PACIFIC FINANCIAL TECHNICAL ASSISTANCE CENTRE Supporting Macro-Financial Stability and Sustainable and Inclusive Growth in the Pacific

ANNUAL REPORT 2021

PFTAC is an IMF initiative supported by the following member countries and development partners:

Cook Islands Fiji Kiribati

Marshall Islands FSM Nauru

Niue Palau PNG

Samoa Solomon Islands Timor-Leste

Tokelau Tonga Tuvalu

Vanuatu

A MESSAGE FROM THE PFTAC STEERING COMMITTEE CHAIRMAN

Ariff Ali

Governor, Reserve Bank of Fiji since 2017 PFTAC Chairman 2021

The reporting period coincides with the most delivered. disruptive economic and social challenges As the host of PFTAC for almost three decades, Fiji has possibly ever faced by the region. Pacific consistently been a major beneficiary through assistance that nations and citizens are extremely resilient, has helped strengthen our institutions and systems and the capacity of our statisticians, tax officials, financial and with a history of dealing with natural disasters economic managers, and central bank staff. Not only is this that appear increasing in frequency and observed at the national level, but also across the region ferocity given the impact of climate change. through groups that PFTAC works closely with like the Association of Financial Supervisors of Pacific Countries Economic stability and a return to inclusive (AFPSC) and the Pacific Islands Tax Administrators growth depends on containment of the COVID- Association (PITAA). The PFTAC team has also forged strong 19 pandemic within our respective countries, collaboration with regional bodies to understand and help respond to Pacific priorities such as climate change financing across the region, and globally. Solutions and and threats to remittance flows. The close integration of the responses to the recovery lie in our own hands, Capacity Development role of PFTAC with the IMF’s other but the support and contributions of others will mandates such as surveillance, further enhances its effectiveness. be crucial, including from PFTAC to help ensure our economic policy responses, our The current phase of PFTAC operations and financing is systems, and administrative capacity are up to drawing to a close, and attention is turning to the future. Our governance arrangements through the Steering Committee the task. (SC) are vitally important to ensure the ongoing relevance and focus of PFTAC support. It is two years since we met in person A key narrative of this report is the adaptability that the 16 in Port Moresby, but SC engagement has increased through PFTAC member countries have demonstrated over the past more virtual briefings that should continue even after travel year, and similarly how PFTAC has successfully pivoted to resumes. To conclude, it is my pleasure to chair the 2021 respond to the changing needs and priorities of the virtual SC meetings as we tackle the many challenges ahead membership and adjust to remote delivery modalities. A of us over the coming year and medium-term. significant program of training and technical assistance was

ANNUAL REPORT 2021 | PFTAC 1

FOREWORD FROM THE PFTAC DIRECTOR

David Kloeden

It is my pleasure to present the PFTAC annual University of the South Pacific (USP). Gender and other cross- cutting themes, particularly relating to climate change received report for 2021, a year of extraordinary heightened attention. Samoa benefitted from the first Climate challenges but strong accomplishments. It has Responsive Public Financial Management (PFM) assessment been a year like no other, of hardship, under the PEFA framework delivered remotely by PFTAC in collaboration with partners, and PFTAC co-chaired a Technical adaptability, resilience, and new learned ways Working Group with the Pacific Islands Forum Secretariat of working remotely. Pacific nations have faced (PIFS) on PFM and Climate Change finance at the request of many challenges, with several battling COVID- the Forum Economic Ministers. A new Government of Japan 19 outbreaks, closed borders, halted tourism, financed Debt Management program was launched and a resident advisor recruited in March 2021 who is co-located and and great disruption to key economic sectors, integrated with PFTAC operations, but subject to separate together with additional health and social reporting and governance requirements. support costs in the midst of shrinking FY2021 was to be the penultimate year of the fifth phase of revenues and in some instances growing levels PFTAC operations, but large COVID-19 induced savings and of debt. PFTAC stepped up by delivering timely the welcome addition of the US government as the seventh PFTAC donor with a $US 2 million contribution in early 2021 and flexible training and technical assistance in facilitates a phase extension that is proposed through October response to new and ongoing needs. 31, 2022. Efforts have been launched to identify the priorities and needs for Phase VI. Several stakeholder working groups By the start of FY2021, COVID-19 restrictions had existed for have convened since April to help inform the 2021 Steering several months. The greatest impact was a shift to remote Committee (SC) meetings and feed into development of a delivery of Capacity Delivery (CD) programs as well as the Phase VI Program Document later in 2021 (in time for fund- need to work from home (WFH) or place of relocation, other raising to be launched in early 2022). than for a period of resumed PFTAC office operations from November 2020 until early April 2021. An impressive volume of Governance arrangements also adapted after cancellation of CD was delivered at around 72 percent of pre-COVID-19 the 2020 SC meeting in Niue. Instead, three short virtual plans, but with substantial budget savings. A significant update sessions were convened in April and August 2020 and proportion of CD missions and training events pivoted to urgent February 2021, an appreciated step-up in engagement that will topics and issues to help member countries react and respond continue. The mid-term external evaluation was completed with to new COVID-19 realities. Most countries adapted well to the the findings being shared and the report finalized. The IMF’s changed circumstances, including a few that received more CD Fiscal Affairs Department (FAD) completed reviews of the than originally planned, while some members faced PFTAC fiscal programs, with a Working Paper published on connectivity challenges and preferred deferring activities until a PFM reforms and progress from 2012 – 2020, and the third resumption of travel. Innovative approaches were trialed, update of Pacific Revenue reforms for the period 2017 – 2020. including hybrid events for in-person participation in Suva and These reviews and the external evaluation are valuable inputs other locations using campus and network facilities of the to Phase VI planning.

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LIST OF ACRONYMS AND ABBREVIATIONS

ABS Australian Bureau of Statistics FAD IMF Fiscal Affairs Department

ABP Annual Borrowing Plan FEMM Forum Economic Ministers Meeting

ADB Asian Development Bank FMIS Financial Management Information System

AF Adaptation Fund FRCS Fiji Revenue and Customs Service Association of Financial Supervisors of AFSPC FSM Federated States of Micronesia Pacific Islands Countries AML Anti-money laundering FSS Financial Sector Supervision

APD IMF Asia and Pacific Department FTC IMF Fiscal Transparency Code

ATO Australian Taxation Office FTE Full Time Equivalent

BCG Budgeting Central Government FY Financial year

BOP Balance of Payment GCF Green Climate Fund

BPNG Bank of Papua New Guinea GDDS General Data Dissemination Standard Commonwealth Association of Tax GDP Gross Domestic Product CATA Administrators GDP (E) GDP by Expenditure CBR Correspondent Banking Relationships GDP (P) GDP by Production CBSI Central Bank of the Solomon Islands GFS Government Financial Statistics CCPA Climate Change Policy Assessment GFSM Government Finance Statistics Manual CD Capacity Development GG General Government Capacity Development Management and CDMAP Administration System GNI Gross National Income IMF Capacity Development Office in CDOT HIES Household Income and Expenditure Survey Thailand HLD High Level Dialogue CFT Combating the Financing of Terrorism HQ (IMF) Headquarters CIS Compliance Improvement Strategy ICD IMF Institute of Capacity Development COA Chart of Accounts Classification of the Functions of IFRS International Financial Reporting Standards COFOG Government IIA Institute of Internal Auditors COVID-19 Coronavirus Disease of 2019 IMF International Monetary Fund Australian Department of Foreign Affairs and DFAT International Public Sector Accounting Trade IPSAS Standards DFID UK Department for International Department International Survey on Revenue ISORA DM Debt Management Administrations

