Managing fiscal volatility in the Pacific

To undertake investments with a long-term horizon, countries need not only to have sufficient fiscal resources but also to ensure that such resources are stable and predictable. Shocks such as natural disasters constrain the capacity of Governments to allocate sufficient and predictable flows of funds to implement development priorities over the medium term. Other impediments include the structural features of economies: particularly, Pacific island developing countries are generally characterized by small population size and limited land area, remote geographic location and exposure to natural hazards, such as tropical cyclones, floods and droughts. The economies of the subregion are mostly open and highly dependent on the global economy, especially through remittances and aid flows, tourism, imports of basic foods and fuel, fishing license fees, employment and investment returns on trust funds and sovereign wealth funds.