Issues in Monetary and Fiscal Policy in Small Developing States

A Case Study of the Pacific

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This study examines how monetary and fiscal policies are implemented in Pacific small states and the impact on growth and development in these countries. It carefully sets out both the policy and institutional constraints in monetary and fiscal policy management, provides case study examples of policy implementation in practice, and suggests policy options that can be used by these countries.




The implementation of monetary and fiscal policies in small states is affected by their inherent vulnerability, which stems from a high dependence on a narrow range of exports and on strategic imports such as food and fuel. These features render small states disproportionately exposed to external economic shocks. Other characteristics which pose disadvantages for small states include their limited ability to exploit economies of scale, and limited opportunities for diversification. These features have constrained policy implementation and success in small states and increased the importance and influence of external reserves, external financing, foreign investment and the international economic climate on domestic policy.


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