The Pacific Fiscal Resilience Program

In January 2022, an underwater volcano erupted near Tonga in the Pacific. It caused a tsunami that devastated infrastructure, and severely impacted livelihoods of 85 percent of the island’s population. The disaster caused damage and losses of at least US$90.4 million—or 18.5 percent of Tonga’s GDP. The Pacific Fiscal Resilience Program supports Pacific small states in strengthening fiscal resilience to climate, disaster, and economic shocks.

Pacific Small Island Developing States and small states face immense challenges. They are particularly vulnerable to natural disasters, which can cause catastrophic damage. SIDS’ small economies—which have limited resources—can be set back by decades when recovering from a major disaster. For this reason, creating fiscal buffers and greater resilience is critical to the economic future of SIDS.

Through the Pacific Fiscal Resilience Program in the Pacific, participating Pacific small states are identifying their own needs, pinpointing the most pressing fiscal policy gaps, and shaping the kind of support that will be most useful for building fiscal resilience to shocks.

The World Bank Group, with support from the Japan Policy and Human Resources Development Fund (PHRD), is helping to convene and coordinate global expertise, ensuring that Pacific SIDS can learn from each other, share best practices, learn from island states with larger economies, and strengthen their fiscal resilience collectively.

Through collaboration, the program aims to promote practical solutions to secure economic stability and unleash long-term, sustainable growth for Pacific SIDS.

Funding and Partnerships

The Fiscal Resilience Program is financed by the Japan Policy and Human Resources Development Fund. Through this partnership, the World Bank Group is committed to supporting Pacific small states in building stronger, more resilient economies. The program will further collaborate with regional institutions in the Pacific and international partners, including the ADB, IMF, JICA, and the Pacific Islands Forum, to provide comprehensive fiscal support.

What is fiscal resilience in the Pacific?

Fiscal resilience in the Pacific is the capacity of a government to effectively manage its fiscal resources in the face of economic shocks, disasters, and other unforeseen events. It involves maintaining fiscal stability and sustainability while being able to respond to and recover from adverse situations. 

Why is it important for Pacific SIDS?

The slowdown in the global outlook, ongoing policy and trade uncertainty, investment and trade disruptions, and rising inflation are all threatening the economic stability of Pacific SIDS. On top of this, there is the potential for cuts to future grant funding streams, which many Pacific SIDS’ economies rely on.

These risks are further compounded by natural hazards. Pacific SIDS are highly vulnerable to climate-related disasters like cyclones, earthquakes, and volcanic eruptions, which can cripple their economies and infrastructure within days. Limited diversification, reliance on tourism and fishing, and geographic isolation make recovery slow—often taking years, compared to about a year for other emerging market and developing economies. 

Extreme exposure to climate shocks costs SIDS in the Pacific region an average of 5-10 percent of GDP per year. Combined with declining growth trajectories and rising sea levels, Pacific SIDS and development partners must take urgent action to protect their economic future. Fiscal resilience is key to this. 

How does fiscal resilience help SIDS in the Pacific region?

Building fiscal resilience enables these states to: 

• Absorb shocks without severe economic disruption 

• Maintain essential services during crises 

• Create space for long-term development investments 

• Adapt to climate change and other environmental threats 

• Reduce dependency on external emergency assistance 

Which are the key elements of fiscal resilience in the Pacific?

• Fiscal buffers: The maintenance of public investment necessary for future growth, the protection of vulnerable households and firms, and liquidity to pay salaries. 

• Diversified revenue sources: Expanding the tax base and developing multiple revenue streams. 

• Expenditure flexibility: Reprioritizing spending during crises to ensure resources flow to urgent needs while maintaining critical services. 

• Strong institutional frameworks: Clear fiscal rules, robust public financial management systems, and transparent budgeting processes. 

• Risk transfer mechanism: Insurance products and financial instruments like catastrophe bonds.  

• Robust growth: Ensuring economies are less dependent on one or two sectors that can drag down the entire economy if they are hit by a shock.

High-Level Meeting in Tokyo

How can SIDS in the Pacific region strengthen their fiscal resilience in the face of climate and economic shocks? What tools are needed to build sustainable financial systems and buffer against future crises? Why is urgent action needed to ensure long-term stability and development in vulnerable island economies? These are the questions that the Building Fiscal Resilience in Pacific SIDS High-Level Meeting aimed to answer in Tokyo in March 2025. 

The Building Fiscal Resilience in Pacific SIDS High-Level Meeting, held in Tokyo in March 2025, brought together senior government officials, finance ministers, and global and regional experts to address the economic vulnerabilities of SIDS in the Pacific. Representatives from the Federated States of Micronesia, Fiji, Kiribati, Nauru, Palau, Republic of the Marshall Islands, Samoa, Solomon Islands, Timor-Leste, and Tuvalu joined development partners, including the IMF, JICA, and Japan’s Ministry of Finance. Tonga and Vanuatu are also part of the initiative but were not able to attend the first high level meeting.

The event focused on the importance of strengthening fiscal frameworks to promote macroeconomic stability, implementing investment-friendly revenue policies, and developing strategies to manage economic and climate-related shocks. Sessions highlighted practical examples of fiscal innovations, such as the  Solomon Islands’ Transport Maintenance Fund, and explored international experiences with fiscal rules, tax policy reforms, and risk-sharing and insurance mechanisms. 

Participants examined ways to tailor the Fiscal Resilience Program in the Pacific to the region’s unique needs, ensuring that policies and reforms align with national and regional priorities. Iceland’s Ambassador to Japan also held a discussion to share the experiences of a Small Island State’s effort to overcome economic shocks, transforming the economy, and becoming a high-income country.

The meeting reinforced the importance of long-term fiscal planning and the need for stronger public financial management systems to sustain economic resilience in Small Island States.

Proceedings - Tokyo High Level Meeting on Fiscal Resilience, March 17-19 2025 (pdf)

Agenda and Event Presentations - Tokyo High Level Meeting on Fiscal Resilience, March 17-19 2025

Below is a list of World Bank reports, articles and blog posts that are relevant to fiscal resilience: 

Reports

• Fiscal Resilience to Natural Disasters 

• Fiscal Policy’s Role in Economic Resilience to Climate Shocks 

• Fiscal Challenges in Small States: Weathering Storms, Rebuilding Resilience

• Having Space and Using It: Fiscal Policy Challenges in Developing Economies

Articles and blog posts

• Strengthening Fiscal Resilience in Small States

• Can Fiscal Policy Help Countries Face Extreme Weather Shocks

• Building Resilience in the Face of Uncertainty

• Budgeting for Resilience: A Blueprint for Incorporating Disaster Risk into Governments’ Budgets

Projects 

Below is a list of World Bank Development Policy Operations that are promoting fiscal resilience in the Pacific:  

• Tonga Second Fiscal, Disaster, and Climate Resilience Development Policy Operation - Media Release

• Tuvalu Second Climate and Disaster Resilience Development Policy Financing - Project Document

• Vanuatu Resilience Development Policy Financing with a Catastrophe Deferred Drawdown Option - Media Release

• RMI Enhancing Fiscal Management and Building Disaster and Climate Resilience DPO with a Cat DDO  - Media Release

• Fiji Growth and Resilience First Development Policy Financing with a Catastrophe Deferred Drawdown Option- Media Release

Datasets

• Data360 - a newly curated collection of data, analytics, and tools to foster development.

• Cross-Country Database of Fiscal Space - a comprehensive cross-country database of fiscal space. The database covers 204 countries over the period 1990-2024 and includes 29 indicators of fiscal space grouped into four categories.