Pacific Economic Monitor July 2021

• Publisher: Asian Development Bank
• Year: 2021
• ISBN:
  9789292629939
• Topic: Business
• Subtopic: Pharmaceutical, Biotechnology & Healthcare Industry
• Index: Business

The Pacific is expected to recover with moderate growth of 1.4% in 2021 and 3.8% in 2022, with tourism and widespread vaccination playing key roles. This issue of the Pacific Economic Monitor provides insights on experiences and lessons of Pacific island countries in striking a delicate balance between health and economic concerns. It also outlines ADB's new development strategy to help the region address the impacts of the coronavirus disease (COVID-19).

COUNTRY ECONOMIC ISSUES

“Travel bubbles of hope” in the Cook Islands, Niue, and Palau

Lead authors: Lily Anne Homasi, Rommel Rabanal, and James Webb

The Cook Islands, Niue, and Palau share many similarities with relatively small populations that have enjoyed considerable improvements in living standards over the past two decades, largely because of their attractiveness as tourist destinations. All three economies have been severely affected by restrictions on international travel related to the coronavirus disease (COVID-19), and their priority is to reopen to tourists as a matter of urgency to support economic recovery. Further, all three have strong ties to a major trade and development partners, including pathways for migration. Each has pursued travel bubbles with a major tourism market alongside an aggressive vaccination program, with the assistance of their major bilateral development partners in the sourcing and distribution of vaccines (New Zealand for the Cook Islands and Niue, and the United States [US] for Palau). This article explores the similarities and differences in their respective approaches, the risks, and the recent performance.

PALAU

With sustained progress since the start of its national vaccination program as early as January 2021, Palau has now fully vaccinated more than 95% of its adult population against COVID-19. This is well above the vaccination rates recorded not only among its North Pacific peers but globally as well. In turn, high vaccination uptake has allowed Palau to consider and implement interim steps toward full reopening of its tourism-dependent economy, which is seen to contract by a cumulative 18% during fiscal year (FY) 2020 (that ended on 30 September 2020) and FY2021, resulting in substantial adverse impacts on households and businesses.

On 1 April 2021, Palau commenced a safe travel bubble with Taipei,China. Pre-pandemic, Taipei,China was among Palau’s top three sources of tourists, with annual arrivals averaging about 13,000 or about 11% of total arrivals during FY2015–FY2019. Under the travel bubble arrangement, two weekly roundtrip flights brought tourists from Taipei,China to Palau on Wednesdays and Saturdays. These were the first commercial flights allowed to bring international tourists into Palau since borders closed in March 2020. The maximum number of passengers was 110 per flight, which translates to 880 per month or 2,640 per quarter compared with annual arrivals of almost 90,000 in FY2019 (14,000 of which were from Taipei,China). However, only the first few flights were fully booked, with those thereafter at under 50% capacity.

Key considerations for tourists included high costs and stringent health protocols to guard against community exposure. A 4-day tour package cost about $2,400–$3,000, more than double the pre-pandemic cost of about $1,000. Also, strict health surveillance and infection prevention and control measures applied to tour participants included (i) undergoing a polymerase chain reaction (PCR) test at the airport before boarding, which means travelers need to be at the airport more than 5 hours before the flight; (ii) proof of no international travel within the past 6 months, no record of COVID-19 infection within the past 3 months, and no quarantine within the past 2 months; (iii) staying within tour groups, keeping away from locals, and only using pre-arranged transport, accommodation, restaurants, and other establishments while in Palau; and (iv) “enhanced” monitoring upon return, with a follow-up PCR test at a hospital 5 days after arrival in Taipei,China.

Both parties were hopeful that uptake of bubble flights would increase during Taipei,China’s summer months of June–September, with some judicious adjustments to health protocols. Unfortunately, the bubble burst in mid-May 2021 amid rising COVID-19 cases in Taipei,China. Over its 7 weeks in operation, the safe travel bubble brought fewer than 300 tourists into Palau—which is only about 2% of total pre-pandemic arrivals during the months of April and May—but nonetheless provided valuable firsthand experience in partially reopening borders while keeping health risks contained.

Toward the end of May 2021, Palau further opened its borders to fully vaccinated people from the US and its territories via twice-monthly flights from Guam. Such travelers still need approval from the Palau Quarantine Office, which requires a negative PCR test within 72 hours of departure date from Guam, but they will no longer be required to stay at a quarantine hotel. Instead, they will be subjected to restricted movement for 7 days, after which another PCR test is conducted on-island. This process had effectively contained infection risks, with Palau’s only two COVID-19 positive tests on record both confirmed to be historical cases from infections contracted by travelers well before travelling to the country. On 4 July 2021, Palau further eased restrictions, now only requiring travelers to present airline representatives with proof of full vaccination—with the final dose received at least 14 days prior to arrival—and a negative PCR test result taken no more than 3 days prior to departure.

