25 October, 2013

UNSURE REFUGE

In its latest Discussion Starter, Unsure Refuge, the Pacific Institute of Public Policy (PiPP) investigates the consequences of a rapid increase in concessional lending to Pacific Island governments. With many investment projects failing and some of our countries heading on the path towards debt distress we reflect on whether it is time to reconsider lending practices across the region. The paper explores how the management of public finances is steadily being undermined by a desire to rapidly push through ill-thought-out lending agreements. Development partners create little space for understanding the full consequences of adding to debt burdens or to providing adequate analysis of investment projects.

In the world of development finance, it doesn’t pay to ask, ‘Why are we paying for wharves that don’t exist, defunct development banks, roads that have deteriorated even before payments begin, institutions that are weaker than ever?’

Yet, at the same time, the vulnerability of Pacific Island states and their limited ability to meet the increasing demand for public services – including health and education – means we cannot tolerate the same levels of debt or continue to passively commit more revenues towards repayment. It is for this reason that we ask, “are our development partners acting like true friends?” Key messages of Unsure Refuge:

The Pacific has witnessed a sudden increase in borrowing to pay for ill-considered infrastructure projects.
Much of the lending has been based on flawed analysis – we can’t afford to keep making these mistakes.
Our tolerance for debt must be a lot lower – our economies are too small and fragile to continue taking on more loans
The rising cost of servicing debts means governments have less money to spend on services such as health and education