Resilience and Growth in the Small States of the Pacific
Back Matter

Back Matter

Author(s):
Hoe Ee Khor, Roger Kronenberg, and Patrizia Tumbarello
Published Date:
August 2016
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    Index

    Page numbers followed by b, f, or t refer to boxes, figures, or tables, respectively.

    A

    • Agricultural sector

      • characteristics of small states, 171–172t, 172, 172f, 178t, 182–184t

      • export base, 293

      • global arable land, 173f

      • interregional trade, 292

      • land rights, 12

      • production among PICs, 7–8

      • regional integration to promote growth of, 289

      • scope for import substitution, 169–174

      • tourism and, 305–306, 307

      • trade competitiveness, 307

    • Asia

      • bank capital requirements, 341–342

      • economic linkages with PICs, 105

      • growth patterns and trends, vii, 3, 33, 98

      • income per capita, 33

      • lending rates, 334

      • regional trade integration with, 289–290

      • regional vulnerability, 177, 179f

      • risk of spillovers to PICs, 97, 105–109

      • tourism trade with PICs, 62b, 303–306, 307

      • trade with PICs, 61, 66, 293, 306–307

    • Asia-Pacific Economic Cooperation, 61, 293

    • Australia

      • economic linkages with PICs, 6, 97

      • foreign aid to PICs, 23, 139

      • inflation pass-through of exchange rate, 155, 156, 159f

      • lending rates, 334

      • loan yields, 336

      • regional trade agreements, 12

      • remittances to PICs, 104, 104f, 137–138

      • risk of spillovers to PICs, 97, 103–104, 105–109

      • tourism trade with PICs, 62b, 104, 138, 299

      • trade and trade agreements, 59–61, 66, 104, 135, 290–292, 298–299

      • vulnerability to external shocks, 116–117

    B

    • Banking sector

      • asymmetric information in credit market, 268–269, 270–271

      • bank operating costs, 318–320, 319f, 320f, 324

      • capital adequacy, 111, 116f, 341–344, 341f, 342f, 343t, 346

      • concentration and competition in, x, 240, 266–268, 270, 321–322, 325, 347

      • credit risk, 332–333, 340, 349t

      • external shocks, 114–119

      • foreign ownership, 111

      • interest rate spreads, 317–322, 319–322f, 325–326

      • leverage ratios, 343–344, 343t

      • loan quality, 112–113

      • loan-to-deposit ratios, 112, 116f, 117f

      • loan yields, 336, 336f

      • profitability, 338–341, 339t, 340t, 344, 349–350t, 353–355t

      • ratio of provision expense to loans, 117–119, 117f, 120f

      • regional integration, 111

      • reserves, 261–262

      • response to shocks, 327–328, 327f, 328f

      • risk aversion, 320–321, 321f, 324–325, 344

      • risk-based capital, 342–343, 342f, 343t

      • supervision, 346, 347

      • total assets, 114f

      • transparency, 346–347

      • See also Excess liquidity in commercial banks

    • Basel II, 111, 341

    • Becker index, 26–27

    • Beta-convergence model, 50–53

    • Broad-money-to-GDP ratio, 239, 240f, 244

    • Business environment, vii, 5, 10, 21, 22f, 37, 207, 345

    C

    • Catastrophe Containment and Relief Trust, 86

    • China, viii

      • economic linkages with PICs, 105, 107f

      • tourism from, 303–305, 304f, 305f

      • trade with PICs, 61, 135

    • Climate change

      • economic performance and, viii

      • international assistance for coping with, 85, 89–93t

      • sea level rise, 74–75

      • vulnerability of PICs to, 6–7, 33b, 74–75, 174, 365

    • Commodity price shocks

      • capacity of exchange rate policy to absorb, 249–252, 251f

      • econometric modeling of effects of, 124–129

      • effectiveness of exchange rate pass-through, 254–258

      • inflation, 252, 253f

      • inflation pass-through of, 151–154, 156, 157–158f

      • monetary policy challenges, 249

      • transmission of, 102, 252–254

      • vulnerability of PICs, 23, 97–98, 100–101, 109, 110–111b, 143, 151, 359

      • See also External shocks

    • Compact of Free Association with the United States, 11, 23–24, 213, 290

    • Competitiveness of PICs

      • determinants of, 57–64

      • policies to enhance, 64–66, 67

    • Consumer protection, 345, 347

    • Containerized shipping, 61–63, 63f

    • Cook Islands, 133–134b, 135, 138, 143, 146

    • Cotonou Agreement, 59, 292, 300

    • Credit access

      • central bank long-term objectives, 345–346

      • global economic performance and, 115–116

      • growth inequality and, 20

      • income inequality and, 315, 316f

      • inflation and, 154

      • patterns and trends, 18, 21f, 116, 119f

    • Current account, 27f

      • Fiji’s, 361t

      • foreign direct investment and, 122f

      • Kiribati’s, 367t

      • Marshall Islands’, 372t

      • Micronesia’s, 377–378t

      • Palau’s, 385t

      • Papua New Guinea’s, 391t

      • patterns and trends, 57–58, 60f, 122f, 230, 231f

      • Samoa’s, 396t

      • Solomon Islands’, 403t

      • Timor-Leste’s, 406, 409t

      • Tonga’s, 415t

      • Tuvalu’s, 421t

      • Vanuatu’s, 426–427t

      • volatility, 28, 30f

    • Cyclone Pam, 62b, 72, 74, 84, 110b, 418, 423, 424

    • Cyclone Winston, 74, 358

    D

    • Demographics

      • characteristics of Pacific island countries, 6, 16–17, 16f

      • economic performance related to, ix, 3, 6, 15, 48, 164, 166f

      • human resources for public financial management, 275

      • international comparison of small states, 164, 182–184t

      • population dispersion and, 195, 197f

      • population size, 16f, 17, 48, 52, 163–164, 165f, 169f

      • public spending and, 18, 19f, 195, 197f

      • vulnerabilities of small states, 177, 178t

    • Derisking, 394–395

    • Dutch disease, 55, 58–60

    E

    • Eastern Caribbean Currency Union

      • growth patterns and trends, vii, 3, 33, 98

      • growth volatility, 47

      • income per capita, 33

    • Economic Freedom, 323, 323f, 326

    • Economic Partnership Agreement (EU-PIC), 292–293, 300

    • Economies of scale, 6, 11–12, 37, 48, 65, 163, 164–167, 168t

    • Education

      • economic growth and, 35, 36t

      • public investment to promote growth and

      • resilience, 37

      • public spending, 198f

      • school enrollment, 22, 23f

    • Electricity generation, 192f

    • Energy sector

      • electricity generation per capita, 192f

      • fuel imports, 23, 100, 109, 131, 174, 297f, 298, 358, 369, 376, 382, 400, 424

      • fuel prices, ix, 45–46, 57, 58b, 61, 64f, 65, 91t, 102, 109–111b, 124, 131, 133–134b, 143, 145, 147, 151, 229–237, 250–255, 376, 383

