Pacific Islands: The World’s Most Aid-Dependent Region

SYDNEY (Reuters) – A recent survey highlights that the Pacific Islands are the most aid-dependent region globally, spurred by geopolitical competition among donor nations that has led to unprecedented levels of development assistance.

From 2008 to 2021, the Pacific Islands received over $40 billion in development aid, making development finance a critical aspect of their economies, more so than in any other region, according to the Lowy Institute’s Pacific Aid Map.

Direct support for the budgets of Pacific Island governments surged in 2021, accounting for 40% of all development finance. Alexandre Dayant, Deputy Director of the Lowy Institute’s Indo-Pacific Development Centre, noted that these nations face unique challenges due to their small, remote, and widely dispersed populations, which complicates the implementation of traditional development strategies.

These economies tend to rely on a limited range of income sources, including tourism, fishing licenses, commodity exports, and overseas labor migration. They are increasingly threatened by climate change, with rising sea levels and severe weather events posing significant risks to their livelihoods. The Lowy report found that approximately 39% of all aid to the region in 2021 was climate-related, although financing for climate initiatives remains insufficient.

Australia stands out as the largest donor to the Pacific Islands, contributing about 40% of total development finance, equivalent to $17 billion during the period from 2008 to 2021. China follows as the second-largest donor, providing $3.9 billion.

The report emphasizes that shifting geopolitical dynamics have intensified competition for influence in the region, leading to increased development funding. Notably, post-COVID-19, both Australia and Japan expanded their development assistance in 2021, while China adopted a more targeted approach, allocating $241 million primarily to countries with which it had recently established diplomatic relations. The average size of Chinese projects has notably decreased, from $40 million between 2013 and 2019 to roughly $5 million.

The largest recorded transaction for 2021 involved Australia lending A$466 million (approximately $297 million) to Papua New Guinea. This nation is crucial to the region’s economy, representing 73% of its GDP and receiving around 43% of total development finance. The Solomon Islands, which has a security agreement with China, ranks second in aid receipts, receiving 13% of the assistance.