How a World Bank-financed initiative is helping Pacific Island countries stay connected to the global financial system.
The sharp decline in correspondent banking relationships (CBRs) in the Pacific has left some countries teetering on the edge of financial isolation, threatening remittances, trade, aid, and disaster response.
Since 2011, the Pacific has seen a 60 per cent drop in CBRs—double the world average. Global banks point to high compliance costs, low profitability, and perceived risks around money laundering and terrorism financing. Small markets with different regulatory requirements only heighten the challenge.
In 2024, the Pacific Islands Forum (PIF) in collaboration with the World Bank Group and development partners launched the Pacific Strengthening Correspondent Banking Relationships Project, a US$77 million initiative across 8 countries (with PNG joining soon) to keep cross-border banking open and resilient.
Funded by the International Development Association, the World Bank arm that supports low-income countries, the project blends emergency support with long-term reform to rebuild connectivity to the international financial system.
"The loss of correspondent banking links has been one of the most urgent financial challenges facing our region," said Rodney Kirarock, a former economic adviser to the Forum who helped co-design the project. "This initiative brings together governments, regulators and international partners to ensure that Pacific countries are not cut off from the global economy."
Eight countries—Fiji, Kiribati, the Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu—committed US$9 million each from their IDA allocations to the project, which includes a regional stand-by facility, compliance reforms, and a detailed feasibility study for proposed Pacific Payments Mechanism (PPM).
“The Pacific Payments Mechanism would take a platform approach with a network of banks and non-banks operating under common standards and shared services. This would make it more economically viable for financial institutions to provide these services across the Pacific,” said Julian Casal, Senior Financial Sector Economist at the World Bank.
The PPM model is about aggregating transaction volumes and flows and could provide a template for other regions around the world facing the loss of CBRs. For example: the transaction volumes in Tuvalu and Kiribati might not attract an international financial institution, but combined with Solomon Islands, Fiji, Tonga, Samoa, Vanuatu, and eventually Papua New Guinea, suddenly, the volumes become much more interesting.
A Long Road to a Regional Solution
To get the project to launch stage has been an extraordinary undertaking for both the Pacific Islands Forum Secretariat (PIFS) and the World Bank, but even more so for Pacific central banks who have been advocating for a solution for 20 years.
“We wouldn’t have got to this stage if it weren’t for the talents of a large multi-disciplinary team,” Casal said. “But it’s important to say, that while the World Bank is providing technical and financial support, the project is really led by the PIFS and Pacific governments.”
Initial attempts by Pacific leaders to raise the issue at the Forum Economic Ministers Meeting (FEMM) in 2019 stalled. Then came the COVID-19 pandemic. It wasn’t until 2021—when Australia submitted a country paper and ministers called for action—that the PIFS was directed to find a partner. That partner was the World Bank.
“The Pacific has been advocating for a coordinated regional approach to correspondent banking challenges for nearly two decades,” said Denton Rarawa, Senior Economic Adviser at the PIFS. “We’re now seeing that strategy materialise through a mechanism that balances national sovereignty with regional efficiency. It’s the result of sustained engagement, shared risk management, and recognition that the structural nature of this issue demands collective action.”
Momentum grew in March 2024 when the PIFS and the World Bank convened a gathering of the region’s finance ministers and central bank governors, along with representatives of the US, Australian, and New Zealand governments in Sydney. There was a frank discussion about solutions that then paved the way for the Pacific Banking Forum in Brisbane in July 2024. It was attended by the US Treasury, Australian Treasury, Federal Reserve, Reserve Bank of Australia, regional ministers, and major global banks like JP Morgan, Wells Fargo, and Citibank.
“We invited the general manager of the National Bank of Tuvalu to present,” Kirarock said. “That was a real lightbulb moment. It brought home the real, human impact of losing CBRs.”
A diagnostic report prepared by the World Bank with financial support from New Zealand explored why banks were leaving the Pacific and helped galvanize understanding of the overall situation.
The CBR diagnostic report showed that CBR withdrawals had more to do with economies of scale challenges than compliance and other issues including the perception of risks related to transactions in the Pacific. By the time the Pacific Banking Forum took place, broad consensus had already been reached on what a solution would look like, which is mainly about aggregating transaction volumes and flows. A regional CBR roadmap was later endorsed by the FEMM in early August 2024, providing a framework for collective action.
The project was approved by the World Bank Board in late August 2024 and became effective in April 2025, with a dedicated Project Management Unit now operational in Suva. Implementation is monitored by the Pacific De-risking Group, co-chaired by PIFS and the World Bank, with participation from central banks, regulators, development partners, and technical experts.
What’s Next
The CBR project is financing a detailed feasibility study on the PPM, which is expected to be completed in early 2026. This will be followed by a period of consensus building on the architecture of a long-term market-based solution.
“It's going to be a very open and innovative platform, and it's going to be one that I think will increase the capacity of its network of participating financial institutions,” said Ilias Skamenlos, Practice Manager for Finance, Competitiveness and Innovation in East Asia Pacific at the World Bank.
The program reflects the Bank’s broader commitment to financial resilience, inclusion and regional cooperation, while for the Pacific, it may be the difference between isolation and integration in a rapidly evolving global economy. This commitment was recently recognized with the project winning the 2025 World Bank President’s Award.
“We want to demonstrate that the Pacific is a safe place for investment and for banks to maintain relationships,” said Kirarock. “It’s an economic imperative.”
