The World Bank’s IDA also includes a small island economy exception linked to countries with populations under 1.5 million. The same cutoff was used to define small states in the influential 1998 Joint Task Force Report on Small States of the Commonwealth Secretariat and World Bank. The Small States Forum includes a handful of countries with populations above 1.5 million.
This latter figure excludes small states defined as advanced market economies for WEO purposes, as well as fuel-exporting countries classified by the World Bank as “high income” (Bahrain, Brunei Darussalam, and Equatorial Guinea).
“Macroeconomic Issues in Small States and Implications for Fund Engagement”; “Asia and Pacific Small States—Raising Potential Growth and Enhancing Resilience to Shocks” ; and “Caribbean Small States—Challenges of High Debt and Low Growth”; and the associated summing up “The Acting Chair’s Summing Up-Macroeconomic Issues in Small States and Implications for Fund Engagement”.
The World Bank provides secretariat support to the Small States Forum (SSF).
As an example, consider a case where all hotels are foreign-owned, the primary input purchased locally is semi-skilled labor, and the sector benefits from significant tax holidays: in such a case, a fall in wage levels, while it may promote additional investment in the hotel sector, could easily leave nationals worse off (unless the elasticity of employment to wage cuts is very high).
Larger peers are defined as countries with a population over 1.5 million, excluding advanced economies.
In some cases, this occurs notwithstanding the existence of large off-shore financial centers (OFCs) serving non-resident markets.
For instance, the failure of CL Financial and its life insurance subsidiary, Colonial Life Insurance Company (CLICO), and the failure of the Stanford Financial Group had cross-border implications in the Caribbean.
In addition, some small states like Kiribati, adopt foreign currency as tender.
See recent presentations to small states regional conferences by DMD Shafik in the Bahamas in September 2013 (http://www.imf.org/external/np/speeches/2013/091913a.htm) and by DMD Zhu in Vanuatu in November 2013 (http://www.imf.org/external/np/seminars/eng/2013/PIC/). The Board has stated, with regard to the Fund’s engagement with small states, that fostering improved growth should be an important priority.
See the forthcoming Board paper on structural transformation in LICs.
The work of the Pacific Catastrophe Risk Assessment and Financing Initiative (PCARFI) for the PICs provides a useful diagnostic of the small islands’ exposure to natural risks.
Absent this specificity, large shocks can lead policies to deviate from the fiscal rule for prolonged periods, with no mechanism to enforce the difficult transition back to compliance (see Appendix Box1).
PICs benefit from the Pacific Catastrophe Risk Insurance Pilot, as well as the Disaster Risk Reduction and Risk Management Initiatives whose implementation is under the purview of the World Bank.
For details see UN-OHRLLS, 2009, “The impact of climate change on the development prospects of the least developed countries and small island developing states”, Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States.
PICs face the highest cost of sending remittances in the world; these costs can often be reduced by expanding competition, such as by allowing more remittance service providers or elimination of exclusivity agreements.
In the Eastern Caribbean Common Union, the option of fiscal devaluation was assessed as unlikely to have a substantive impact on wage costs given limited scope to reduce payroll taxes in the region.
More details can be found in External Assessments in Special Cases (2014), Departmental Paper, IMF; and Bilateral Surveillance Guidance Note (2012), IMF.
For example, while Jamaica (with a population of 2.7 million in 2012) does not meet the definition of a small state, it has many of the same characteristics, and the four-year Fund-supported program launched in 2013 included plans to adopt a fiscal rule in 2014 (the specifics are yet to be defined) to strengthen the effectiveness of fiscal discipline.
Fiscal ROSCs, for example, have been undertaken in over half of larger countries but only 20 percent of small states.
A few useful references include, (a) Public-Private Partnerships, Government Guarantees and Fiscal Risk, International Monetary Fund, Washington D.C., 2006; (b) Issues Paper on Public-Private Partnerships and Fiscal Risks, International Monetary Fund, Washington D.C., 2007; and (c) Public Investment and Public-Private Partnerships: Addressing Infrastructure Challenges and Managing Fiscal Risks (Procyclicality of Financial Systems in Asia), edited by Gerd Schwartz, Ana Corbacho, and Katja Funke, International Monetary Fund, 2008.
Many small states country authorities do not attend the Spring Meetings, making this less effective as an outreach opportunity.
All country teams are encouraged to include customized country scenarios in DSAs.
See Operational Guidance Note for Staff on Staff Monitored Programs. http://www-intranet.imf.org/departments/SPR/Surveillance/Pages/SMP-PPM-AssessmentLetters-SMPs.aspx
As of late-2013, there had been no users of the RFI.
In both Antigua and Barbuda and St. Kitts and Nevis the high level of access was necessary to support the debt restructuring operations. In Maldives, however, high level of access was necessary to address the impact of the global economic crisis and restoring macroeconomic stability.
Small states receive significantly more TA and training than larger peers when scaled by population. But the level of technical assistance provided per country is about half that for larger countries (measured in TA person years).