Asia And Pacific Small States Monitor August 2014

This issue of the Asia & Pacific Small States Monitor focuses on the challenges facing Asia and Pacific small states associated with natural disasters and climate change. Most tourism-oriented economies experienced a robust increase in arrivals, partly reflecting country-specific factors. Among commodity exporters (Bhutan, Solomon Islands, and Timor-Leste) and other Asia and Pacific small states, growth remains uneven: robust activity in Bhutan was driven mainly by hydropower-related construction activities; Solomon Islands experienced a continuing decline of logging stocks and a short-term disruption of gold production; and Timor-Leste’s ongoing depletion of oil reserves has led to a tighter budget constraint and lower government spending in the non-oil sector.

The work on the small states is an important component of the IMF’s global policy agenda. Among the 36 member countries covered by the IMF Asia and Pacific Department (APD), 13 countries are developing small states—most of which are Pacific islands. As part of APD’s ongoing effort to increase its engagement with regional small states and their development partners and enhance information sharing within the IMF, this issue marks the launch of the APD Small States Monitor, a quarterly bulletin featuring the latest economic developments, country notes from the most recent Article IV staff reports, special topics, past and upcoming events, and forthcoming IMF research on small states. In future issues, we will also host contributions from the authorities of small states and their development partners on key policy topics. Our goal is to exchange knowledge and deepen our understanding of the policy challenges these economies face to better tailor our policy advice.

The probability of a world-wide cyber conflict is small. Yet the probability of forms of cyber conflict, regional or even global, could be argued as being very high. Small countries are usually signatories to military and economic alliances with major world powers but rely heavily on the technical ability of these powers in protecting their own national interests. They may be considered to be IT ’technology colonies’. Their cyber infrastructure is usually fully imported and their ability to assess it is limited. This book poses the question: to what extent should, or can, a small country prepare itself for handling the broad range of cyber threats? Looking at cyber-warfare, cyber-terrorism, cyber-crime and associated concerns, national experts from New Zealand, Australia, The Netherlands, and Poland present analyses of cyber-defence realities, priorities and options for smaller countries. They show that what is needed is the ability of small nations to be able to define and prepare appropriate responses such as the role of military/law enforcement/business entities, continuity and resilience strategies, incident response and business continuity plans and more for handing nationally-aimed cyber-attacks particularly where these address national critical infrastructures.

This volume covers a wide spectrum of governance issues relating to small states in a global context. While different definitions of governance are given in the chapters, most authors associate governance with the setting and implementation of policies aimed at managing a country or territory, and with the related institutional structures and interventions by political actors. Generally, good governance is associated with concepts such as policy effectiveness, accountability, transparency, control of corruption, encouragement of citizens’ voice and gender equality—factors which are, in turn, linked with democracy. What emerges from the book is that the societies of small states are being re-shaped by various forces outside their control, including the globalization process and climate change, rendering their governance ever more complex. These problems are not solely faced by small states, but small country size tends to lead to a higher degree of exposure to external factors. The chapters are grouped into four sections broadly covering political, environmental, social and economic governance. Governance is influenced by many, often intertwined, factors; the division of the book into four parts therefore does not detract from the fact that governance is multifaceted, and such division was based on the primary focus of each particular study and its main disciplinary background. The expert authors have, moreover, used a variety of approaches in the studies, the subject of small states being well suited to scholarly work from different disciplines using qualitative, quantitative and mixed approaches to arrive at useful conclusions.

Pacific island countries face unique challenges to realizing their growth potential and raising living standards. This book discusses ongoing challenges facing Pacific island countries and policy options to address them. Regional cooperation and solutions tailored to their unique challenges, as well as further integration with the Asia and Pacific region will each play a role. With concerted efforts, Pacific island countries can boost potential growth, increase resilience, and improve the welfare of their citizens.

Reflecting diseconomies of scale in providing public goods and services, recurrent spending in small states typically represents a large share of GDP. For some small states, this limits the fiscal space available for growth-promoting capital spending. Small states generally face greater revenue volatility than other country groups, owing to their exposure to exogenous shocks (including natural disasters) and narrow production bases. With limited buffers, revenue volatility often results in procyclical fiscal policy as the econometric analysis shows. To strengthen fiscal frameworks, small states should seek to streamline and prioritize recurrent spending to create fiscal space for capital spending. The quality of spending could also be improved through public financial management reform and multiyear budgeting.

Seven years after the onset of the global financial crisis, the world still has a way to go to secure a sustainable recovery marked by strong growth that supports rapid job creation and benefits all, International Monetary Fund (IMF) Managing Director Christine Lagarde says in her foreword to the institution’s Annual Report 2014—From Stabilization to Sustainable Growth, published today. The recovery is ongoing, but it is still too slow and fragile, subject to the vagaries of financial sentiment. Millions of people are still looking for work. The level of uncertainty might be diminishing, but it is certainly not disappearing.” Ms. Lagarde said that “throughout the crisis and in the recovery period, the IMF has been, and continues to be, an indispensible agent of economic cooperation” for its membership. The report covers the work of the IMF’s Executive Board and contains financial statements for the year May 1, 2013, to April 30, 2014. It describes the IMF’s support for its 188 member countries, with an emphasis on the core areas of IMF responsibility: assessing their economic and financial policies, providing financing where needed, and building capacity in key areas of economic policy.

An analysis of 2014 budget outcomes and 2015 budget plans of Pacific developing member countries of the Asian Development Bank is the focus of this issue of the Pacific Economic Monitor. The policy briefs in this issue consider longer-run opportunities and challenges facing Pacific economies from changing external conditions.