      • See also Oil and gas prices; Oil and gas resources

    • Environmental tax, 87

    • Equatorial Guinea, 52

    • Estonia, 177

    • Euro area

      • income per capita, 169

      • relationship banking in, 269

      • risk of growth spillovers from, 109, 112f, 116–117

      • trade with PICs, 135, 292–293

    • Excess liquidity in commercial banks

      • measuring, 262

      • monetary policy concerns, 262–264

      • patterns and trends, 262, 263t, 342

      • transmission of monetary policy, 264–266, 269–271

    • Exchange rate policy

      • dollarization, 11, 22, 57, 151–152

      • effectiveness of transmission to control inflation, ix, 254–258

      • fiscal space for responding to external shocks and, 120

      • flexibility, 11, 64–65, 141–143, 257–258

      • future challenges, 65

      • growth and, 5, 64–65

      • impact of commodity price shocks and, 143, 249

      • inflation targeting, 250–252, 251f

      • macroeconomic policy coordination to promote growth and stabilization, 242, 244–245, 249

      • monetary policy and, to manage inflation, ix, 11, 65

      • productivity and, 65

      • to promote investment and trade openness, 67

      • response to global financial crisis, 141

      • role in mitigating impact of economic shocks, ix, 141–145, 229

      • vulnerability to external shocks, 102–103, 332

    • Exchange rates

      • in countries with and without central banks, 57, 59f

      • credit demand during global economic crisis and, 237–238

      • foreign reserves and, 57

      • inflation correlation, 151–154, 153f, 155f, 156, 159f

      • patterns and trends, 57, 142f, 238f

      • tourism exports and, 62b

      • See also Exchange rate policy

    • Exclusive economic zones, 6, 7f, 8

    • External shocks

      • capacity of monetary policy to respond to, 146

      • channels of transmission, 101–103, 103f, 109

      • classification of countries by vulnerability-resilience framework, 40, 41f

      • fiscal space for responding to, 119–120

      • global and regional economic integration, 97

      • impact on credit access, 115–116

      • outcomes in Pacific microstates, 133–134b

      • in period 2007–11, effects of, 132, 135–139

      • policies to promote resilience to, 42–43, 98, 120–121

      • regional and global economic linkages, 103–105

      • resilience of PICs, 39–40

      • resource allocation policies to withstand, 147–148

      • risk of growth spillovers from neighboring economies, 105–109, 112f

      • significance of monetary policy in mitigating, 229, 231

      • sources of, 97, 131

      • spillovers to financial sector, 111–119

      • vulnerability of PICs, 23–24, 25–27, 26f, 39, 40–41, 97, 100–101, 131

      • vulnerability of small states, 189

      • vulnerability-resilience index scores of PICs, 42

      • See also Commodity price shocks; Global

      • economic crisis and recession (2007–11)

    F

    • Fiji

      • agricultural sector, 7–8, 12

      • balance of payments, 361–362t

      • business climate, 358, 362t

      • Cyclone Winston, 74, 358

        • development aid to, 358

        • economic profile, 358–359, 359–362t

        • effectiveness of monetary pass-through, 232–233

        • exchange rate, 359

        • external shocks, 57

        • financial sector, 358, 362t

        • fiscal policy, 358

        • foreign currency reserves, 140

        • geography and demography, 357

        • global economic linkages, 97

        • growth challenges, 359

        • growth patterns and trends, 46, 132, 358, 359, 359t

        • land rights, 12

        • loan-to-deposit ratios, 262

        • natural disasters, 132, 358–359

        • natural resources, 7

        • political and social stability, 9, 357

        • public debt, 361t

        • public finances, 360–361t

        • public financial management, 22

        • remittances to, 137

        • tourism exports, 61, 62b, 138, 305, 305f

        • trade, 58, 60, 135, 290–291, 300, 358

        • vulnerabilities, 124–125, 156, 359

        • See also Pacific Island countries (PICs)

      • Financial intermediation, 20, 146, 266, 268, 269

      • Financial sector

        • central bank long-term objectives, 345–346

        • constraints to growth, 5

        • constraints to monetary policy transmission, 239–241, 244

        • consumer protection, 345, 347

        • effects of global financial crisis, 138–139

        • market infrastructure, 244

        • regional integration, 111

        • risk management, 240–241

        • vulnerability to external shocks, 111–119

        • See also Banking sector

      • Fiscal anchors, 205–206, 207

      • Fiscal balances, 239f

        • assessment challenges, 189

        • challenges for public financial management, 279–281

        • effects of global economic crisis, 146

        • growth and, 243–244, 243f

        • inflation and, 243–244, 243f

        • in small states, 204f

        • underlying fiscal balance and, 205f

      • Fiscal buffers

        • current balances, 121f

        • domestic revenue mobilization to build, 207

        • growth benefits, 15, 192–193

        • natural disaster risk management, 82

        • opportunity costs of building, 84, 195–196b

        • progress toward building, 15, 34, 83

        • strategies for building, 37

        • to strengthen resilience to shocks, 84, 120–121, 203–206

        • trade-off between investment spending and

        • building, viii, ix

      • Fiscal multipliers, 214, 218–219, 220f

      • Fiscal policies

        • challenges for small states, 189

        • designs for promoting growth and stability, 10, 213, 245

        • goals for small states, 189–190, 190b

        • growth impact of consolidation, 220–221, 223f

        • macroeconomic policy coordination, 242–245, 249

        • model of impact on GDP, 213–216, 224–226

        • monetary policy coordination, 229

        • procyclical bias, 32f, 103f, 202–204

        • rationale for strengthening, 206

        • reform options, 206–208

        • responses to global economic crisis, 238

        • revenue volatility and, 28–29

      • Fisheries

        • current state of, in PICs, 296–297b

        • management challenges, 8

        • regional cooperation, 12, 38

        • regional integration to promote growth of, 289

      • Fishing license fees, 28–29, 38, 201, 293, 296b, 376

      • Food prices and expenditures, ix, 57, 102, 131, 143, 144f, 145, 154, 156, 157f, 250, 250f. See also Commodity price shocks