DSA Debt Sustainability Analysis JICA Japan International Cooperation Agency

EU European Union KYC Know Your Customer

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LOU Letter of Understanding RBNZ Reserve Bank of New Zealand

LTO Large Taxpayer Office RBS Risk Based Supervision

LTX Long-term expert or resident advisor RBV Reserve Bank of Vanuatu IMF Monetary and Capital Markets MCM RCDC Regional Capacity Development Centre Department Cook Islands Revenue Management New Zealand Ministry of Foreign Affairs and RMD MFAT Division Trade RMI Republic of the Marshall Islands MTDS Medium Term Debt Management Strategy RMTF Revenue Mobilization Trust Fund MTO Money Transfer Operators RSN Regional Strategy Note MTRS Medium Term Revenue Strategy Medium Term Supervision Enhancement RSS Real Sector Statistics MTSES Strategy RTAC Regional Technical Assistance Centre OCO Oceania Customs Organization South Asia Regional Training and Technical SARTTAC Organization for Economic Co-operation and Assistance Centre OECD Development SC PFTAC Steering Committee Pacific Agreement on Closer Economic PACER Supervision Framework Enhancement Relations SFEP Program Pacific Association of Supreme Audit PASAI SIIRD Solomon Islands Inland Revenue Division Institutions PD Program Document SPC Secretariat of the Pacific Community

Public Expenditure and Financial STA IMF Statistics Department PEFA Accountability STI Singapore Regional Training Institute PFM Public Financial Management STX Short-term Experts PFMA Public Financial Management Act Pacific Financial Technical Assistance TA Technical Assistance PFTAC Centre Tax Administration Diagnostic Assessment TADAT PIC Pacific Island Country Tool TSA Treasury Single Account PIF Pacific Islands Forum TWG Technical Working Group PIFS Pacific Islands Forum Secretariat UN United Nations PIM Public Investment Management UNDP United Nations Development Program PIMA Public Investment Management Assessment United Nations Economic and Social Pacific Islands Tax Administrators UNESCAP PITAA Commission for Asia and the Pacific Association UNICEF The United Nations Children's Fund PNG Papua New Guinea US United States PRIF Pacific Regional Infrastructure Facility USP University of the South Pacific PSDS Public Sector Debt Statistics VAT Value Added Tax QNA Quarterly National Accounts VWG Virtual Working Group RAP Resource Allocation Plan WFH Work From Home RBA Reserve Bank of Australia

RBM Results-Based Management

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TABLE OF CONTENTS

1 9 21 A Message from the PFTAC Steering Committee Chairman SECTION I SECTION II Overview Results (May 2020 – April 11 A Overview of the Pacific 2021) 2 Financial Technical Foreword from the PFTAC Director Assistance Centre 23 A Summary and Overview (PFTAC) 38 B Revenue Administration 18 B PFTAC Programs and 3 Areas of Operation 47 C Public Financial List of Acronyms and Abbreviations Management 20 C PFTAC Member Countries and 54 D Macroeconomic Partners Programming and 5 Analysis Table of Contents 57 E Macroeconomic Statistics

62 F Financial Sector Supervision

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CHARTS 16 Chart 1. 518 Scored Milestones due by April 2021 by Program 23 Chart 2. PFTAC Achievement of 518 67 108 Milestones, FY2021 24 Chart 3. COVID-19 SECTION III SECTION IV Relatedness of 130 Work Program PFTAC Staff Missions/ Activities in (May 2021 – April FY2021 2022) 25 Chart 4. Implementation

Progress of PFTAC’s 68 A Summary and Overview Logical Framework at

April 30, 2021 76 B Revenue Administration

28 Chart 5. FY2021 Total

84 C Public Financial Management Technical Assistance Days by Country (1,677 89 D Macroeconomic days) Programming and Analysis 112 30 Chart 6. Average Daily 93 E Macroeconomic Statistics 112. Annex 1. Macroeconomic Short-Term Expert Cost Developments of PFTAC 98 F Financial Sector Supervision Member Countries 31 Chart 7. FY2021 Total 1,677 TA Days by

Program 104 G Public Debt Management

31 Chart 8. FY2021 Expert

Days Delivering and

Backstopping TA

34 Chart 9. FY2021 Final Program Outturn – Percent of Budget Expended

72 Chart 10. Distribution of FY2022 Mission Days (2,694 Days) by Program

73 Chart 11. FY2022: 200 Planned Missions/ Activities

73 Chart 12. FY2022: 2,694 Planned TA Field Days

74 Chart 13. FY2022 Workplan (2,694 Days) vs FY2021 Outturn (1,677 Days)

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BOXES

13 Box 1. PFTAC Mid-Term 46 Box 8. PFTAC/ PITAA Banking Relationships Evaluation Online Workshop on Return Filing and Tax Arrears 59 Box 16. QNA and Seasonal 26 Box 2. Main Results of Adjustment PFTAC Technical Assistance 48 Box 9. PEFA Climate Change Centre (May 2020 to April Module Assessment 60 Box 17. COVID-19 – How to 2021) Record Government Policy 50 Box 10. Cook Islands Agile Interventions in Fiscal 39 Box 3. Reinvigorating Tax PEFA Statistics Collection and Restoring Compliance Impacted by 50 Box 11. Remote Workshops: 66 Box 18. Annual Meeting of COVID-19 Budget Documentation and the Association of Financial Public Investment Supervisors of the Pacific 40 Box 4. Assistance to Cook Management Countries (AFSPC) Islands to Tackle COVID-19 Revenue Challenges 51 Box 12. FAD Review of PFM 69 Box 19. Update on the Reform Strategies for PICs, Capacity Development 41 Box 5. Training for Fiji Tax 2012-2020 Management and Auditors and Investigators Administration Program 52 Box 13. PIFS Technical (CDMAP) 44 Box 6. Tax Law Reform Working Group on PFM and Climate Change 70 Box 20. Public Debt 45 Box 7. PFTAC/ PITAA Management Program Online Workshop on 55 Box 14. Joint Macroeconomic Managing Large Taxpayers, and STI Webinars 90 Box 21. Macro-Fiscal Compliance Improvement Modelling and Effective Data Analysis 56 Box 15. Correspondent

