to take a few lessons from this:
  1. There’s no one-size-fits-all view of the Pacific islands. All of us are suffering, but each is suffering in their own unique way.
  2. We can’t just blame COVID-19. In most cases, there are other factors contributing to our distress. Many of the greatest risks are from easily foreseen circumstances that we’ve had ample time to avoid—or at least to brace for. But for reasons that often defy explanation, we have failed to act.
  3. We’re not out of the woods yet. Nowhere near, in fact. Vaccination can’t come soon enough, but we won’t be safe until the day everyone on the planet is immune, and at the current rate, that day is a long way away.
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Dan McGarry

The Village Explainer is a semi-regular newsletter containing analysis and insight focusing on under-reported aspects of Pacific societies, politics and economics.

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Dan McGarry - Port Vila, Vanuatu