The small states of the Asia and Pacific region face unique challenges in raising their growth potential and living standards relative to other small states due to their small populations, geographical isolation and dispersion, very narrow export and production bases, exposure to shocks, and heavy reliance on aid.

Higher fixed government costs, low access to credit by the private sector, and capacity constraints are also key challenges.

Econometric analysis confirms that the Pacific Island Countries (PICs) have underperformed relative to their peers over the last 20 years.

Although these countries often face more limited policy tools, policies do matter and can help build resilience and raise potential growth. The Asia and Pacific small states should continue rebuilding buffers and improve the composition of public spending. Regional solutions should also continue to be pursued.

Dr Patrizia Tumbarello, Unit Chief for the International Monetary Fund Pacific Island Unit and Peter Allum, Assistant Director, IMF’s Strategic Policy Review Department presented on the IMF’s recent work on small states. Vivek Suri, the World Bank’s Lead Economist for the Pacific, acted as discussant.

This lecture was presented by the Development Policy Centre at Crawford School of Public Policy, The Australian National University.