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TABLES

30 Table 1. Average Mission Contributions for Phase V (as 75 Table 17. Proposed FY2022 Duration of April 30, 2021) Budget by Program (US Dollars Millions) 30 Table 2. PFTAC TA Delivery 37 Table 10. Proposed FY2022 by STX/ LTX Days and and FY2023 Budgets (US 78 Table 18. FY2022 Work Missions: FY17, FY18, FY19, Dollars Millions) Program: Revenue FY20, FY21, FY22 (Plan) Administration 53 Table 11. PEFA and PIMA 32 Table 3. Execution of Work Assessments and PFM 85 Table 19. FY2022 Work Program During Fiscal Year Roadmaps in Pacific Island Program: Public Financial 2021 (In Person Days) Countries Management

91 Table 20. FY2022 Work 32 Table 4. Implementation of 64 Table 12. Supervisory Program: Macroeconomic the Fiscal Year 2021 Work Framework Enhancement Programming and Analysis Program (In Number of Program

Activities) 95 Table 21. FY2022 Work 64 Table 13. Prudential Program: Macroeconomic 33 Table 5. FY2021 Workshops/ Standards – Alignment with Statistics (Government Seminars Basel II (Pillar 2) and Basel III Finance Statistics) (Pillar 1 and 3) – Phase 1

34 Table 6. PFTAC FY2021 96 Table 22. FY2022 Work 64 Table 14. Risk Management Budget (US Dollars) By Program: (Real Sector Standards – Alignment with Program Statistics) Basel Core Principles and

Basel III Guidance 35 Table 7. PFTAC FY2021 99 Table 23. FY2022 Work

Final Outturn (US Dollars) Program: Financial Sector 71 Table 15. FY2022 Planned By Program Supervision Workshops/ Seminars

35 Table 8. PFTAC FY2021 105 Table 24. FY2022 Work 74 Table 16. Proposed FY2022 Final Outturn (Percent) By Program: Public Debt Budget by Line (US Dollars Program Management Millions)

36 Table 9. Status of Financial

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SECTION I

OVERVIEW

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The US Joins PFTAC as Seventh Donor - Welcome Event at PFTAC Conference Facility

ANNUAL REPORT 2021 | PFTAC 10 SECTION I OVERVIEW OF THE PACIFIC FINANCIAL TECHNICAL ASSISTANCE CENTRE A

INSITITUTIONAL FRAMEWORK

The Pacific Financial Technical Assistance Center (PFTAC) was established in 1993 as the IMF’s first Regional Technical Assistance (TA) Center. It is now part of a network of 17 IMF Regional Capacity Development Centers (RCDC) globally. The aim of PFTAC is to strengthen the institutional capacity of Pacific countries to design and implement sound macroeconomic and financial policies to support macroeconomic and financial stability—essential underpinnings for sustainable and inclusive growth, and achievement of the Sustainable Development Goals.

PFTAC delivers TA and Training PFTAC Director, David Kloeden with Charge D’Affairs of the US Emabssy in Suva Tony Gruebel and known as Capacity Development (CD) Joanne Houghton, Counsellor Development Cooperation, Australian High Commission, Suva to 16 member countries in the Pacific. with a $US 2 million contribution in late the 16 member countries, the seven PFTAC member countries comprise December 2020. For the first time, donors, and the IMF provide the Cook Islands, Federated States of member countries are contributing 10 governance and oversight of PFTAC Micronesia, Fiji, Kiribati, Marshall percent of costs in PFTAC’s fifth phase operations, with each member having Islands, Nauru, Niue, Palau, Papua of operations. Furthermore, member an equal voice. The PFTAC director New Guinea, Samoa, Solomon countries also contribute through in- acts as the SC secretary, with the Islands, Timor-Leste, Tokelau, Tonga, kind support for training activities in the chair usually a senior representative of Tuvalu, and Vanuatu. region, and development partners also the country hosting the SC meeting

contribute through co-funding of that rotates annually. Member The IMF finances CD delivery in the workshops. The IMF contribution countries volunteer to host and chair region from its own resources and finances the center director, most local meetings, and in 2018, Tonga as the through contributions from New support employees, and certain office intended host chaired even with a late Zealand, Australia, the European overheads. venue shift to Fiji following a Union (EU), Korea, Canada, the Asian devastating cyclone that hit Tonga just Development Bank (ADB), and most weeks before the scheduled meeting. recently, the United States when it GOVERNANCE The FY2021 annual SC meeting became the seventh PFTAC donor A Steering Committee (SC) comprising planned for Niue in March 2020 was

ANNUAL REPORT 2021 | PFTAC 11 canceled given COVID-19 restrictions, request of member countries. In the of both fragile and small states. with three virtual meetings convened second half of 2021, the PD for Phase instead in April and August 2020, and VI will be developed to cover the Identified fiscal issues over the February 2021 to keep SC members period that is expected to start medium term include revenue and observers informed of November 1, 2022 and run for at least mobilization possibly in the context of developments throughout FY2021.The 60 months, or possibly 66 months to Medium Term Revenue Strategies broad interest and participation in coincide with the end of a fiscal year (MTRS), PFM priorities around these short, virtual engagements are (i.e. end of FY2028 on April 30, 2028). heightened fiscal risks, and for the worth retaining to supplement the Stakeholder views, inputs, and Pacific, resilience, and public annual face-to-face SC meeting even preferences for Phase VI will be investment management in the context after the COVID-19 crisis has abated solicited at a special SC meeting on of climate change. Rising debt levels and travel resumes. July 2, 2021 to feed into the call for more emphasis on debt-related development of the PD. To ensure all CD including on debt statistics, debt SC meetings have traditionally been voices and views are considered, and dynamics, and debt management. In convened in late-March to report on given that the SC meetings are being many countries, debt will continue to achievements and activities in the held virtually over very limited two-hour rise as a result of the policy responses concluding fiscal year (that runs from sessions, five Virtual Working Groups to the COVID-19 crisis, boosting the May 1 to April 30), and to endorse (VWG) were established in April 2021 demand for debt analytics and workplans and budgets for the to solicit and develop inputs for adjustment scenarios. Countries are upcoming fiscal year. From 2021 presentation and consideration at the aiming to modernize their debt and across all IMF centers, SC meetings July 2 meeting. The VWGs are contingent liabilities management legal are shifting to a month or so after the thematically focused in line with the frameworks to meet challenges arising start of the new fiscal year, and in the PFTAC programs, covering: (1) Public from the ongoing crisis. The COVID-19 case of PFTAC, to late June 2021.This Financial Management (PFM); crisis has highlighted the importance of shift is part of a larger array of CD (2) Revenue Policy and Administration; high quality and better coverage of management reforms being (3) Financial Sector Supervision; fiscal and financial data to support implemented by the IMF, including the (4) Macroeconomic Statistics; and fiscal and public financial management launch of new Information Technology (5) Macroeconomic Programming and (PFM). There is also a need for higher platform and reengineered business Debt Management. The PFTAC quality balance of payments (BOP) processes. advisor/s helps facilitate each VWG statistics for some countries, and there that will have met 3 – 4 times by the is emerging interest in high frequency PFTAC operates in the context of SC meeting, with a membership of 2 – indicators of economic activity to track funding cycles, with the end of the fifth 3 member countries, 1 – 2 donors, and the impact of COVID-19, including phase now approaching (having if applicable, a regional organization or through use of new data sources. commenced in November 2016, and partner. originally due to conclude in April The COVID-19 crisis has highlighted 2022). However, the June 2021 SC CAPACITY DEVELOPMENT (CD) the importance of financial topics, most meeting will be asked to endorse a six- STRATEGY notably the continued monitoring of month extension of Phase V to end- systemic risk, fintech and the digital October 2022 given very large COVID- PFTAC remains the IMF’s primary economy with potential to deepen and 19 induced budget savings in FY2021 provider of CD in the Pacific. Regional broaden financial usage to under- and extra contributions with the delivery of CD, backstopped by the served household and firms, and, addition of the US government as the IMF’s CD Departments, allows speedy importantly, timely and good oversight seventh donor. and tailored CD provision, facilitates of financial institutions. The COVID-19 coordination and cooperation with key crisis has increased the importance of Each phase is guided by the Program donors and development partners, CD on macroeconomic frameworks. Document (PD) that sets out the lowers CD delivery costs, and Governments have taken a variety of objectives in a medium-term contributes to building regional support approaches to mitigating the impact of framework to define the PFTAC networks. Expanding upon the the pandemic on their economies. programs and, quantifying the priorities and strategies documented in Evaluating the full implications of their resource requirements for fund-raising the Phase V PD, PFTAC is also policy choices requires a well- purposes. It is usually published 6 – 12 guided by the IMF’s Asia Pacific developed (and flexible) months ahead of the start of the Department (APD) medium-term macroeconomic framework, phase. Once the phase is underway, Regional Strategy Note (RSN) for CD appropriate near-term forecasting, and proposed changes in the scope or for FY2022 through FY2024. Priorities projection tools, as well as improved priorities can be considered by the SC for the region are heavily influenced by institutional frameworks of central for endorsement if supported by the the response to COVID-19 with an banks and ministries of finance. IMF and subject to budget constraints. expected growth in demand for CD, An example during Phase V was the with a specific emphasis on the needs extension of the GFS program at the

