SYDNEY (Reuters) – The Pacific Islands is the world’s most aid-reliant region, with geopolitical competition for influence between donor nations fuelling record levels of development assistance, a survey released on Tuesday found.
The Pacific Islands received more than $40 billion in development assistance between 2008 and 2021, with development finance playing a larger role in these economies than any other part of the world, the Lowy Institute’s Pacific Aid Map said.
Direct budget support to Pacific Island governments surged in 2021, to 40% of all development finance.
“Pacific Island countries are home to some of the smallest, most remote, and internally dispersed populations in the world,
posing significant challenges to realising more traditional development pathways,” said Alexandre Dayant, Deputy Director of the Lowy Institute’s Indo Pacific Development Centre.
Economies draw on a narrow range of income, from tourism, fishing licences, commodity exports and overseas labour mobility, and climate change impacts including rising sea levels and extreme weather events threaten livelihoods, he added.
Around 39% of all aid pledged to the region in 2021 was climate-related, but climate financing remains below the levels needed, the Lowy report said.
Australia is the largest donor to the Pacific Islands, providing around 40% of total development finance, or $17 billion between 2008 and 2021. China is the next largest donor country ($3.9 billion).
Geopolitical dynamics and competition for influence have contributed to a surge in development financing in the region, the Lowy report said.
Australia and Japan significantly increased development support in 2021, after the COVID-19 pandemic, while China shifted to “downsized, more politically targeted” aid, directing $241 million to a handful of countries it recently formed diplomatic ties with, the report said.
The average size of Chinese projects has “significantly decreased” from $40 million between 2013 to 2019, to around $5 million, it said.
In 2021, the largest transaction recorded by the Pacific Aid Map was Australia’s A$466 million ($297 million) loan to Papua New Guiinea.
Papua New Guinea, which struck a defence cooperation agreement with the United States in May, accounts for 73% of the region’s GDP and received around 43% of total development finance.
Solomon Islands, which has a security agreement with China, receives the second-largest share, with 13%.
($1 = 1.5691 Australian dollars)
(Reporting by Kirsty Needham, editing by Ed Osmond)
