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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

Ezequiel Cabezon

for resource-rich economies, and/or insurance policies. Contingency funds can also be used to manage shocks. Natural disaster funds or general budget contingency reserves can be used to save resources to deal with natural disasters. From a PFM perspective, access to these funds and reporting on their use should be clearly defined, and budget allocations transparent. The Solomon Islands’ National Transport Fund is a case in point. Using fiscal anchors to help smooth spending and isolate budgets from revenue volatility —Where resources can be identified, budgets

Ms. Manal Fouad, Natalija Novta, Gemma Preston, Todd Schneider, and Sureni Weerathunga

understand and manage the expected economic impact of climate change, while safeguarding long-term fiscal and external sustainability. Two pilot CCPAs for small states were conducted in the Pacific for Micronesia and Tonga. The CCPAs gave recommendations on how to strengthen policies while maintaining a sustainable macroeconomic framework. From a PFM perspective, CCPAs examined two important PFM questions: Adequacy of PFM Systems for Managing Climate Change Funding and Outlays – Are Adequate Public Financial Management Systems in Place to Protect Climate

Mr. Serhan Cevik and Guohua Huang

enhance countries’ disaster response capacities. Medium-Term Fiscal Framework Countries that are more vulnerable to natural disasters should reserve sufficient fiscal space for prevention and mitigation programs, while simultaneously ensuring fiscal sustainability ( IMF 2008 , 2012 , 2016b ). From a PFM perspective, the implementation of a robust MTFF requires a top-down approach to budget preparation and approval, 8 comprehensive revenue forecasting, and public disclosure of fiscal risks, including those arising from natural disasters. The FRS

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

have added to fiscal contingent liabilities. III. The PFM Perspective: Strengthening Governance, Oversight and Transparency National airlines fall under the category of public nonfinancial corporations and their oversight is usually exercised as part of the state-owned enterprise (SOE) sector. However, added scrutiny and more frequent engagement may be required for the airlines depending on their size and respective risk profiles. 7 Individual countries may have different arrangements for governing, monitoring and overseeing the SOE sector. This section

Ms. Manal Fouad, Natalija Novta, Gemma Preston, Todd Schneider, and Sureni Weerathunga

-based standards, that we have categorized across seven core areas of PFM capability ( Figure 15 ). To become an accredited GCF institution, entities must demonstrate that they meet certain basic fiduciary requirements including, from a PFM perspective, key administrative and financial management capabilities and transparency and accountability provisions. As set out in Box 5 the principles focus on ensuring information is reliable, accurate, complete, and transparent and relies on a proven track record of effectiveness and efficiency. The principles are supported by a set of

Mr. Serhan Cevik and Guohua Huang
This how-to note focuses on the management of the fiscal costs associated with natural disaster risks. Unlike other types of fiscal risks (for example, unexpected macroeconomic changes or materialization of contingent liabilities), a natural disaster presents a unique challenge to fiscal risk-management and budget processes because of its exogenous nature and potentially overwhelming scale. This note discusses how governments can build fiscal resilience against natural hazards and strengthen fiscal management after a disaster, including through budgeting frameworks and other fiscal policies. The note aims to answer three central questions: How large should fiscal buffers be? How should fiscal buffers be built up? How should fiscal buffers be used efficiently and transparently once a natural disaster has struck? These three questions directly relate to fiscal policy, fiscal risk management, and the budget process—all core areas of IMF expertise. To address them, the note focuses on fiscal strategies for financing recovery efforts and considers approaches to mitigate disaster impact. The note also provides guidance on how to conduct regular risk analyses of natural disasters’ potential fiscal consequences and outlines best practices for defining and accounting for the contingent liabilities associated with natural disasters in budgeting frameworks. Finally, the note touches on approaches for risk reduction, disaster risk financing strategies, and risk transfer mechanisms, such as various insurance instruments.
Ms. Manal Fouad, Natalija Novta, Gemma Preston, Todd Schneider, and Sureni Weerathunga
This departmental paper provides an in-depth overview of access to climate finance for Pacific Island Countries, evaluating successes and challenges faced by countries and proposes a way forward to unlock access to climate funds.
International Monetary Fund

small state operates a fiscal rule, this should ideally include specific provisions for how targets (such as a deficit ceiling) would be adjusted in the event of an external shock, and how policies would be brought back in line with the fiscal rule in the post-shock period. 16 In addition, natural disaster funds or general budget contingency reserves or insurance policies are used to save resources in case natural disasters happen. From a PFM perspective, the access to these funds and the reporting on its use should be clearly defined and the allocation in the budget