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BOX 1. PFTAC MID-TERM EVALUATION

All RCDCs, including PFTAC, are subject to an independent external evaluation at the mid-point of the operating phase. Following competitive tendering, the Phase V mid-term evaluation (MTE) of PFTAC was launched in late 2019 to review the first 30 months of Phase V operations between November 2016 and April 2019. The evaluation fact-finding and field visits could not proceed because of COVID-19 travel restrictions, causing delays to the evaluation and necessitating all information gathering, surveying, and stakeholder interviews to be conducted virtually. After several rounds of internal review by affected IMF departments in early 2021, and several iterations of the draft evaluation report, an updated version was shared in early May 2021 with the SC evaluation sub-committee for stakeholder review and feedback to allow for its finalization to influence changes to improve PFTAC operations and effectiveness particularly in the context of the next phase.

The evaluation assessed the relevance, effectiveness, efficiency, sustainability and impact of 74 of its 91 projects in six programs, providing recommendations to improve performance and guide the future direction of the center. A summary of some of the key findings and recommendations are as follows:

• PFTAC Phase V programs and objectives are aligned with, and supportive of, member countries’ national priorities. PFTAC responded effectively and in a timely manner to member countries’ needs in most program areas and countries over the review period.

• All stakeholders agreed that PFTAC provided excellent overall value for money, offering high-quality TA and training in specialized topics on a cost-effective basis. PFTAC has strong systems in place to design and monitor the quality of CD products and services provided to member countries.

• PFTAC effectiveness varied by program area and jurisdiction. Across all programs, PFTAC CD projects realized, on average, 55 percent of planned milestones for the evaluation period. PFTAC projects contributed to changes and improvements in organizations in member countries, such as the production of data and analysis to inform decision making; the reduction of risk through improved oversight; and strengthened fiscal positions of some countries due to advancements in tax administration.

• Development partner coordination during Phase V was noted to have improved, with PFTAC playing an important role in developing regional networks.

• Eight recommendations have been made based on the Mid-Term Evaluation findings and lessons learned. These include strengthening the role of member countries in PFTAC governance; the continued adoption of a hybrid delivery model; strengthening support for center staff and experts.

• Additionally, the Evaluation recommended improving the use of RBM to support a more program-based approach to country prioritization of needs, resource use and sequencing of CD delivery; better integrating priority thematic areas into PFTAC programs; and allocating resources to develop regional expertise.

PFTAC PROGRAMS travel whatsoever, with many of the the Marshall Islands in the initial team dispersed away from Fiji. The months of the crisis - supporting APD PFTAC is managed by a Coordinator, strong networks and relationships that mission chiefs and teams who were retitled Director from May 1, 2021. CD the advisors and their predecessors similarly adjusting to remote policy is provided by a team of resident forged over many years were engagement with country authorities. advisors with substantial expertise in instrumental in the success in pivoting their respective sectors. The PFTAC from face-to-face in-country CD Before COVID-19, the resident office that was recently refurbished delivery, to virtual delivery through a advisors on average would spend and modernized is located on the variety of communication channels. about half of their time each year on seventh floor of the Reserve Bank of This also proved beneficial throughout missions to member countries and the Fiji building in Suva and shared with the year where these networks were balance of their time at the PFTAC staff of the regional IMF Resident additionally tapped to further integrate office, maintaining an active dialogue Representative office. Before COVID- the IMF’s surveillance function with the with their counterparts following up on 19, the advisors were based in Fiji and CD delivery of PFTAC. Several previous CD or preparing for upcoming travelled extensively throughout the PFTAC advisors temporarily missions or activities. Although all region, but for the entirety of FY2021, contributed to the work of APD country FY2021 work was virtual, the CD was delivered remotely without any teams including Nauru, Tuvalu, and distinction and accounting for field

ANNUAL REPORT 2021 | PFTAC 13 (albeit remotely delivered) and back- office activities has been retained. The resident advisors also manage the short-term experts (STX) employed to assist with delivery of the CD programs. The skills mix of the advisors reflects the priority needs of the member countries. The Director and advisors are assisted in delivering the CD program, finances, reporting, travel arrangements, workshop and conference logistics and other Center activities by four locally engaged staff and an economic analyst.

