The role of fiscal policy in resilience building : experiences of pacific island countries

Abstract

The Pacific Island Countries (PICs) are vulnerable to external shocks including natural disasters. Aside from their economic openness, narrow range of exports and dependency on strategic imports, several of them have faced adverse conditions during recent years such as fall in demand for primary commodities and services, including tourism. Furthermore, the challenges of increased globalisation have been testing their capacity to withstand the risks imposed by the vulnerable nature of their economies. However, there are also notable examples of successful small states, which have overcome these handicaps by nurturing economic resilience through sound macroeconomic management. Fiscal policy plays a critical role in ensuring macroeconomic stability. This chapter reviews recent trends in fiscal performance and investigates problem areas of fiscal adjustment.