FISCAL VOLATILITY IN THE PACIFIC A CHALLENGE, UNITED NATIONS WARNS
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.