The composition and resourcing of PFTAC programs remained PFTAC Conference Facility unchanged in FY2021 with the appointment will end in August 2021 FY2022, the IMF is shifting away from exception of a new Debt Management without replacement; and the concept of an annual RAP, to a (DM) program that is co-located and (5) Macroeconomics Programming Medium Term Workplan of projects closely integrated with PFTAC with a single advisor. The PFM and targeting objectives and outcomes, operations but financed separately by Revenue advisors are backstopped by and a deemphasis on outputs such as the government of Japan with separate the Fiscal Affairs Department (FAD), missions. The FY2021 work program governance and reporting obligations. FSS and DM advisors by the Monetary was developed before the onset of The DM program has a $US 3 million and Capital Markets (MCM) COVID-19 and was subject to budget separate from PFTAC over Department, Macro by APD, and the substantial revision as the year three years (through end-FY2024), but Statistics Department for RSS and unfolded. Crises give rise to new CD otherwise resembles other PFTAC GFS. The assignments of three of the needs and reprioritization of CD programs in terms of a resident seven advisors ended during FY2021, efforts, particularly those with multi- advisor who was recruited in March with successors recruited, on-boarded, year horizons entailing significant 2021 and will be supplemented by and benefiting from a virtual overlap legal, institutional, and procedural STX to deliver a medium-term work and handover period with their change and reform. Since the onset of program of demand-driven DM predecessor before eventually arriving the COVID-19 crisis, PFTAC pivoted projects for member countries as well in Fiji in late 2020. For at least half of nimbly to deliver CD remotely. as regional workshops and training the year, all work was undertaken Workplans during FY2021 adjusted to events. It is expected to have virtually from home, including for most new demands that have been synergies and work closely with other advisors from places of relocation until classified by their COVID-19 PFTAC programs, particularly the PFM repatriation to Fiji. Local administrative relatedness. More than 75 percent of and Macro programs, as well as staff similarly worked from home PFTAC CD in FY2021 had some development partners active in the DM (WFH) given COVID-19 restrictions degree of COVID-19 relatedness, with space such as the ADB and World until all team members in Fiji returned close to half being moderately or Bank. to work at the PFTAC office in October predominately responding to COVID-

2020. In April 2021, all PFTAC staff 19 priorities. Throughout FY2021, seven resident had to return to WFH arrangements PFTAC advisors continued to deliver given a COVID-19 outbreak in Fiji. The emphasis on fiscal issues grew and manage five CD programs, almost further in FY2021 given the importance entirely remotely given COVID-19 The annual work program is agreed at in the region of ensuring sustainable restrictions. These programs comprise: the beginning of the fiscal year (FY) as public finances, particularly in the (1) PFM with two resident advisors, part of the integrated IMF Resource wake of COVID-19, with the two core both newly appointed in FY2021; Allocation Plan (RAP), but changes PFM and Revenue programs (2) Revenue administration with one typically occur during the year to accounting for two thirds of PFTAC advisor and recruitment underway for accommodate emerging CD requests field activity (Revenue 52 percent and a second advisor from October 2021; following agreement between APD and PFM 16 percent), up from around half (3) Financial Sector Supervision (FSS) relevant CD Departments. The PFTAC over many years. This growth is with one advisor appointed in FY2021; RAP is prepared under the leadership primarily the result of a substantial (4) the Macroeconomic Statistics of APD, in close collaboration with scaling-up of the Revenue program program with a resident Real Sector PFTAC staff and the functional CD with additional funding provided by Statistic (RSS) advisor and a departments supporting the delivery of Australia since FY2019, with delivery Government Finance Statistics (GFS) TA and training in the region. From remaining elevated throughout program and advisor whose

ANNUAL REPORT 2021 | PFTAC 14 FY2021, even delivered remotely. The client bases. There are additionally CROSS CUTTING ISSUES: Statistics programs accounted for 13 national organizations providing GENDER AND CLIMATE percent of field resources in FY2021, assistance in the Pacific that PFTAC CHANGE closely followed by FSS at 12 percent, also works closely with, such as the and the Macro program at 7 percent. Australian Bureau of Statistics (ABS) PFTAC is alert and responsive to and New Zealand Statistics, the issues that do not necessarily fit PARTNER COLLABORATION Australian Tax Office (ATO), and exclusively under a single PFTAC particularly during FY2021, the program, but sometimes cut across A beneficial feature of the PFTAC Reserve Banks of Australia (RBA) and two or more programs, including model has been the close cooperation New Zealand (RBNZ) on tackling the issues such as climate change, with development partners and remittance challenges facing the inequality, and gender that are national, regional, and international region. recognized as regional IMF priorities in organizations. PFTAC is able to draw the RSN for APD, as well as disability on the convening authority of the IMF, The importance of working together issues. Some of these issues are benefiting from a wealth of experience grows as more organizations expand becoming of increasing relevance to and institutional knowledge in their presence and contributions in the work of the IMF, where they are collaborating with those entities that areas of common interest. For recognized as macro-critical, and by share common objectives to support example, the ADB is scaling-up its extension to PFTAC once the the sustainable and inclusive revenue mobilization efforts that macroeconomic implications come into development of member countries. necessitates close collaboration with focus through surveillance and are Close PFTAC collaboration with the PFTAC Revenue program, with incorporated into CD planning if the regional partners is vital to leverage PITAA being the ideal entity for efforts IMF has a comparative advantage vis- the impact of PFTAC. Our long and to coalesce. Similarly, the ADB has à-vis other organizations. Of important productive history of working closely recently launched programs to help note, neither the IMF nor PFTAC are together and jointly delivering training strengthen macroeconomic statistical expert agencies focused on issues like and even some TA with regional capacity in the Pacific that is gender, climate change, or disability at groups has continued, even in an particularly welcome but will the microeconomic level, but where online virtual world. This includes the necessitate close collaboration with research demonstrates that Pacific Association of Supreme Audit PFTAC and other partners in this appropriate policies in these areas can Institutions (PASAI), extensive space such as the ABS, SPC, the contribute to sustained and inclusive collaboration with the Pacific Islands World Bank, and New Zealand growth, the IMF has a particular Tax Administrators Association Statistics. interest in such policies and (PITAA) on many tax topics along with institutional capabilities to deliver this the Oceania Customs Organization PFTAC’s regional cooperation was potential. (OCO), the Association of Financial notably expanded in FY2021 through Supervisors of Pacific Island Countries active engagement with the Pacific Climate change has been increasingly (AFSPC), and educational institutions Islands Forum Secretariat (PIFS) elevated in recent years for the IMF, including USP and Griffith University’s through a Technical Working Group and particularly with respect to the South Pacific Center for Central (TWG) that PFTAC co-chairs with PFTAC PFM program where it gained Banking. PIFS on the nexus of PFM and greater prominence through the pilot Climate Change financing. joint IMF/World Bank Climate Change Working closely with development partners such as the ADB, the World Bank, the Organization for Economic Development and Cooperation (OECD), and regional organizations like the Secretariat of the Pacific Community (SPC), as well as United Nations (UN) agencies such as the UN Development Programme (UNDP) and the UN Economic and Social Commission for Asia and the Pacific (ESCAP), ensures that the comparative advantages and expertise of these organizations are melded with the economic and financial expertise of PFTAC to deliver well-rounded and comprehensive events for our respective, and mostly overlapping PFTAC Partners and Resident Advisors

