Between Necessity and Risk : State Owned Enterprises and Fiscal Risk in the Pacific Islands

Overview & Synopsis

State-owned enterprises (SOEs) are the economic backbone of Pacific Island Countries (PICs). Across the region, SOEs assets often account for over 40 percent of gross domestic product (GDP) and employ between 30 and 75 percent of the formal sector workforce, serving as the primary providers of electricity, water, transport, consumables, telecommunications, and financial services. Given the structural characteristics of Pacific economies including extreme geographic fragmentation, shallow/narrow domestic markets, and incipient or small private sector, SOEs are not merely a policy choice but a structural necessity for accelerating growth and development. Yet their financial fragility poses one of the most significant fiscal risks facing PIC governments today. This policy note presents, a comprehensive and systematic analysis of SOE financial performance and fiscal risk across key economic sectors in the Pacific, drawing on a newly assembled dataset covering 83 SOEs across multiple PICS and sectors classified under the Global Industry Classification Standard (GICS). Using a suite of financial Key Performance Indicators (KPIs) - e.g., profitability, liquidity, and leverage - alongside the well-known Altman Z-score as an early warning distress indicator for non-financial SOEs in the sample, this note quantifies the financial health of PICs SOE portfolio. The note then employs the Altman-z scores to predict the scale of potential fiscal transfers that governments, via grants, may face in the near term for poorly performing SOEs. Additionally, external shocks are an inescapable feature of the Pacific economic landscape, yet their financial consequences for individual SOEs have never been systematically quantified. This note addresses that gap directly.