Front Matter
  • 1 0000000404811396https://isni.org/isni/0000000404811396International Monetary Fund

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© 2021 International Monetary Fund

WP/21/183

IMF Working Paper

Asia and Pacific Department

Managing Fiscal Risks from National Airlines in Pacific Island Countries

Prepared by Vybhavi Balasundharam, Leni Hunter, Iulai Lavea and Paul Seeds

Authorized for distribution by Todd Schneider

July 2021

IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Abstract

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.

JEL Classification Numbers: E62, H61, H81, L32

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 MANAGEMENT, DIAGNOSTIC TOOLS, AND POTENTIAL CAPACITY DEVELOPMENT

  • A. Examples of Support Measures and Considerations for Use

  • V. SUMMARY AND CONCLUSIONS

  • BOX

  • 1. Political Economy of National Airlines

  • FIGURE

  • 1. Analysis of government support

  • TABLES

  • 1. A Snapshot of PFM practices in PICs

  • 2. Simplified SOE Health Check Tool

  • ANNEXES

  • I. Pacific Island Airlines – Country Experiences

  • II. Scope for a regional airline: History in the PICs and example from the Caribbean

  • III: Lessons from Airlines in the African Small Island States

  • IV: PIC coverage in SOE Governance Act

  • REFERENCES

Managing Fiscal Risks from National Airlines in Pacific Island Countries
Author: Vybhavi Balasundharam, Ms. Leni Hunter, Iulai Lavea, and Mr. Paul G Seeds