By James Grubel

CANBERRA, March 31 (Reuters) - Pacific island countries risk falling further behind world economic growth rates unless they achieve political stability, an Australian government report warned on Monday.

Australian aid agency AUSAID forecast that Pacific island countries would see average economic growth of 4.5 percent in 2008, up from 2.8 percent over the past three years.

That was still lower than the 5 percent growth the world economy had achieved in recent years, and below growth rates in East Asia, South Asia, sub-Saharan Africa and the Caribbean.

"Regional projections for growth assume social and political stability," the report said. "Political instability would result in lower or negative growth."

It said the economies of Fiji and Tonga had suffered due to political unrest over the past year, while solid growth in the Solomon Islands was based on unsustainable logging, which could leave the country with no stock of natural logs by 2013.

Fiji's military commander, Frank Bainimarama, seized power in a coup in December 2006 but has promised to return Fiji to democracy in early 2009, although South Pacific foreign ministers are worried that deadline will be missed.

On the nearby island of Tonga, frustration over democratic reforms led to riots in November 2006 in which several people were killed and much of the central business district was destroyed in the capital, Nuku'alofa.

The AUSAID report said Fiji's economy shrank by 4.0 percent in 2007 following the coup, while Tonga's economy shrank by 3.5 percent, mostly due to a drop in tourist numbers. Most other Pacific countries recorded growth.

The South Pacific has some of the world's smallest and poorest countries, with economies reliant upon tourism, logging, royalties from fishing and foreign aid.

The report listed some successes. It found solid growth in Papua New Guinea, the largest Pacific country with about 6 million people, due to demand for its oil and mineral resources, as well as a pick-up in construction, communications and agriculture.

Palau, a tiny country of about 20,000 people, Vanuatu and Samoa and were all benefiting from increased tourist numbers.

East Timor, one of the world's poorest countries with about a million people, which only gained full independence from Indonesia in 2002, could reap more than $20 billion in oil and gas revenue over the next two decades, the report said.

It noted that the country already had $1.8 billion in a special petroleum fund to pay for future government spending. (Editing by Alan Raybould)

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