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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

International Monetary Fund

increasing the budget for marketing and airline support by up to EC$10 million (0.6 percent of GDP), and the provision of temporary tax relief on hotels’ food imports. The mission recommended that the government choose measures that are time bound and have limited fiscal impact. The marketing and airline support, which the authorities classify as capital expenditure, would need to be accommodated by cutting some other projects. 16. The government recognizes the seriousness of fiscal challenges in 2009, and is undertaking adjustment measures : On the revenue side

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

contingent liabilities. These include liabilities where the airline plans to borrows on the strength of its own balance sheet, and liabilities emanating from lease contracts, e.g. leasing a new airplane. C. Transparency of Airline Support in the National Budget Best practice: Clear and transparent publication of budgeted inflows and outflows, ideally via an annex to the budget, covering all SOEs. A strong budget challenge process requiring robust justification for support from the budget, e.g. via a cost benefit analysis. All CSOs should be remunerated

International Monetary Fund
This paper discusses key findings of the Third Review under the three-year arrangement for Grenada. All end-2008 quantitative targets were met. Meeting structural benchmarks on submitting investment legislation and a new Excise Bill and on completing a Country Poverty Assessment has been delayed owing to the time required to consult stakeholders, to finalize the list of excisable goods, and to complete the technical work and drafting, respectively. The performance criterion on initiating reorganization or liquidation of Capital Bank was met in November 2008.
International Monetary Fund. Fiscal Affairs Dept.

have often been necessary to prevent bankruptcies of hard-hit strategic firms, such as national airlines, albeit with the risk of delaying sectoral reallocation that is crucial for the recovery. In some cases ( New Zealand, Singapore ), governments provided convertible loans to national airlines with options to convert bonds into common equity, which ensures that the risks and rewards are better shared by the state and shareholders ( OECD 2020c ). In France , airline support was combined with conditionality on cutting emissions, which helps with “greening” the

International Monetary Fund

through their national development banks for improvement of tourism-related facilities. 19 33. Post September 11, the CARICOM governments tried to stem the decline in airlift by increasing subsidies to regional airlines and negotiating with foreign airlines to maintain the level of service . For example, BWIA received an injection of US$13 million and LIAT received US$4 million (EC$11) to keep them flying. 20 An air access strategy now aims to negotiate air services agreements on a regional basis; 21 provide incentives to improve cooperation among regional airlines

International Monetary Fund. Asia and Pacific Dept

loan-restructuring schemes should be timebound and targeted to minimize banking system strains. Mechanisms for corporate restructuring and resolution should be strengthened and simplified (see also Annex IV ). 12 Solvency support for viable firms . A case can be made for the government to intervene selectively to help viable, strategic firms facing pandemic-related difficulties, as is being considered for the national airlines. Support could take the form of equity injections, and transparently reported and monitored, with clear exit strategies. Nonviable firms

International Monetary Fund. Asia and Pacific Dept
Successful containment of COVID-19 and strong policy support have helped contain the health and economic fallout, and a strong recovery is underway. Growth in 2020 reached 2.9 percent, among the highest in the world. However, labor market conditions remain weak. Corporate balance sheets have worsened, potentially hampering private investment and job prospects. Banks entered the crisis in a stronger position than in previous years, but weaknesses remain. Vietnam’s economy remains heavily reliant on external trade and is vulnerable to trade tensions.
International Monetary Fund
This Selected Issues paper analyzes the competitive threats to the tourism sector in the Eastern Caribbean Currency Union (ECCU). The paper concludes that the ECCU countries have lost competitiveness globally and vis-à-vis newly emergent Caribbean tourist destinations as a result of both price and nonprice factors. The short-term measures implemented by the countries seem to have been insufficient to prevent further declines in 2002. The paper also describes strengthening fiscal discipline through fiscal benchmarks.