      • Forecasting and Policy Analysis System, 254–257

      • Foreign aid and development assistance

        • effects of global economic crisis, 139

        • growth and, 5, 55, 64

        • natural disaster risk management, 84–85, 89–93t

        • patterns and trends, 25f, 104, 104f

        • sources, 97, 104, 106f

        • volatility, 28, 30f

        • vulnerability of PICs to cuts in, 23–24, 33b, 102

      • Foreign direct investment

        • current account and, 122f

        • sources of, 104, 105f, 107f

        • tourism-related, 101

      • Foreign exchange reserves, 140, 141f, 145–146

      • Foreign exchange transactions, 338, 339–340

      • Foreign investment

        • governance to promote, 42

        • obstacles to, 21

      • Foreign reserves

        • exchange rate appreciation and, 57

        • goals of monetary policy in PICs, 230

      • Fragile states, ix, 33b, 139, 189, 200–202f

    G

    • Geographical and physical features of PICs, 6, 7f, 17, 17f

      • comparison of small state characteristics, 182–184t

      • economic performance related to, vii, viii, ix, 3, 6, 36, 36t, 45, 48–50, 53, 163, 166

      • policy strategies to overcome challenges of, 65–67

      • public spending and, 18, 19f, 192f

      • remoteness, 6, 16f, 17f, 36, 48, 49, 52, 53, 63–64, 65–66, 163, 174–176, 181

      • vulnerability comparison among small states, 176–180, 178t, 181

    • Global economic crisis and recession (2007–11)

      • banking sector outcomes, 344

      • bank lending activity and, 269–270

      • central bank responses in PICs, 344–345

      • effects in Pacific microstates, 133–134b

      • effects on sovereign wealth funds, 118t

      • exchange rate adjustment as buffer during, 140–145, 237–238, 238f

      • fiscal balances during, 239f

      • fiscal policy responses, 238

      • foreign aid during, 139

      • foreign currency reserves as buffer during, 140

      • impact on trade, 135, 136t

      • impediments to recovery from, viii

      • inflation outcomes, 146, 231–232, 232f

      • monetary policy response, ix, 145–146, 229, 231–232, 235, 238–239, 249

      • outcomes among PICs, viii–ix, 132, 133f, 135–139

      • recovery among PICs, vii, 3, 45, 98–100, 99f

    • Gold, 7, 99, 132, 358, 359–360t, 361t

    • Governance

      • Economic freedom and interest rate spreads, 323, 323f, 326

      • growth volatility and, 28, 29f

      • mismatch between policy objectives and budget allocations, 281–282

      • to promote and sustain growth, viii, 42

      • for public financial management planning and implementation, 277

      • reforms to promote growth and resilience, 37

    • Government sector employment, 214, 215, 218–219

    • Greenland, 164, 167, 169

    • Growth-initial level model, 50–54

    • Growth in PICs

      • beta-convergence modeling, 50–53

      • case studies of fiscal adjustment and, 216–219

      • causes of slowdown, 56–64

      • challenges, x, 15, 45, 359, 365, 370, 376, 394, 401, 407, 413, 418–419, 425

      • commodity price shocks and, 97–98

      • compared to peer groups, 46–47, 47f, 48f

      • correlation with growth in neighboring economies, 105–106, 108f

      • determinants of, vii, viii–ix, 3–5, 6–9, 34–36, 35t, 36t, 48–50, 53–56, 54t, 56f

      • econometric analysis, 34–36, 124–129

      • export elasticity and, 299

      • fiscal balances and, 243–244, 243f

      • future challenges and opportunities, vii, 15, 64–67

      • global shocks during 2007–11, 45, 98–100, 99f, 132, 133f, 134t

      • impact of geographic and physical characteristics, 181

      • impact of natural disasters, 76–77, 76f, 78, 79, 79f, 80f, 81–82, 81f, 82f, 82t, 83f

      • income inequality and, 20, 22f

      • income per capita and, 179–180

      • interest rate spreads and, 322–323, 326

      • international comparison, vii, 3, 4f, 33

      • investment and, 54, 56–57

      • linkage between government sector and, 213–216

      • linkage to growth in advanced economies, 50

      • opportunities for expanding tourism and, 303–306

      • patterns and trends, vii, 3, 4f, 15, 33–34, 46, 47, 98–101, 98f

      • public debt and, 243–244, 243f

      • public spending and, 192–195, 193f

      • risk of spillovers from global shocks, 109, 112f, 113f

      • risk of spillovers from neighboring economies, 105–109

      • sources of, 358, 360t, 363, 365–366t, 369–370, 371t, 375–376, 377t, 382, 383–384t, 387, 389–390t, 393–394, 395, 395t, 399–400, 401–402t, 405–406, 407–408t, 412, 413–414t, 417–418, 419–420t, 424, 425–426t

