Agencies
The World Bank’s board has approved a $68 million program to prevent Pacific Island nations from being cut off from the international financial system that underpins tourism, trade and aid flows, the lender’s President Ajay Banga said Thursday.
Access to the global financial system is paramount for several small island economies at risk of losing access to U.S. dollars and euros as Western banks exit the region.
Banga met the leaders of Tonga, Fiji, Nauru, the Marshall Islands and the Federated States of Micronesia in Suva. Bank officials said the announcement would be made on Friday. He is the first World Bank chief to visit Fiji in 50 years.
“The first phase is making sure we can continue to provide correspondent banking by subsidizing the cost of doing so, but we have to get past the subsidy to a business rationale for it,” Banga said in the meeting.
“That can only happen with scale: Together, you have scale separately, and it will be a problem,” he added.
The funding includes $9 million each to eight Pacific Island countries to establish a service that keeps cross-border transactions flowing if a country loses its last international banking relationship.
Nauru and Marshall Islands face the imminent exit of the last international bank in their small economies.
In many Pacific Island countries, remittances sent home from workers overseas in Australia, the U.S. and New Zealand contribute over 40% of gross domestic product.
These remittances, as well as trade, tourism, and disaster relief flows, would be at risk if cross-border transactions were stopped, the World Bank said.
Pacific Islands Forum secretary-general Baron Waqa said “de-banking” had become a serious issue for the region, which between 2011 and 2022 lost 60% of its correspondent banking relationships, where Western banks hold deposits on behalf of a local one to make payments in international currencies.
“We have banks leaving some of our smaller Pacific countries because we are too small and unprofitable,” Tonga’s Prime Minister Siaosi Sovaleni said in the meeting.
Under the World Bank deal, countries would also be assisted in complying with international financial standards, including money laundering regulations, one of the factors that has led to the exit of risk-averse Western banks.
The World Bank said the funding program was a step towards creating a long-term market solution for the island states that would aggregate payments across small countries.
Banga, a former chief executive of global payments company Mastercard, said he would draw on his financial services experience to help and urged the Pacific Islands to work together.
The Pacific Islands Forum, the region’s diplomatic bloc, will administer the program, with commercial banks bidding to run the emergency facility.
