02542cas a2200241 a 4500 AALejournalIMF015855 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513511047 1018-5941 BD-DhAAL BD-DhAAL Nakatani, Ryota. A Possible Approach to Fiscal Rules in Small Islands : Incorporating Natural Disasters and Climate Change / Ryota Nakatani. Washington, D.C. : International Monetary Fund, 2019. 1 online resource (28 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students A big challenge for the economic development of small island countries is dealing with external shocks. The Pacific Islands are vulnerable to natural disasters, climate change, commodity price changes, and uncertain donor grants. The question that arises is how should small developing countries formulate a fiscal policy to achieve economic stability and fiscal sustainability when prone to various shocks? We study how natural disasters affect long-term debt dynamics and propose fiscal policy rules that could help insulate the economy from such unexpected shocks. We propose fiscal rules to address these shocks and uncertainties using the example of Papua New Guinea. Our study finds the advantages of expenditure rules, especially a recurrent expenditure rule based on non-resource and non-grant revenue, interdependently determined by government debt and budget balance targets with expected disaster shocks. This paper contributes to the literature and policy dialogue by theoretically analyzing the impact of natural disasters on debt sustainability and proposing fiscal rules against natural disasters and climate changes. Our fiscal policy framework is practically applicable for many developing countries facing increasing frequency and impact of natural disasters and climate change. Our rules-based fiscal framework is crucial for sustainable and countercyclical macroeconomic policies to build resilience against devastating natural hazards. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2019/186 Full text available on IMF http://elibrary.imf.org/view/journals/001/2019/186/001.2019.issue-186-en.xml IMF e-Library