      • structural impediments to, x

      • trade, 294f

      • trade openness and, 35, 49–50

      • volatility, 28, 28f, 29f, 30f, 35, 36t, 47, 51–52, 64

      • See also Policies to promote growth and resilience

    H

    • Health sector spending, 37, 198f, 199f

    • Herfindahl-Hirschman index, 321–322, 322f

    I

    • Income inequality

      • access to credit and, 20, 315, 316f

      • growth and, 20, 22f

    • Income per capita, 160t

      • banks’ overhead costs and, 326f

      • determinants of growth, 209, 209t

      • economic growth and, 36, 36t, 179–180

      • during episodes of public spending expansion, 194f

      • Fiji’s, 358

      • international comparison, 33, 34f, 169, 170f, 182–184t

      • patterns and trends, 3, 33, 34f

      • resilience and, 42

      • vulnerability of small states, 177, 178t

      • vulnerability to external shocks and, 26–27

    • Inflation

      • commodity price shocks and, 252–254, 253f, 156, 250, 251f

      • drivers of, 151, 154, 161t

      • effectiveness of exchange rate pass-through, 254–258

      • exchange rate and, 153f, 155f, 156, 250–252, 251f

      • fiscal balances and, 243–244, 243f

      • during global economic crisis, 146, 231–232, 232f

      • interest rate spreads and, 322, 326

      • modeling pass-through effects, 151–155

      • patterns and trends, 123f, 134f, 151, 152f, 160t, 232f, 250f

      • persistence of, 154

      • volatility, 151, 152f

    • Infrastructure spending

      • challenges for small and isolated countries, 166, 189, 191

      • natural disaster risk management, 84

      • natural resource revenue for, 10–11

      • to promote growth and resilience, 37

    • Initial income as growth factor, 53–54

    • Institutional capacity

      • constraints to growth, vii, 5, 6, 37

      • natural disaster risk management, 86–87

      • for public financial management reform, 275, 276, 285–287

      • See also Governance; Public financial management

    • Insurance, natural disaster, 84

    • Interbank lending, 146, 239

    • Interest rate pass-through

      • in advanced economies, 265

      • asymmetric information in credit market and, 268–269

      • bank competition and, 266–268

      • liquidity injections and, 265

      • modeling, 246

      • monetary transmission effectiveness and, ix–x, 11, 232–239, 233f, 234f, 244, 261, 270–271

      • obstacles to, 266

    • Interest rates

      • bank capital requirements and, 341–344

      • bank risk aversion and, 320–321, 321f

      • central bank long-term objectives, 345–346

      • deposit-lending rate spread patterns in PICs, 316f, 335, 335f

      • determinants, 331–333

      • impulse response to shocks in bank sector and, 3f, 327, 327f

      • international comparison, 333–337, 334f

      • policy, interest rate spreads and, 322, 326

      • response to global financial crisis, 146, 229, 232, 235

      • significance of deposit-lending rate spreads, 315–317

      • See also Interest rate pass-through; Interest rate spreads in Solomon Islands

    • Interest rate spreads in Solomon Islands

      • bank sector-specific characteristics, 321–322, 325, 327–328, 317–322, 319–322f, 324–325, 325t, 326t