ANNUAL REPORT 2021 | PFTAC 15 Policy Assessments (CCPA- including accreditation process for accessing IMF engagement and research on a in Tonga in early 2020); and the first climate funds; and (iii) UNDP research range of gender issues of macro- PEFA Climate assessment for Samoa into climate finance and its criticality, including work place led by PFTAC in late 2020, bringing effectiveness, identifying enablers and participation, financial inclusion, together a large group of partners for barriers to climate financing. gender-based budgeting, and gender the assessment and peer review issues for revenue administration that processes. The PFTAC team also Gender issues are also gaining is increasingly being reflected in the recently met with officials from the prominence in IMF and PFTAC policy discussions under the IMF’s Australian Pacific Climate Partnership activities. Gender responsive surveillance role. to explore opportunities for budgeting is a regular issue in the collaboration. PFM program, including recent PEFA RESULTS BASED Gender Responsive PFM MANAGEMENT PFM is central to governments’ assessments, with an assessment response to climate change, and requested and planned for Nauru in Our Results Based Management access to climate financing requires FY2022. The IMF research agenda (RBM) framework was developed to robust PFM systems, and PEFA continues to expand upon gender categorize all IMF provided CD assessments are crucial to issues, such as female labor force according to a small number of high- demonstrate sound national systems. participation that is a macro-critical level objectives that expands into a set It is in that context that PFTAC co- issue where appropriate policies have of typically targeted outcomes per chairs with PIFS the TWG on PFM and been demonstrated can contribute to objective. Each CD department has Climate Change Finance as requested even greater inclusive growth. A recent developed its own catalogue to ensure by the 2019 Forum Economic IMF podcast on Gender and Revenue consistency in developing, Ministers Meeting (FEMM). The Administration likely heralds documenting, and importantly informal TWG was established in heightened attention to the nexus of reporting CD activities. The PFTAC March 2020 and has met nine times. It gender and taxation. During the program draws on elements of operates with a strong mandate of the period, PFTAC staff were approached catalogues developed by FAD (PFM, FEMM which highly commended the to discuss and explore opportunities Revenue Administration, and Tax group at its August 2020 meeting, with for collaboration with the Australian Policy), STA, and MCM, as well as a a membership comprising supported Pacific Partnership for bespoke catalogue for the representatives from PIFS, PFTAC, Social Protection in addition to the Macroeconomics program that is the IMF Fiji resident representative, UNICEF team in Suva. backstopped by APD. PFTAC works UNDP, the World Bank, ADB, the EU, towards only a fraction of the CD areas the Australian Department of Foreign The proportion of female training covered by the entire IMF catalogue. Affairs and Trade, (DFAT), the New participants was 45 percent in FY2021, During FY2021, the PFTAC programs Zealand Ministry of Foreign Affairs and up marginally from 44 percent in were working towards 15 high-level Trade (MFAT), and the UK FY2020 across 17 regional events objectives cited throughout this report, Department for International comprising virtual workshops, courses, drilling down to 54 outcomes. (PFM Development (DFID). The TWG and short webinars delivered by April works on 6 core objectives towards 11 oversees 3 workstreams: (i) PFTAC 2021. PFTAC outreach through social outcomes; the Revenue program support to the climate related PFM media and other traditional channels works on 2 core objective areas agenda; (ii) PIFS guidance on the continues to highlight developments of towards 10 outcomes; the FSS program works on 4 core objective CHART 1: 518 SCORED MILESTONES DUE BY APRIL 2021 BY PROGRAMS areas towards 8 outcomes; the Real Sector Statistics program works on a Revenue single objective towards 13 outcomes; Financial Sector Administration, 67 Supervision, 130 the GFS program works towards a single objective and 8 outcomes; and the Macroeconomics program also has a single objective towards 4 Public Financial outcomes). We actively tracked and Management, 63 Macroeconomic reported on the progress of 804 Programming, 35 milestones in Phase V of which 518 were expected to be achieved during the period or earlier. Given the disparate nature of workstreams, Real Sector associated milestones may vary in Government Statistics , 105 levels of detail and the number. Finance Statistics, 118

ANNUAL REPORT 2021 | PFTAC 16

PFTAC Steering Committee Update, February 2021

ANNUAL REPORT 2021 | PFTAC 17

SECTION I PFTAC PROGRAMS AND

AREAS OF OPERATIONS

B

REVENUE ADMINISTRATION PUBLIC FINANCIAL MACROECONOMIC MANAGEMENT PROGRAMMING In the area of revenue policy and administration, PFTAC supports In this area, the Center supports the This program aims to improve member countries to strengthen the planning and prioritization of PFM macroeconomic policy advice to capacities of tax administrations, reforms based on the PEFA framework governments and central banks mobilizing tax revenue, improving and assessments; strengthening legal through more effective medium-term taxpayer compliance, and promoting frameworks; strengthening budget economic frameworks and forecasting citizens’ ownership of their role as preparation, budget transparency, capacity. taxpayers. execution; and strengthening budget monitoring, reporting and OBJECTIVES OBJECTIVES accountability. (1) Well-functioning macroeconomic (1) Strengthened revenue OBJECTIVES policy and institutions and administration management and improved macroeconomic policy governance arrangements (1) Improved PFM laws and effective advice to government through institutions sound medium-term (2) Strengthened core tax macroeconomic frameworks; administration functions, including (2) Comprehensive, credible, and strong institutions for policy an accurate taxpayer base, quality policy-based budget preparation making; improved public access to taxpayer services supporting key macroeconomic and fiscal voluntary compliance, and (3) Improved budget execution and information; and sound improvements in filing, payment, control supported by an efficient macroeconomic surveillance and and audit services financial management information policy/ research available for system (FMIS) and with policy making (3) Improved legal frameworks responsive internal audit

(4) Improved coverage and quality of fiscal reporting

(5) Improved asset and liability management

(6) Strengthened management of fiscal risks

ANNUAL REPORT 2021 | PFTAC 18 GOVERNMENT FINANCE REAL SECTOR STATISTICS BANKING REGULATION AND STATISTICS SUPERVISION In this area, the Center supports the In this area, the Center supports the member states in compiling national In this area, the Center helps the member states in compiling and accounts that are robust and compliant countries create resilience in their harmonizing government finance with international standards and in banking systems through sound statistics to ensure they are both implementing effective economic regulation that helps promote financial reliable and consistent with policy tools. stability and better access to finance. international standards. OBJECTIVES OBJECTIVES OBJECTIVES (1) Strengthened compilation and (1) Strengthened financial sector (1) Strengthened compilation and dissemination of data for decision surveillance through upgrading of dissemination of data on financial making regulatory framework in line with statistics for decision making international standards

(2) Enhanced transparency of (2) Make more efficient use of financial statistics for decision supervisory resources to better making through strengthened oversee key risks in the banking dissemination via the Fund’s Data system Standard Initiative (3) Ensure that banks have strong capital and liquidity positions that adequately cover their risks and contribute to financial system stability

(4) Improved supervisory effectiveness through enhanced capacity in IFRS knowledge related to provisioning

ANNUAL REPORT 2021 | PFTAC 19

SECTION I PFTAC MEMBER COUNTRIES AND

PARTNERS C

PFTAC MEMBER COUNTRIES

PFTAC DONORS

Asian Development Bank Australia New Zealand European Union

United States Canada Korea

ANNUAL REPORT 2021 | PFTAC 20

SECTION II

RESULTS (MAY 2020 – APRIL 2021)

