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Hidetaka Nishizawa, Mr. Scott Roger, and Huan Zhang
Pacific island countries (PICs) are vulnerable severe natural disasters, especially cyclones, inflicting large losses on their economies. In the aftermath of disasters, PIC governments face revenue losses and spending pressures to address post-disaster relief and recovery efforts. This paper estimates the effects of severe natural disasters on fiscal revenues and expenditure in PICs. These are combined with information on the frequency of large disasters to calculate the rate of budgetary savings needed to build appropriate fiscal buffers. Fiscal buffers provide self-insurance against natural disaster shocks and facilitate quick disbursement for recovery and relief efforts, and protection of spending on essential services and infrastructure. The estimates can provide a benchmark for policymakers, and should be adjusted to take into account other sources of financing, as well as budget risks from less severe as well as more frequent disasters.
Mr. Niko A Hobdari, Ms. Chonira E Aturupane, Mr. Eric Le Borgne, Mr. Koba Gvenetadze, Mr. John Wakeman-Linn, and Mr. Stephan Danninger

budget and SOFAZ) and the use of resources is not systematically coordinated. While assets from SOFAZ are primarily directed toward capital projects, revenues accruing from SOCAR’s domestic operations are perceived as a general government finance source. In addition, while the government seeks to use the oil fund as an instrument for saving oil wealth, completely separate arrangements—independent of the oil fund—are being made for stabilizing the flows of oil revenue to the state budget. This treatment clouds the true dependency of government operations on oil revenue

International Monetary Fund

ratio. Economic buoyancy has reinforced this cycle by facilitating the tax cuts and increases in social spending that have been instrumental to the social consensus on policies, while also helping to keep deficits low. As a result, the Exchequer borrowing requirement (EBR) has averaged about 2 percent of GNP during 1988-96, and the Exchequer debt ratio has Men from 125 percent of GNP at end-1987 to less than 81 percent in 1996 ( Chart 1 and Table 1 ). CHART 1. IRELAND GOVERNMENT FINANCE Sources: Department of Finance, Economic Statistics. 1/ Budgeted. 2

International Monetary Fund

primary surpluses were generated. CHART 4 IRELAND GOVERNMENT FINANCE Source: Department of Finance, Economic Statistics. 1/ Budgeted. The economic backdrop to rapid fiscal consolidation was exceptionally favorable, characterized by declining interest rates and rapid growth. Interest payments as a percent of GNP consequently fell during the period from 11.2 percent to 7.2 percent. Rapid growth also facilitated tax collection, and tax amnesties in 1988 and 1994 contributed to revenue surges and a broadening of the tax base that resulted in an average tax

International Monetary Fund. Research Dept.

. Stock market not established: banks allowed to conduct transactions in commercial paper and securities since June 1990. Stock market planned for late 1992: money markets being developed. Stock market established in June 1990; active money market. Stock market established in April 1991; money market established in 1990. Not established. Government financing sources Central bank. Bank credit and bonds. Bond financing planned for 1992. Bank credit treasury bills, and bonds. Bank credit and treasury bills. Bank credit; bond financing planned

Miss Yinqiu Lu and Tao Sun

reducing the revenue-expenditure mismatches in the local governments. In addition, it is necessary to establish a comprehensive framework to regulate and supervise local government budgets and its financing. Moreover, it is important to ensure that resources obtained from the sale of land use rights are sustainable, which requires a comprehensive plan for land capitalization. Finally, it is beneficial to encourage the development of a local government bond market to help diversify local governmentsfinancing sources and promote capital market development. A

International Monetary Fund

resulted in a substantial decline in output and foreign reserves, as well as an increase in public debt to over 90 percent of GDP ( Figures 1 and 2 ). Figure 1. Samoa: Output, Prices, and Government Finance Sources: Data provided by the Samoa authorities; World Bank, and Fund staff estimates. Figure 2. Samoa: External Developments Sources: Data provided by the Samoa authorities; and Fund staff estimates. 2. These challenges prompted a major review of economic policy, culminating in the introduction of a comprehensive economic reform program in

International Monetary Fund

policies between the Ministry of Finance (MOF) and the ANB. 49. Strengthening fiscal policy will require a less fragmentary approach to managing the use of oil revenue and a careful analysis of the overall implications for domestic demand . Currently, oil revenue is managed by different government agencies (the state budget and SOFAZ) and the use of resources is not systematically coordinated. While assets from the SOFAZ are primarily directed towards capital projects, revenues accruing from SOCAR’s domestic operations are perceived as a general government finance

Hidetaka Nishizawa, Mr. Scott Roger, and Huan Zhang

insurance companies. Another potential source of domestic financing is the central bank, but in general central bank financing should be strictly limited on account of risks of fiscal dominance that would destabilize the economy through possible higher inflation. National Provident Funds (NPFs) in PICs would be a possible source for financing rebuilding, though more likely for the private sector than for the government ( Box 3 ). Some PICs have mobilized pension funds, but as a disaster relief instrument instead of as a government financing source. For example, Fiji

Miss Yinqiu Lu and Tao Sun
China’s rapid credit expansion in 2009–10 brought local government financing platforms (LGFPs) into the spotlight. This paper discusses their function, reasons behind their recent expansion, and risks they are posing to the financial sector, local governments, and sovereign balance sheet. This paper argues that LGFPs were a fortune for China in the past, but would turn out to be a misfortune if the causes of the rapid expansion of LGFPs are not addressed promptly. In this context, the paper proposes ways to avoid misfortune by: acknowledging and addressing the revenue and expenditure mismatches at the local government level; establishing a comprehensive framework to regulate and supervise local government budgets; ensuring the sustainability of the financial resources obtained from the sale of land use rights; and developing local government bond markets and promoting financial reforms.