      • data sources, 315

      • Economic Freedom and, 323, 323f, 326

      • governance and legal system factors, 323, 323f, 325t, 326

      • macroeconomic variables, 322–323, 325t, 326

      • policy interventions, 328

      • patterns, 315–317, 317f

      • significance of, 315–317

    • International Monetary Fund

      • response to global economic crisis, 140

      • role in natural disaster risk management and recovery, 85–87

      • role in strengthening fiscal frameworks, 208

    • Investment

      • growth and, 54, 56–57

      • policy challenges for PICs, 66

    J

    • Jamaica, 190b

    • Japan, 84, 105, 135, 139

    K

    • Kiribati

      • balance of payments, 367t

      • business environment, 364, 368t

      • challenges to growth, 365

      • debt financing, 217, 219

      • development aid, 364

      • economic profile, 363–365, 365–368t

      • effects of global economic crisis, 133–134b, 138–139, 146

      • energy consumption, 143

      • financial sector, 364, 367t

      • geographic characteristics, 6, 363

      • governance, 363

      • government spending, 216, 217f

      • growth impact of fiscal consolidation, 220–221, 223f

      • growth patterns, 363

      • modeling public wage and spending shocks and growth, 216–219, 220f, 221f

      • monetary policy, 364–365

      • natural disasters, 132

      • possible evacuation of, 6–7

      • public debt, 366t

      • public finances, 364, 366t

      • revenue, 216–217, 364

      • seafarer employment, 295–296b

      • sources of growth, 363, 365–366t

      • trade, 135, 364

      • vulnerabilities, ix, 85, 125–126, 143, 365

      • See also Pacific Island countries

    L

    • Labor market

      • interregional migration, 292, 292b

      • regional cooperation, 38

      • regional trade rationale, 289

      • size of, economic performance and, 164

      • trade in labor services, 66, 306–307

    • Land banks, 12

    • Land tenure, 6, 12, 18, 412

    • Latin America and Caribbean, 177, 179f, 341–342

    • Lending interest rates

      • asymmetric information in credit market, 268–269, 270–271

      • banking sector competitiveness and, 270

      • borrowing interest rates and, 146

      • deposit-lending rate spreads, 4, 316f, 315–317

      • effectiveness of monetary policy transmission, 234–235, 235f

      • elasticity of demand, 267

      • international comparison, 333, 334, 334f

      • patterns and trends, 236f, 237f, 333–334, 334f

      • response to global financial crisis, 229

      • switching costs, 267–268

    • Loan-to-deposit ratios, 112, 116f, 117f, 235, 237f, 262

    • Lomé Conventions, 59, 292, 300

    • Low-income countries

      • banking sector characteristics, 111, 115f

      • debt sustainability, 26

      • government spending, 191

      • growth patterns and trends, 3, 46, 47f, 48f, 98, 100

      • natural disaster assistance, 86

      • natural resources management in, 7, 10

      • recovery from global financial crisis, 45

      • shock frequency, 26f

      • trade patterns, 135, 136f

    M

    • Macao, 164–166

    • Macroeconomic policies

      • constraints on effectiveness of monetary policy transmission, 239–242

      • constraints to growth, 5

      • coordination to promote growth and stabilization, 242–245, 249

      • interest rate spreads and, 322–323

      • to mitigate risk from natural disasters, viii

      • to promote growth, vii, 65

      • to promote investment and trade openness, 67

      • to promote trade competitiveness in small states, 64–65

    • Marshall Islands

      • balance of payments, 372–373t

      • business climate, 370, 373t

      • challenges to growth, 370

      • development aid to, 11, 370

      • economic profile, 369–370, 371–373t

      • effects of global economic crisis, 133–134b, 138–139

      • financial sector, 370, 373t

      • geography and demography, 369

      • governance, 369

      • government finances, 370, 371–372t

      • growth patterns, 33

      • labor market, 369–370

      • public debt, 146, 372t

      • revenue, 371t

      • sources of growth, 369–370, 371t

      • trade, 135, 369

      • vulnerabilities, ix, 126, 143, 370

      • See also Pacific Island countries

      • Mauritius, 190b

    • Melanesian Spearhead Group, 290, 300

    • Micronesia

      • balance of payments, 377–378t

      • business climate, 378–379t

      • challenges to growth, 376

      • development aid to, 11, 376

      • economic profile, 375–376, 377–379t

      • effects of global economic crisis, 138–139

      • financial sector, 376, 378t

      • geographic characteristics, 6, 375

      • governance, 375

      • government finance, 376, 377t

      • growth patterns, 33

      • public debt, 377t

      • remittances to, 376

      • sources of growth, 375–376, 377t

      • trade, 135, 375

      • vulnerabilities, ix, 126, 376

      • See also Pacific Island countries

    • Microstates, 165f

      • demographic features, 164

      • outcomes of external shocks in, 133–134b, 135

    • Mobile banking, 20

    • Monetary policy

      • capacity to respond to external shocks, 146

      • central bank long-term objectives, 345–346

      • challenges for PICs to increase effectiveness of, 11, 261

      • constraints on transmission, 239–240, 241b

      • to contain import demand, 230

      • current frameworks in PICs, 230–231, 230t

      • effectiveness of transmission, ix–x, 11, 22, 229, 231, 232–239, 244, 249, 252–254, 261

      • excess liquidity and, 262–264, 269–271

      • exchange rate adjustment and, to manage inflation, ix, 11, 258

      • fiscal policy coordination, 229

      • macroeconomic policy coordination to promote growth and stabilization, 242–245, 249

      • money targets, 232

      • response to global financial crisis, ix, 145–146, 229, 231–232, 238–239, 249

      • role of excess liquidity in transmission of, 264–266

      • significance of, in maintaining macroeconomic stability, 229, 231

      • strategies for improving transmission, 240–242, 270–271

    N

    • Natural disasters

      • economic impact, 25f, 58b, 72–74, 75f, 76t, 77f, 78, 99, 132

      • effects on revenue, 200, 210–212, 212f

      • enhancing risk management to increase resilience, 82–85, 83f

      • foreign aid and assistance, 84–87, 89–93t

      • frequency, 71, 72f

      • growth outcomes, 76–77, 76f, 78, 79, 79f, 80f, 81–82, 81f, 82f, 82t, 83f

      • impact assessments, 71

      • insurance, 84

      • modeling macro-fiscal impact of, 77–82

      • multipillar framework to handle the effects of, 71, 82, 83f, outcomes by type of event, 77

      • probability, 72, 73f

      • reconstruction, 84

      • scope of threats, 6, 24

      • strategies for reducing risk, viii, 71

      • vulnerability of PICs, vii, viii, 3, 6–7, 41, 71–74, 174

    • Natural-resource-rich countries

      • fiscal policy design, 10

      • growth performance, 3

      • policy challenges, 7

      • recommendations for growth-enhancing policies, 5, 7, 10–11

      • recovery from global financial crisis, 45, 98–99

      • revenue investment, 10

      • tax policy, 5

      • tax revenue volatility, 201

      • trade patterns, 61, 293

    • Nauru

      • climate change planning, 87

      • effects of global economic crisis, 133–134b

      • energy consumption, 143

      • public debt, 146

      • vulnerability to commodity price shocks, 143

    • Nauru Agreement, 8, 12, 38, 208, 296b

    • New Zealand

      • economic linkages with PICs, 6, 97

      • loan yields, 336

      • remittances to PICs, 104, 104f

      • risk of spillovers to PICs, 103–104, 105–109

      • tourism trade with PICs, 62b, 104, 299

      • trade and trade agreements, 12, 59–61, 66, 104, 290–292, 298–299

    • Niue, 133–134b

    • Nonbank institutions, x, 37, 328, 347, 388, 400

    O

    • Oceanscape Program, 296–297b

    • Oil and gas prices, ix, 57, 97–98, 102, 109, 110–111b, 112f, 113f, 131, 143, 144f, 154, 156, 158f, 250, 250f. See also Commodity price shocks

    • Oil and gas resources, 7, 387, 405

    • Organisation for Economic Co-operation and Development, 104, 105f

    • Outcome budgeting, 276

    • Output gap, 152–153, 154, 156, 203f, 205–206, 255, 256

    • Output volatility, 55

    P

    • Pacific Agreement on Closer Economic Relations Plus, 12, 60–61, 66, 291–292

    • Pacific Catastrophe Risk Insurance Pilot, 84

    • Pacific Financial Technical Assistance Centre, 87, 278b

    • Pacific Forum Line, 65

    • Pacific Island countries (PICs)

