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Vybhavi Balasundharam, Ms. Leni Hunter, Iulai Lavea, and Mr. Paul G Seeds
Pacific island countries (PICs) rely on national airlines for connectivity, trade, and tourism. These airlines are being struck hard by COVID-19. Losses will weigh on public sector balance sheets and pose risks to economic recovery. With a backdrop of tight fiscal space and increasing government debt, losses in airlines are adding to fiscal risks in some PICs. This paper discusses tools to evaluate and manage the fiscal risks from national airlines in the Pacific. We present a snapshot of the current state of Public Financial Management (PFM) practices in PICs and detail the best practices. This exercise would illustrate the areas in which PICs have scope to improve their risk management with regard to national airlines. We then discuss the use of diagnostic tools and capacity development to enhance monitoring and risk management. Greater transparency and accountability in the airlines, combined with rigorous oversight, would be the first step towards improved financial management of national airlines.
Vybhavi Balasundharam, Ms. Leni Hunter, Iulai Lavea, and Mr. Paul G Seeds

Keywords: Pacific Island Countries, National Airlines, fiscal risks, Public Financial Management Author’s E-Mail Address: vbalasundharam@imf.org , lhunter@imf.org , ilavea@imf.org , and pseeds@imf.org Contents I. INTRODUCTION II. STATE OF NATIONAL AIRLINES IN PICs III. THE PFM PERSPECTIVE: STRENGTHENING GOVERNANCE, OVERSIGHT AND TRANSPARENCY A. Governance and Institutional Frameworks B. Airline Planning Process C. Transparency of Airline Support in the National Budget D. Budget Execution Considerations E. Reporting and Monitoring IV. RISK

Vybhavi Balasundharam, Ms. Leni Hunter, Iulai Lavea, and Mr. Paul G Seeds

not have regulations governing the national airlines. In addition, in terms of coverage, most of the governance laws do not require approval of capital expenditures and borrowing including lease agreements, both of which pose the largest risks to the airline and the government. B. Airline Planning Process Best practice: Airline plans approved by government including borrowing and investments plans, planned new leases and proposed guarantees . Airlines are responsible for setting their own corporate plans which should include: strategic goals; operating and