PORT MORESBY—Pacific island governments must "cut and trim" low-priority spending to minimise negative effects from the global economic downturn, the Asian Development Bank (ADB) says.
The ADB's quarterly economic monitor report released on Monday found that, like the rest of the world, the Pacific must prepare and respond accordingly to recession.
"Fiji and Solomon Islands remain the economies most at risk," the report said.
"The official foreign reserves are below comfort level, and their balance of payments and budgets are under pressure."
The ADB made 10 recommendations for the Pacific including cutting low priority government expenditure, setting a competitive exchange rate and protecting expenditure on services for the vulnerable.
As countries such as Australia, New Zealand and America face economic hardships, tourism-reliant Pacific economies experience reduced numbers of holiday makers, the bank said.
The Pacific's historic economic growth in 2008 of 5.1 per cent was led by commodity-intensive economies of PNG, Solomon Islands and Timor Leste.
But with commodity prices falling, the overall growth is projected to drop to 3.1 per cent in 2009, the report said.
The Solomon Islands faces dramatic revenue losses from reduced logging as the financial crisis takes its toll on industry in Asia, in particular China.
"A 30 per cent decline in (Solomons) logging in 2009 has been projected to reduce gross domestic product (GDP) growth to zero, decrease per capita income, and result in the current account deficit ballooning to around 10 per cent of GDP in 2009," the report found.
But for PNG a prolonged and well-managed mineral resource boom will see the nation through tough times.
PNG economist for the bank, Dominic Mellor, said the fall of commodity prices is starting to weaken PNG's economy.
"The PNG government has done a very good job at saving a lot of that revenue generated through the boom period but already we're seeing the situation changing, very rapidly," he said.
"The government must not spend that money too quickly, and must follow its development strategy and strengthen inter-agency dialogue."
