The Foreign Minister, Alexander Downer, announced the funding at the launch of a new report on challenges and opportunities for economic growth in the region.
Mr Downer warns that without improvements in governance and economic development, Pacific nations will go down the path of the Solomon Islands.
He says high unemployment is threatening to turn young Pacific islanders into a "lost generation".
"Without growth, the future of the Pacific region is bleak. There's not been much growth in the Pacific for some time now. Young Pacific Islanders do have talent. They have enthusiasm and they have energy.
"They need and want jobs to acheive their dreams, to make good lives for themselves and the families they will have one day. And jobs will only come from economic growth," he said.