Record support during Covid and declining funding from China: what new data on Pacific aid reveals
China is funnelling aid to Kiribati and Solomon Islands, while its overall spending in the Pacific region is in decline, the latest Pacific Aid Map reveals.
The Lowy Institute on Monday released its 2022 updated version of the map, an interactive analytical tool that enables users to track aid flow and development funding in the Pacific.
With newly compiled data from 2020, the map includes tens of thousands of projects and activities of 67 donor entities representing over US $36bn in spending, including all Pacific aid projects between 2008 and 2020. Preliminary data for 2021-2022 is not included.
The data shows 2020 was the largest year on record for Pacific aid and development, with US$3.3bn disbursed, a 33% increase over 2019, and double that of 2008.
Impacts of the Covid-19 pandemic led to greater direct budget support for trade and tourism-dependent Pacific economies. Fiji, for example, lost 15.2% of GDP in 2020 and development financing for Palau and Fiji more than doubled for the year.
Alexandre Dayant, research fellow at the Lowy Institute and project director of Pacific Aid Map, said that while early in the pandemic Pacific islands used their isolated location to their advantage, it came at an economic cost.
Direct budget support from the Asian Development Bank (ADB), World Bank, Australia, and others came in the form of increased liquidity and a significant increase in new loans even as grant funding remained stagnant.
According to Dayant, in 2008 loans made up about 18% of finance packaging to Pacific islands. In 2020 that had grown to nearly half (46%) of overall financing.
Since 2008, Australia had provided 40% of all Pacific aid, followed by New Zealand (8.6%), Japan and China (both 8.5%), and the United States 7.8%. In 2020, however, the Asian Development Bank ranked first as a development partner after tripling its aid spending to A$4.77bn on all loans and grants.
Although not included in the newly updated map, in 2021, Australia provided the largest ever transaction recorded on the Pacific Aid Map, a A$650m loan to Papua New Guinea. Dayant expects Australia will regain its role as “first partner of choice” when 2021 data is complete.
In 2020, the region’s top aid recipients were Papua New Guinea, Fiji, Solomon Islands, and Vanuatu.
Dayant noted the continued decline in China’s aggregate development financing after a peak in 2016. Although China has targeted aid to Kiribati and Solomon Islands, in 2020, China’s total development financing dropped to US $187m, its lowest point since 2008. Lowy analysts said preliminary data indicates the decline continued in 2021.
At the same time, Dayant said, Pacific island nations may be more cautious about increasing loan debt from China that can be more expensive than borrowing from other development partners.
Dayant said that in 2022, China faces a more crowded Pacific development aid landscape with actors such as Australia which, in 2019, launched Australian Infrastructure Financing Facility for the Pacific, offering grants and loans for large regional projects.
“This doesn’t actually mean that China is going anywhere,” Dayant said, pointing to new diplomatic alliances with Kiribati and Solomon Islands.
At a US-Pacific summit in September, the United States announced it would provide US$810m in aid to Pacific island nations.
The US president, Joe Biden, said the US was committed to supporting climate resilience, public health, and “sustainable blue economies” among Pacific islands. He also said the US would recognise Niue and the Cook Islands as sovereign states.
Dr Terence Wood, a research fellow at the Australian National University’s Development Policy Centre, said the aid map was useful for monitoring the flow of aid from Organisation for Economic Co-operation and Development non-member economies such as China for which gathering quality aid data is difficult.
Cheng-Cheng Li, a political science PhD candidate at the University of Hawaii, is conducting qualitative research in Palau where he regularly uses the map to study academic scholarships and relationships between Palau and his homeland, Taiwan. The two countries have maintained diplomatic relations since 1999.
According to the map, China has invested US$220 per capita in 10 Pacific countries while Taiwan has invested US $1,783 per capita in its four Pacific allies — Tuvalu, Palau, Nauru, and the Marshall Islands.