ANNUAL REPORT 2021 | PFTAC 21

Joint PFTAC STI Macro-Fiscal Training, March 2021

ANNUAL REPORT 2021 | PFTAC 22

SECTION II SUMMARY AND

OVERVIEW

A

FY2021 was an extraordinary year by given the shift to remote delivery and the large resultant savings in travel and in-person any measure. The COVID-19 crisis training budgets. and economic impact affected every country, including those Pacific nations Given the fiduciary obligations to account for the financial contributions from donors that managed to remain virus free or and member countries, this report provides substantial elaboration about PFTAC’s contained. While a few economic inputs and outputs during FY2021. However, outcomes are what ultimately matter to sectors held up, others such as advance each member country and the region towards overarching objectives of tourism were decimated by the closure inclusive and sustainable growth and macroeconomic and financial stability, and in of borders. Many economies were hit FY2021 specifically, responding to the COVID-19 crisis. During Phase V, the six hard, and in the context of COVID-19, PFTAC programs cumulatively work towards 15 high level objectives, six for PFM, two new priorities and costs to shore up for Revenue, four for FSS, and one each for the Macro and two statistics programs. public health systems arose. Pacific The new Debt Management program will work towards four core objectives. citizens and institutions displayed remarkable resilience in tackling these CHART 2. PFTAC ACHIEVEMENT OF 518 MILESTONES, 2021 many challenges. PFTAC pivoted to these challenges. After an initial move Not Achieved Partially Achieved Largely Achieved Fully Achieved to virtual CD delivery in late FY2020, the entire work program with just a few exceptions in FY2021 was delivered RSS remotely with great innovation and cooperation of the beneficiaries. The Revenue PFTAC team delivered an impressive CD program in response to new or PFM heightened priorities from various locations in Fiji and beyond. Macro

There are a range of metrics that GFS PFTAC’s work can be measured and reported against - inputs, outputs, FSS outcomes, and ultimately impacts. Traditionally reported inputs include 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% budget and resource allocation that translate into missions, training events, As noted in Chart 2 above, 518 predefined milestones were expected to be achieved and other CD deliverables, and the by the end of April 2021 across the six PFTAC programs that have been tracked and outputs they generate including summarized at Chart 4 to reflect the degree of completion of the milestones, with each strengthened capacity from new skills milestone scored from 1 (not achieved) to 4 (fully achieved), noting that milestones are and tools, mission reports, strategy project specific and not standardized or comparable. documents, and medium-term economic frameworks. The volume of Chart 4 provides a snapshot of the programs that PFTAC has worked with member CD outputs delivered in FY2021 held countries towards these 15 targeted objectives. The chart differs from those in the 2019 up remarkably well, achieved with a and 2020 annual reports in that average milestone ratings cannot be published at the considerably lower expenditure outturn country level without the explicit approval of each country. However, the dissemination

ANNUAL REPORT 2021 | PFTAC 23 rules allow for the publication of simple methodology was instituted to categorize all workplan activities as to their targeted country-level outcomes COVID-19 relatedness. without prior consent provided ratings are not divulged. Therefore, the CHART 3. COVID-19 RELATEDNESS OF 130 MISSIONS/ACTIVITIES IN FY2021 colored disks reflect projects by program and country where milestones have been established. If the average milestone score for an outcome has 1 - Not COVID Related changed during FY2021, it is shown 22% 21% with a green disk, and if fully completed in FY2021, with an 2 - Indirectly COVID Related additional check mark. Projects with milestones newly defined in FY2021 are designated by orange disks, and 3 - Moderately COVID Related red disks indicate that there was no 21% change in the average milestone 36% 4 - Predominantly COVID score, or the milestones were Related postponed until FY2022 or later.

More important than average milestone or outcome scores is the progress that member countries are All activities were classified under four broad categories: (1) Not COVID-19 related; actually making towards their (2) Indirectly COVID-19 related – while the objective of the TA was unrelated to objectives from the CD that PFTAC responding to the COVID-19 crisis, indirect benefits to the response are expected to provided in FY2021. To that end, Box result; (3) Moderately COVID-19 related – while the original objective of the TA was 1 provides a country-by-country unrelated, the impact and benefits are more directly related to responding to the crisis; summary of the main results achieved and (4) Predominantly COVID-19 related – possibly in direct response to a request or underway during the year, and then from the authorities, or existing work that was already strongly corelated to the crisis the subsequent chapters elaborate in response or is after some recalibration. For the 130 missions and other activities detail the efforts of each program and delivered in FY2021, more than half (57 percent) were respectively indirectly or the impact being observed on the moderately COVID-19 related (classification 2 and 3), 22 percent was unrelated ground. (classification 1), and the balance of 22 percent was predominantly COVID-19 related (classification 4). PFTAC has always operated a ‘demand-driven’ CD model that reflects Examples of predominantly COVID-19 related topics (classification 4) include revenue the highest priorities and needs of the business continuity and compliance improvement responses, webinars on addressing member countries. Changing COVID-19 issues, PFM reform roadmaps, cash management, public investment circumstances requires flexibility to management, and quarterly national accounts, Examples of moderately COVID-19 adjust to new and emerging priorities, related topics (classification 3) include tax policy reviews, tax reform implementation, and never more so than in FY2021 strengthened large taxpayer administration, improved tax arrears and filing, with the COVID-19 crisis. The baseline strengthened internal audit (particularly COVID-19 expenditures), improved GFS data, FY2021 workplan was developed GDP(E) compilation, medium-term macroeconomic forecasting, and managing cyber before the onset of COVID-19, so the risks. Examples of Indirectly COVID-19 related topics (classification 2) include evolution and changes to the strengthening taxpayer services, IT strategies, strategic planning, organizational workplans were greater than at any reforms, tax audit training, diagnostic assessments (PEFA, TADAT), strengthening time in the past. To help focus the budget documentation, ongoing financial supervision reforms, GDP rebasing, National relevance of the workplan activities Accounts training, and inflation forecasting. that were retained, and to ensure the appropriateness of new priorities, a

ANNUAL REPORT 2021 | PFTAC 24 CHART 4. IMPLEMENTATION PROGRESS OF PFTAC’S LOGICAL FRAMEWORK AT APRIL 30, 2021

ANNUAL REPORT 2021 | PFTAC 25 BOX 2. MAIN RESULTS OF PFTAC TECHNICAL ASSISTANCE CENTER (MAY 2020 TO APRIL 2021)

