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Reflecting diseconomies of scale in providing public goods and services, recurrent spending in small states typically represents a large share of GDP. For some small states, this limits the fiscal space available for growth-promoting capital spending. Small states generally face greater revenue volatility than other country groups, owing to their exposure to exogenous shocks (including natural disasters) and narrow production bases. With limited buffers, revenue volatility often results in procyclical fiscal policy as the econometric analysis shows. To strengthen fiscal frameworks, small states should seek to streamline and prioritize recurrent spending to create fiscal space for capital spending. The quality of spending could also be improved through public financial management reform and multiyear budgeting.

Expenditures, Public. --- Fiscal policy. --- States, Small. --- Macroeconomics --- Public Finance --- Fiscal Policies and Behavior of Economic Agents: General --- National Government Expenditures and Related Policies: General --- National Budget, Deficit, and Debt: General --- Debt --- Debt Management --- Sovereign Debt --- Fiscal Policy --- National Government Expenditures and Related Policies: Infrastructures --- Other Public Investment and Capital Stock --- Public finance & taxation --- Expenditure --- Fiscal policy --- Capital spending --- Fiscal governance --- Fiscal space --- Expenditures, Public --- Capital investments --- Solomon Islands

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We stress test the global economy to extreme climate change-related shocks on large and interconnected economies. Our analysis (i) identifies large and interconnected economies vulnerable to climate change-related shocks; (ii) estimates these economies’ external financing needs-at-risk due to these shocks, and (iii) quantifies the spillovers to the global economy using a global network model. We show that large and interconnected economies vulnerable to climate change could trigger a drain of $1.8 trillion in international reserves (2 percent of 2019’s global GDP). Domestic and multilateral macroeconomic policies can help reduce these global lossess to about $0.8 trillion. The scenario highlights the importance of considering global spillovers when assessing the impact of climate change-related shocks.

Macroeconomics --- Economics: General --- Environmental Economics --- Natural Disasters --- Finance: General --- Environmental Policy --- International Lending and Debt Problems --- International Finance Forecasting and Simulation --- Open Economy Macroeconomics --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Globalization: General --- Globalization: Finance --- International Financial Markets --- Financial Forecasting and Simulation --- Climate --- Natural Disasters and Their Management --- Global Warming --- Financial Institutions and Services: Government Policy and Regulation --- Environmental Economics: Government Policy --- Economic & financial crises & disasters --- Economics of specific sectors --- Climate change --- Natural disasters --- Finance --- Environmental policy & protocols --- Environment --- Stress testing --- Financial sector policy and analysis --- Climate policy --- Currency crises --- Informal sector --- Economics --- Climatic changes --- Financial risk management --- Environmental policy --- United States

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This paper examines how Asian financial linkages with systemic economies have changed over time. After developing a factor model, it estimates Asian financial sensitivities to systemic economies, and then seeks to uncover their key determinants, which include trade and financial linkages, as well as policies. In line with Asia’s growing role in the global economy—including through deeper financial integration—regional financial markets have become more sensitive to systemic economies. Asian financial sensitivities to systemic economies exhibit cyclical fluctuations, and reached historically high levels during the latest global financial crisis of 2008–09. While macroeconomic policy frameworks have helped Asian economies cope well with market turbulence, they cannot completely insulate Asian financial markets against major global financial shocks. .

Business & Economics --- Economic History --- Economic development --- Asia --- Economic policy. --- Economic conditions. --- Development, Economic --- Economic growth --- Growth, Economic --- Economic policy --- Economics --- Statics and dynamics (Social sciences) --- Development economics --- Resource curse --- Capital market --- Business cycles --- Capital assets pricing model --- Econometric models --- E-books --- Capital asset pricing model --- CAPM (Capital assets pricing model) --- Pricing model, Capital assets --- Capital --- Finance --- Investments --- Economic cycles --- Economic fluctuations --- Cycles --- Capital markets --- Market, Capital --- Financial institutions --- Loans --- Money market --- Securities --- Crowding out (Economics) --- Efficient market theory --- Mathematical models --- Banks and Banking --- Exports and Imports --- Finance: General --- Foreign Exchange --- Investments: Stocks --- Investments: General --- International Finance: General --- General Financial Markets: General (includes Measurement and Data) --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- International Investment --- Long-term Capital Movements --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Investment --- Intangible Capital --- Capacity --- Banking --- Currency --- Foreign exchange --- Investment & securities --- Macroeconomics --- Stock markets --- Exchange rate arrangements --- Foreign direct investment --- Stocks --- Financial markets --- Balance of payments --- Return on investment --- National accounts --- Stock exchanges --- Banks and banking --- Investments, Foreign --- Saving and investment --- United States

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Natural disasters and climate change are interrelated macro-critical issues affecting all Pacific small states to varying degrees. In addition to their devastating human costs, these events damage growth prospects and worsen countries’ fiscal positions. This is the first cross-country IMF study assessing the impact of natural disasters on growth in the Pacific islands as a group. A panel VAR analysis suggests that, for damage and losses equivalent to 1 percent of GDP, growth drops by 0.7 percentage point in the year of the disaster. We also find that, during 1980-2014, trend growth was 0.7 percentage point lower than it would have been without natural disasters. The paper also discusses a multi-pillar framework to enhance resilience to natural disasters at the national, regional, and multilateral levels and the importance of enhancing countries’ risk-management capacities. It highlights how this approach can provide a more strategic and less ad hoc framework for strengthening both ex ante and ex post resilience and what role the IMF can play.

Climatic changes. --- Disaster insurance. --- Disaster relief. --- Macroeconomic. --- Exports and Imports --- Macroeconomics --- Environmental Economics --- Natural Disasters --- Climate --- Natural Disasters and Their Management --- Global Warming --- Environment and Growth --- International Monetary Arrangements and Institutions --- Fiscal Policy --- Foreign Aid --- Natural disasters --- Climate change --- International economics --- Fiscal stance --- Disaster aid --- Environment --- Fiscal policy --- Foreign aid --- Climatic changes --- International relief --- Vanuatu

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Net capital flows to emerging Asia rebounded at a record pace following the global financial crisis, raising concerns about overheating and financial stability. This paper documents the size and composition of the most recent surge to Asian emerging markets from a historical perspective and compares developments in the broader economy, asset prices, and corporate variables across the different episodes of strong inflows. We find little evidence of a significant build-up of imbalances and resource misallocation during the most recent surge. We also review country experiences in managing the risks associated with inflows and argue that Asian countries have used regulatory measures during past surges, although there is not strong evidence of their efficacy without supporting monetary and fiscal policies.

Capital movements --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- Foreign exchange --- International finance --- Econometric models. --- Exports and Imports --- Macroeconomics --- Statistics --- Central Banks and Their Policies --- International Investment --- Long-term Capital Movements --- Current Account Adjustment --- Short-term Capital Movements --- International Financial Markets --- Financial Institutions and Services: Government Policy and Regulation --- Financial Crises --- International economics --- Economic & financial crises & disasters --- Econometrics & economic statistics --- Capital inflows --- Global financial crisis of 2008-2009 --- Balance of payments statistics --- Private capital flows --- Financial crises --- Economic and financial statistics --- Global Financial Crisis, 2008-2009 --- Hong Kong Special Administrative Region, People's Republic of China