      • bank income patterns, 336–338, 337t, 338t

      • banking sector characteristics, 18–21, 318t, 331, 332t, 348–355t

      • bank profitability, 338–341, 339t, 340t

      • business environment, 21, 22f

      • central bank responses to global crisis, 344–345

      • commercial bank liquidity, 262, 263t

      • current account trends, 122f, 230, 231f

      • demographics, 6, 16f, 17

      • dependence on foreign aid, 5, 23–24, 102, 139

      • deposit-lending rate spread patterns, 316f

      • effectiveness of monetary pass-through, 232–239, 233f, 234f

      • exchange rate patterns and policies, 11, 57, 140, 141t, 142f, 151–152, 238f

      • export base, 18, 20t, 293–298

      • fiscal balances, 121f

      • fisheries of, 296–297b

      • foreign currency reserves, 140, 141f

      • government spending, 18, 18f, 19f

      • import composition, 153f, 298

      • income. See Income per capita in small Pacific Islands

      • inflation trends, 123f, 134f, 160t, 232f

      • international comparison of interest rates, 333–336, 334f

      • loan yields, 336, 336f

      • monetary policy frameworks of, 230–231, 230t

      • natural resource endowments, 7–8

      • per capita GDP, 160t

      • perception of country risk, 332, 333t

      • political and social stability, 9, 55

      • potential for economies of scale, 164–167

      • public debt, 120f, 122f

      • public spending, 214f

      • remittances to, 292b, 293

      • reserves, 123f

      • resilience rankings, 42

      • scope for agriculture, 172

      • scope for countercyclical policies, 10, 26

      • sovereign wealth funds, 113, 118t

      • special challenges, 33b, 66

      • tourist trade, 298–299, 298f

      • vulnerability rankings, 176–177, 178t

      • vulnerability-resilience index scores, 42

      • See also Geographical and physical features of PICs; Growth in PICs; specific country

    • Pacific Island Countries Trade Agreement, 12, 290

    • Pacific Islands Forum Fisheries Agency, 12

    • Pacific Islands Telecommunications Association, 65

    • Palau

      • balance of payments, 385t

      • business climate, 382, 385t

      • challenges to growth, 383

      • debt financing, 217, 219

      • development aid to, 11, 382

      • economic profile, 382, 383–385t

      • effects of global economic crisis, 133–134b, 138–139

      • exchange rate, 385t

      • financial sector, 382, 385t

      • geography and demography, 216, 381

      • governance, 381–382

      • government spending, 216, 217f, 382, 384t

      • growth impact of fiscal consolidation, 220–221, 223f

      • modeling public wage and spending shocks and growth, 216–219, 220f, 221f

      • monetary policy, 383

      • public debt, 384t

      • revenue, 216–217, 382, 384t

      • sources of growth, 382, 383–384t

      • tourism exports, 61, 62b, 138

      • trade, 58, 135

      • vulnerabilities, ix, 127, 383

      • See also Pacific Island countries

    • Papua New Guinea

      • balance of payments, 391t

      • banking sector, 112

      • business climate, 388, 391–392t

      • challenges to growth, 389

      • development aid to, 388

      • economic profile, 387–389, 389–392t

      • effects of global economic crisis, 146

      • exchange rate, 389

      • external shocks of 2000s, 57

      • financial sector, 388, 391t

      • geographic and demographic characteristics, 6, 387

      • governance, 387

      • government finance, 388, 390t

      • growth patterns and trends, 46, 132

      • inflation pass-through of U.S. exchange rate, 155, 155f

      • loan-to-deposit ratios, 262

      • monetary policy, 262–263, 388

      • natural resources, 7, 10, 135, 387, 388

      • recommendations for growth-enhancing policies, 5

      • recovery from global financial crisis, 45

      • sources of growth, 387, 389–390t

      • trade, 61, 292–293

      • vulnerabilities, 127, 156, 389

      • See also Pacific Island countries (PICs)

