FIS­CAL VOLATIL­ITY IN THE PA­CIFIC A CHAL­LENGE, UNITED NA­TIONS WARNS

Fiji Sun - - Business - SHELDON CHANEL

Fis­cal volatil­ity in de­vel­op­ing Pa­cific Is­land economies poses sub­stan­tial chal­lenges for plan­ning strate­gic pub­lic in­vest­ments, a survey by the re­gion’s United Na­tions devel­op­ment arm has found.

The UN Eco­nomic and So­cial Com­mis­sion for Asia and the Pa­cific’s (UNESCAP) 2018 eco­nomic and so­cial survey was launched at this year’s Pa­cific Up­date con­fer­ence in Suva.

Pub­lic in­vest­ment in sup­port of the UN 2030 sus­tain­able devel­op­ment agenda will be most af­fected, the survey warns.

The survey is pub­lished an­nu­ally cov­er­ing the broader Asia-Pa­cific re­gion, with a ded­i­ca­tion sec­tor look­ing at Pa­cific Is­land is­sues.

It rec­om­mends Pa­cific Is­land Coun­tries (PICs) con­sider poli­cies that can help re­duce fis­cal volatil­ity both from the rev­enue and ex­pen­di­ture sides.

It also of­fers strength­en­ing pub­lic fi­nan­cial man­age­ment and build­ing buf­fers and fis­cal frame­works, im­prov­ing do­mes­tic rev­enue flows, broad­en­ing eco­nomic bases and sov­er­eign wealth and na­tional trust funds as ways to man­age fis­cal volatil­ity.

The survey ex­plained the pres­ence of fis­cal volatil­ity in the re­gion with rea­sons like high Gov­ern­ment spend­ing per cap­i­tal rel­a­tive to Gross Do­mes­tic Prod­uct (GDP) due to ge­o­graphic iso­la­tion and dis­persed pop­u­la­tions.

An­other rea­son was the im­pact of nat­u­ral dis­as­ters like trop­i­cal cy­clone Win­ston that caused dam­ages worth over 30 per cent of Fiji’s GDP.

The survey warns nat­u­ral dis­as­ters will con­tinue to have a ‘sub­stan­tial im­pact’ on the fis­cal po­si­tion and eco­nomic devel­op­ment on PICs, es­pe­cially as spend­ing on re­con­struc­tion rises.

In April this year, UNESCAP warned that eco­nomic losses to nat­u­ral dis­as­ters in the Asia-Pa­cific re­gion could ex­ceed US$160 bil­lion (FJ$335.09 bn).

It rec­om­mends plac­ing greater im­por­tance on nat­u­ral dis­as­ter risk in­sur­ance schemes.

In this re­gard, “re­gional in­te­gra­tion has proven to be par­tic­u­larly use­ful, as small is­land de­vel­op­ing states are able to ben­e­fit from the economies of scale that they in­di­vid­u­ally do not have,” the survey says.

Th­ese fis­cal po­si­tions also be­come vul­ner­a­ble to large in­flows of for­eign aid that typ­i­cally fol­low nat­u­ral dis­as­ters, the survey says.

“A high depen­dence on for­eign aid is a source of fis­cal volatil­ity, given the un­pre­dictabil­ity of the flows and direc­tion of spend­ing,” the survey says.

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