To further prepare for broader reopening and more sustainable recovery from the COVID-19 crisis, the government continues to provide temporary assistance to the private sector through its Coronavirus Relief One-Stop Shop Program that comprises unemployment benefits, temporary employment schemes, expanded lifeline utility subsidies, and interest-free lending to businesses. The government is also embarking on a wide-ranging reform agenda to (i) strengthen the policy and legislative framework for public financial management; (ii) reduce fiscal risks from weak management of public revenue (e.g., tax reform), expenditure (e.g., infrastructure investment planning), and liabilities (e.g., social security reform); and (iii) support further private sector development to shift Palau’s economic recovery from the COVID-19 crisis toward a more sustainable fiscal path. Taken together, these measures may help facilitate a stronger and swifter rebound in the near-term, provided that steady progress in reopening the economy and restarting tourism is also achieved.

COOK ISLANDS

The Cook Islands has been one of the hardest hit economies in the Pacific because of the COVID-19 pandemic. Although there have been no local COVID-19 cases since the start of the pandemic, the country faces unprecedented economic challenges from the collapse in tourism.

Border closures delayed construction activities and eliminated tourist arrivals from April 2020 to early May 2021. The Cook Islands economy contracted by 5.2% in FY2020 (ended 30 June 2020) compared to growth of 5.3% in FY2019. The government, through its Economic Response Plan, has mitigated the impact of the contraction on the economy and livelihoods. Economic activity is estimated to have contracted by a further 26.0% in FY2021. A gradual recovery is expected to gain momentum following the commencement of the quarantine-free travel bubble between the Cook Islands and New Zealand on 17 May 2021. For May and June, the Cook Islands recorded 1,486 and 6,054 visitors, respectively.¹ This is about 10.3% of May arrivals and 37.9% of June arrivals in 2019. The government expects flights per week to increase from 6 to 11 on 16 August, carrying more than 200 visitors per flight, and about 12 or more weekly flights in November onwards. Visitors from New Zealand alone (the main tourist market for the Cook Islands) averaged 66.8% of total visitor arrivals between FY2016 and FY2019 (Figure 1).

Figure 1: Share of Travel Bubble Partner in Total Visitor Arrivals

FY = fiscal year.

Note: Travel bubble partner refers to New Zealand for the Cook Islands and Niue, and the United States for Palau.

Sources: Governments of the Cook Islands, Niue, and Palau.

Prior to the commencement of the travel bubble, the government embarked on a comprehensive set of initiatives to support its readiness to receive visitors. These included establishing a COVID-19 website² to clearly communicate COVID-19-related updates, launching a contact tracing mobile application, training frontline health and immigration staff on enforcing COVID-19 measures (and administering the COVID-19 vaccine, in the case of selected health workers), and establishing a PCR laboratory. These and other related activities were overseen by the Border Easement Task Force (comprising the Prime Minister and senior government officials from the ministries of foreign affairs and immigration, health, and finance and economic management) to expedite the operationalization of two-way quarantine-free travel. These initiatives not only gained the confidence of New Zealand authorities to open its borders to the Cook Islands but provided the Cook Islands with tools to test, track, trace, and ensure the safety of Cook Islanders and visitors to the country. Negotiations at the political level between governments helped a great deal to formally establish the bubble with New Zealand.

To further strengthen the Cook Islands’ readiness to receive visitors, the government, through the support of the Government of New Zealand (its main bilateral development partner), rolled out COVID-19 vaccines from May 2021 for the 10,189 eligible population. As of 23 June 2021, the Ministry of Health of the Cook Islands reported that 95.7% and 90.2% of the eligible population have received the first and second doses, respectively.³ Those on the more remote islands are expected to be fully vaccinated by the third quarter of 2021. With these initial positive signs, the economy is expected to recover in FY2022 as the continuation of quarantine-free travel promotes economic activity.

Downside risks remain, however: should there be local transmission of COVID-19 in New Zealand or the Cook Islands both governments have shown that they may unilaterally close the travel arrangements, which would halt the travel bubble and further deteriorate the Cook Islands’ already battered economic and fiscal position.

NIUE

Through preemptive action to prevent the entry of COVID-19, Niue has successfully safeguarded its capacity-constrained health system from the potentially catastrophic impacts of the disease on its vulnerable population. Borders have been effectively closed since March 2020, with only a limited number of passenger flights allowed entry to bring in returning residents and essential workers. Tourists from New Zealand—which accounted for about 80% of arrivals prior to the pandemic—plunged to a total of only 61 during April–December 2020 from more than 6,000 during the same period of the preceding year. This has continued in 2021, with only 33 arrivals in January–April.

Pre-pandemic tourism receipts amounted to about a third of annual gross domestic product. The pause in international tourism has severely impacted business activity in Niue, as a significant share of businesses depends heavily on demand from tourists. Based on a series of surveys by Pacific Trade Invest Australia, about 37% of businesses in Niue were either temporarily or permanently closed as of May 2021 (Figure 2). This is below the peak of 42% recorded in February, but still above the average for the survey period covering June 2020–May 2021. Further, about 32% are not confident that their business can survive the ongoing COVID-19 crisis. These trends highlight the potential “scarring” or loss in long-term supply capacity that can result from a severe and prolonged downturn.

Figure 2: Status and Sentiments of Businesses in Niue

COVID-19 = coronavirus disease.

Source: Pacific Trade Invest Pacific Business Monitor (various issues).

The arrival of COVID-19 vaccines in June was a critical milestone that has opened a clear path toward safely reopening and revitalizing the tourism-based economy. Niue’s small population of only about 1,700 lends itself to a swift rollout that can achieve herd immunity relatively quickly. With assistance from ...