    • PICs. See Pacific Island countries

    • Policies to promote growth and resilience

      • central bank long-term objectives, 345–346

      • challenges for Pacific Island countries, vii, ix, 5, 66

      • effects of aid-supported strong exchange rates, 64

      • financial sector development, 346–347

      • fiscal policies, 10, 213

      • implementation, 5

      • macro-fiscal reforms, 206–208

      • opportunities for PICs, 15

      • recommendations for, 37–38, 66–67

      • scope of, vii, 5–6, 10

      • strategies to enhance competitiveness, 64–66

      • structural reform implementation, x

      • Property laws, 6, 12, 18, 323

    • Provident funds, 113, 118t, 138–139, 240, 241b

    • Prudential regulation, 347

    • Public debt

      • during episodes of public spending expansion, 194f

      • Fiji’s, 361t

      • global economic crisis and, 146

      • growth and, 5, 35, 36t, 192–193, 243–244, 243f

      • inflation and, 243–244, 243f

      • Kiribati’s, 366t

      • Marshall Islands’, 372t

      • Micronesia’s, 377t

      • Palau’s, 384t

      • Papua New Guinea’s, 390t

      • patterns and trends, 26, 27f, 120f, 122f, 147f, 147t, 204f

      • Samoa’s, 394, 396t

      • Solomon Islands’, 403t

      • Timor-Leste’s, 408t

      • Tonga’s, 415t

      • Tuvalu’s, 420t

      • Vanuatu’s, 424, 426t

    • Public Expenditure and Financial Accountability framework, 275, 276–277, 278b

    • Public financial management

      • assessing capacity for reform, 285–287

      • challenges to effectiveness, 278, 279f

      • constraints to reform, 275, 278, 279b, 287

      • identifying challenges and priorities for reform, 278–285

      • natural disaster risk management, 86–87

      • outcome budgeting, 276

      • political context, 277

      • rationale, 287

      • recommendations for reform, 275–276

      • reforms to promote growth and resilience, 37

      • road map development, 276–278

      • time frame for reform implementation, 277

    • Public spending

      • case studies, 218–219

      • challenges for public financial management, 279–281

      • challenges for small states, 166, 189, 190–191

      • comparison among PICs, 18f

      • current patterns, 191, 191f

      • demographic and geographic factors in, 18, 18f, 19f

      • efficiency, 195, 197f

      • geographic dispersion and, 192f

      • growth and, 35, 36t, 192–195, 193f

      • investment of natural resource revenues, 10–11

      • modeling government sector linkages to growth, 213–216

      • patterns and trends, 214f

      • population size and, 191f

      • procyclicality, 211t, 212

      • quality of, 284–285

      • reallocation of budgeted resources, 282–284

      • recommendations for capital investment, 206–207

      • reform recommendations, 206

      • restrictions on, from multilateral agreements, 33

      • strategies for promoting growth, viii, 37

      • trade-off between building fiscal buffers and, viii, ix

      • transparency in, 285

      • See also Public financial management

    R

    • Rapid Credit Facility, 86

    • Regional cooperation

      • to achieve economies of scale, 6, 11–12, 37–38, 48, 65, 167

      • to build resilience, 43

      • current efforts, 12

      • harmonization of banking regulation, 347

      • to increase revenue mobilization, 207–208

      • natural disaster risk management, 84

      • opportunities for enlarging, 12

      • potential obstacles to, 167

      • risk of spillover effects, 97

      • sectors of common interest, 38

      • trade agreements, 59–61, 290–293, 291f, 300

      • See also Trade integration

    • Regulation, financial sector

      • banking sector supervision, x, 346, 347

      • capital adequacy, 341–344, 341f, 342f, 343t

      • capital requirements, 341–344, 341f, 346

      • future challenges, 346

      • regional harmonization, x, 347

      • strategies for improving monetary policy transmission, 244

    • Remittances

      • countries of origin, 104, 104f, 137

      • current receipts, 24f

      • economic significance of, 135

      • effects of global economic crisis, 136–137, 138f

      • mobile banking and, 20

      • patterns and trends, 97, 102f, 137f, 138f

      • from seafarers, 293, 295b

      • significance of, for PICs, 292b

      • vulnerability to external shocks, 23, 101–102

    • Remoteness of Pacific Island countries, 6, 16f, 17f, 36, 48, 49, 52, 53, 63–64, 65–66, 163, 174–176, 181, 300

      • trade integration to overcome, 289

    • Reserves, commercial bank, 261–262

    • Resilience

      • defined, 39–40

      • determinants of, 40, 42

      • disaster risk management, 82–87, 83f

      • policy buffers, viii, 42–43, 120–121, 121f

      • policy recommendations, vii, viii

      • vulnerability-resilience framework, 40, 41f, 42

    • Resource allocation policies, 147–148

    • Revenues

      • challenges for small states, 166

      • determinants of, 209–210, 210t

      • fiscal sustainability, 205–206, 207

      • impact of natural disasters, 76, 77f, 78, 210–212, 212f

      • modeling government sector linkages to growth, 213–216

      • natural-resource-rich countries, 135

      • recommendations, 37

      • regional cooperation, 207–208

      • resources for weathering volatility in, 207

      • volatility, 28–29, 31f, 200–202, 200–202f

    S

    • Samoa

      • balance of payments, 396t

      • business climate, 394, 397t

      • challenges to growth, 394

      • development aid, 394

      • economic profile, 393–394, 395–397t

      • effects of global economic crisis, 146

      • exchange rate, 394, 396t

      • financial sector, 394, 397t

      • foreign currency reserves, 140

      • geography and demography, 393

      • global economic linkages, 97

      • governance, 393

      • government finance, 394, 395–396t

      • growth patterns and trends, 58b, 132

      • natural disasters, 86, 132, 393

      • public debt, 58b, 394, 396t

      • remittances to, 137

      • sources of growth, 393–394, 395, 395t

      • tourism exports, 61, 62b, 138, 393

      • trade, 58, 290–291

      • vulnerabilities, 41, 127–128, 156, 394

      • See also Pacific Island countries (PICs)

    • Seafarers, 293, 295–296b

    • Sea level rise, 74–75

    • Seasonal employment scheme, 38, 292b

    • Service sector trade, 61

    • Seychelles, 190b

    • Solomon Islands

      • balance of payments, 403t

      • banking sector, 112, 317–318, 318t

      • business climate, 401, 404t

      • challenges to growth, 401

      • debt management strategy, 208

      • development aid to, 400

      • economic profile, 399–401, 401–404t

      • energy consumption, 143

      • exchange rates, 401, 403t

      • financial sector, 400, 404t

      • foreign currency reserves, 140

      • geography and demography, 399

      • governance, 399

      • government finances, 400, 402–403t

      • growth patterns and trends, 46, 132

      • loan-to-deposit ratios, 262

      • monetary policy, 401

      • natural disasters, 132

      • natural resources, 7, 135, 399

      • public debt, 146, 400, 403t

      • public financial management, 22, 190b

      • recommendations for growth-enhancing policies, 5

      • recovery from global financial crisis, 45

      • sources of growth, 399–400, 401–402t

      • trade, 61, 105, 106f, 399–400

      • vulnerability to commodity price shocks, 128, 156

      • See also Interest rate spreads in Solomon Islands; Pacific Island countries

    • South Pacific Regional Trade and Economic Co-operation Agreement, 59–60, 290–291, 300

    • Sovereign wealth funds, 10, 24f, 113, 118t, 138–139

    • Swaziland, 190b

    T

    • Taiwan Province of China, 370

    • Tax policy

      • environmental, 87

      • to promote growth in natural-resource-rich countries, 5

      • revenue volatility, 31f

    • Telecommunications, 6

    • Terms of trade

      • fiscal policy, 32f

      • volatility, 28, 30f

      • vulnerability of PICs to shocks, 100–101, 102, 143

    • Timor-Leste

      • balance of payments, 406, 409t

      • business climate, 406, 409–410t

      • challenges to growth, 407

      • development aid to, 406

      • economic profile, 405–406, 407–410t

      • exchange rate policy, 11, 406

      • financial sector, 406, 409t

      • fiscal policy, 29, 190b

      • geography, 405

      • governance, 405

      • labor market, 406

      • natural resources, 7, 10, 405

      • political and social stability, 9

      • population, 405

      • public finances, 406, 408t

      • sources of growth, 405–406, 407–408t

      • vulnerabilities, 407

      • See also Pacific Island countries

    • Tonga

      • balance of payments, 415t

      • banking sector, 112

      • business climate, 412, 416t

      • challenges to growth, 413

      • development aid, 412

      • economic profile, 412–413, 413–416t

      • effects of global economic crisis, 146

      • energy consumption, 143

      • exchange rate, 413

      • external shocks of 2000s, 57

      • financial sector, 412, 416t

      • foreign currency reserves, 140

      • geography, 411, 412

      • governance, 411–412

      • labor market, 412

      • land tenure system, 412

      • loan-to-deposit ratios, 262

      • natural disasters, 132

      • policy transmission to control for external shocks, 254–257

      • population, 412

      • public finances, 412, 414–415t

      • remittances to, 137, 412

      • sources of growth, 412, 413–414t

      • tourism exports, 61, 412

      • trade, 105, 107f, 300, 412

      • vulnerabilities, 413

      • vulnerability to commodity price shocks, 128, 156

      • See also Pacific Island countries (PICs)

    • Tourism

      • agriculture linkage, 305–306, 307

      • characteristics of source countries and, 301–302, 308t

      • current receipts, 8, 9f, 24f, 138

      • effects of global economic crisis, 138

      • exchange rate policies and, 62b

      • gravity models, analysis and findings from, 299, 301–302, 302t, 309, 310–311, 311t

      • impediments to market development, 8–9

      • opportunities for growth, x, 18, 303–306, 307

      • patterns and trends, 61, 62b, 63f, 100, 100f, 102f, 104, 105f, 139f, 298–299, 298f, 304f, 305f

      • regional integration to promote, 289

      • variation in market recovery, 62b

      • vulnerability of PICs to external shocks, 23, 101–102

    • Trade

      • balances, 295f, 300–301

      • causes of declining competitiveness of PICs, 57–64

      • current openness, 18, 20f

      • effect of trade agreements on, 300

      • effects of global shocks (2007–11), 135, 136t

      • with euro area, 292–293

      • exchange rate overvaluation in global economic crisis and, 141

      • exchange rate policy and, 230

      • export composition, 18, 20t, 293–298, 297f

      • export destinations, 298–299, 308t

      • export openness and output volatility, 55

      • with former colonial powers, 300

      • future challenges and opportunities, x, 65–66, 306–307

      • geographic obstacles to growth, 6, 17, 17f

      • gravity models, analysis and findings from, 299–301, 300t, 309–310

      • growth and, 6, 54–55, 299

      • import composition of PICs, 153f, 297f, 298, 301

      • import patterns in small states, 54–55

      • integration with global economy, 66

      • Kiribati’s, 364

      • in labor services, 66

      • Marshall Islands’, 369

      • openness, growth and, 35, 49–50, 55, 56–57

      • openness trends, 293, 294f

      • patterns and trends, 61, 105, 136f, 137f, 293, 294f, 306, 312t

      • policies to promote openness, 66–67

      • remoteness of PICs and, 174, 176, 300

      • resource-rich versus non-resource-rich countries, 61

      • shocks, 100–101, 101f, 109, 113f, 114f, 131

      • See also Trade integration

    • Trade integration

      • Asian orientation, 289–290

      • with Australia and New Zealand, 290–292

      • current intraregional trade volumes, 290, 291f

      • obstacles to, 18

      • performance to date, 293–299, 306

      • rationale, 289

      • recommendations for regional cooperation, 12, 38

      • regional agreements, 59–61, 290–293, 291f, 300

    • Transparency

      • banking sector, 346–347

      • public spending, 285

    • Transportation

      • airline costs, 64f

      • remoteness of PICs and, 174

      • technology development, 61–64, 63f

    • Trinidad and Tobago, 164, 177

    • Trust funds, 11, 33, 102, 113, 118t, 138–139

    • Tuvalu

      • balance of payments, 421

      • business climate, 418, 421t

      • challenges to growth, 418–419

      • Cyclone Pam, 62b, 72, 74, 84, 110b, 418

      • development aid, 418

      • economic profile, 417–418, 419–421t

      • effects of global economic crisis, 133–134b, 138–139

      • exchange rate, 418

      • financial sector, 418, 421t

      • geography, 417

      • governance, 417

      • growth patterns, 33

      • natural disasters, 132

      • public finances, 418, 420t

      • seafarer employment, 295–296b

      • sources of growth, 417–418, 419–420t

      • trade, 135, 418

      • vulnerabilities, ix, 129, 177

      • See also Pacific Island countries

      • Typhoon Maysak, 74, 376

    U

    • United Nations Framework Convention on Climate Change, 84

    • United States, 11, 23–24, 33

      • economic linkages with PICs, 104

      • grants to PICs, 102, 104f, 370

      • inflation pass-through of exchange rate, 155, 155f, 156

      • Palau and, 381–382

      • remittances to PICs, 104, 104f, 137–138

      • risk of spillovers to PICs, 104

      • tourism trade with PICs, 299

    V

    • Vanuatu

      • balance of payments, 426–427t

      • business climate, 424, 427t

      • challenges to growth, 425

      • Cyclone Pam, 62b, 72, 74, 84, 110b, 423, 424

      • development aid, 424

      • economic profile, 424, 425–427t

      • effects of global economic crisis, 146

      • external shocks of 2000s, 57

      • financial sector, 424, 427t

      • geography, 423

      • global economic linkages, 97

      • governance, 424

      • government finances, 424, 426t

      • growth patterns and trends, 132

      • monetary policy, 424

      • natural disasters, 86

      • public financial management, 22

      • sources of growth, 424, 425–426t

      • tourism exports, 61, 62b, 138

      • trade, 58

      • vulnerabilities, 425

      • vulnerability to commodity price shocks, 129, 156

      • vulnerability to external shocks, 41

      • See also Pacific Island countries (PICs)

    W

    • World Risk Index, 72, 74f

    Prepared by Roberto Guimarães-Filho and Leni Hunter.

    Prepared by Ding Ding.

    Prepared by Serkan Arslnalp and Mari Ishiguro.

    Prepared by Yasuaki Yoneyama.

    Prepared by Jaime Guajardo.

    Under the compact agreement, the United States controls Palau’s security and defense for 50 years and has exclusive access to waterways and certain land, in exchange for economic aid, security, and right of entry for Palauans to the United States for residence or work.

    The purpose of the CTF is to provide income to replace Compact grants after 2023/24. The original compact agreement provided US$70 million to establish the CTF. The renewed agreement contributes an additional US$30 million.

    Prepared by Yongzheng Yang and Kumhwa Oh.

    Prepared by Niamh Sheridan.

    Prepared by Patrizia Tumbarello.

    Prepared by Yu Ching Wong and Fazurin Jamaludin.

    Prepared by Elena Loukoianova.

    Prepared by Dan Nyberg.

    Prepared by Vladimir Klyuev.

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