COOK ISLANDS medium-term revenue recovery • Further drafting assistance to options, tax audit function modernize the Income Tax Act and • Finalization of off-site financial risk strengthened through audit and Tax Administration Act. analysis and risk rating reforms to investigations skills development strengthen bank risk assessment program, support on taxpayer PALAU framework services, and review of tax reform • Continuation of the Banking progress completed • GFS compilation techniques refined Regulatory Reform project – revised

to use administrative data sources draft banking law and regulations FEDERATED STATES OF finalized with training provided on MICRONESIA (FSM) • Staff capacity built on benchmarking risk based supervision and seasonal adjustment to publish • GFS assistance provided to improve seasonally adjusted data on compilation technique for using • GFS support to refine compilation quarterly national accounts various administrative data sources technique and coverage extended to to reduce statistical discrepancies General Government (GG). • Agile-PEFA assessment completed KIRIBATI • Revenue support to assist with the • Tax Policy Review completed to implementation of tax reform • PFTAC participation in Ministry of assist authorities with options to agenda and GST. Legal assistance Foreign Affairs and Trade (MFAT, recoup losses from trade taxes, to finalize amendments to the Tax NZ) led project on strengthening the Compliance Improvement Strategy Reform Bill and drafting of VAT/ supervision of the financial system (CIS) developed to improve Income Tax legislation in Kiribati. monitoring and evaluation of

compliance risk mitigation, Taxpayer PAPUA NEW GUINEA • Revenue support on strengthening Services Strategy designed with tax audit function, tax audit skills • Finalization of the regulatory drafting assistance to finalize tax development training provided to component of the Supervision administration law, and review of build staff capacity, assistance to Framework Enhancement Program - revenue reforms undertaken improve taxpayer service, tax comprehensive suite of risk

arrears collection and returns management prudential standards FIJI collection, with legal support to developed • Continuation of Insurance finalize Seabed Mining legislation Regulatory Reform project – (SBM) • PFM Roadmap developed following assistance provided to Reserve the 2019 PEFA assessment Bank of Fiji to finalize draft law and NAURU consultation with industry • Revenue support with HQ to review • Additional support for national Chart stakeholders. Training conducted on Medium Term Revenue Strategy of Accounts (CoA) mapping to GFS draft example law and Prudential (MTRS) reforms and compilation of institutional unit Standards table for public sector. REPUBLIC OF MARSHALL ISLANDS

• GFS compilation techniques for (RMI) • Compilation of draft 2018-19 GDP using various administrative data estimates and collection of improved • Continuation of the Banking sources refined to reduce statistical industry data Regulatory Reform project – draft discrepancies banking law and regulations

• Support on Macro Forecasting, reviewed, and amendments • Resumption of Quarterly National National Accounts and Economic finalized. Risk based supervision Account (QNA) – compilation of Models to strengthen medium term training provided to build staff QNA data on GDP(P) (GDP by macroeconomic framework capacity for RBS implementation Production) and drafting of

documentation on QNA sources and • Tax Policy review completed led by • GFS compilation techniques refined, methods FAD to identify potential revenue and coverage extended to GG.

reform options with tax law reform • Macro-fiscal modeling and COVID- support on taxation of Foreign • National accounts support on 19 scenario planning Income and consolidation of Tax independent compilation of GDP(P)

Laws and staff capacity built on GDP(P) • Internal audit of the budget process compilation and national specifics of reviewed, and updated training NIUE data sources provided on risk based internal audit

• Finalization of the draft Public • PFTAC facilitated an IMF tax policy Financial Management Act (PFMA) mission by FAD focusing on

ANNUAL REPORT 2021 | PFTAC 26 • Macroeconomic support to adjust legal support on drafting of territorial with mapping of national chart of the economic forecast adjusted for tax law accounts (CoA) to GFS COVID-19 impacts SOLOMON ISLANDS • Compilation of experimental QNA • Manual for the Marshall Islands data on GDP, both unadjusted and • Continuation of SFEP project - Fiscal Model (MI-FM) and Medium seasonally adjusted assistance on stakeholder Term Budget and Investment consultation for new suite of Framework (MTBIF) compiled • PFM reform program developed, prudential standards and PFM legal framework and legislation development of financial risk • Revenue support with review of tax reviewed, and recommendations analysis process reforms and core tax functions. provided to advance the PFM

reforms identified in the roadmap • Government spending classified by SAMOA with staff capacity built to produce functional category, PSDS IPSAS compliant financial • Staff capacity built on insurance submitted to the joint WB/IMF PSDS statements legislation and prudential standards. database and information provided

on recording government policy • TADAT assessment undertaken, • GFS assistance with the compilation interventions on COVID-19 support on implementing industry of GG consolidated data for FY19, partnership strategy and introduction coverage expanded to public sector • Latest business survey data of specific audit methods to support and dissemination of public sector assessed, staff capacity built on this with remote training provided to debt statistics (PSDS). GDP rebasing and benchmarking, further strengthen the audit and implementation of experimental investigations function • Review of experimental GDP(E) Quarterly National Accounts (QNA)

data undertaken to assess its data and rebasing of Annual TUVALU readiness for publication. Training National Accounts (ANA) on benchmarking and seasonal • Improvements to BOP coverage - adjustment to build staff capacity for • CBSI staff capacity built on inflation compilation and dissemination of publication of quarterly GDP(P) data forecasting techniques to be used ESS for the period 2017–2020, for monetary policy setting compilation framework and data • Macroeconomic support facilitated sources strengthened with training analysis and modelling of the • Capacity of government officials provided to staff contribution of the International enhanced to produce financial Sector to the Samoa economy statements consistent with IPSAS • Implementation and enhancement of cash accounting standards the compliance improvement • Strong progress on PFM reforms strategy (CIS) and improving core including the completion of first • Revenue support on implementation tax functions and development of PEFA Climate Assessment piloting of large taxpayer office and function corporate and business continuity the newly developed Climate based structure. plans Module by the PEFA Secretariat, implementation of risk based TIMOR-LESTE VANUATU internal audits, guidance on • Desk review of draft PFM law • Quality of GFS improved with government cash management, and completed and recommendations for reduced statistical discrepancy improving responses to audit improvement provided recommendations and note • CIS developed to improve disclosures TONGA monitoring and evaluation of

compliance risk mitigation, new • Tax policy recommendations to • Continuation of Insurance strategic plan for tax and customs compensate PACER Plus trade tax Regulatory Reform project - administration for the period 2021 to losses, improving taxpayer service finalization of revised insurance law 2025 developed with a review of and strategy, renewal of the and prudential standards to be overall reform progress and status compliance improvement strategy, submitted for industry consultation of PFTAC recommendation development of business continuity undertaken plan and IT strategy, improving debt • List of institutional units for the and returns management, public sector reviewed and finalized strengthening tax audit function and

ANNUAL REPORT 2021 | PFTAC 27 1,677 493 68% field person days of CD professional government of CD was fiscal, either delivered staff (of which 45 percent were PFM or Revenue (1,144 of 1,677 field women) were trained from the 16 days), with 52% just Revenue (877 PFTAC member countries in 17 days) regional training events totaling 1,850- person days of training

130 32% $ 37.1 million activities executed by of CD is delivered by the contributions received of PFTAC advisors and experts, team of seven resident approx. $US 39.2 million comprising 17 seminars and 113 PFTAC advisors (538 of 1,677 TA pledged by seven donors including the missions to member countries or field days), and 68 percent by recent addition of the US Treasury and support for regional activities members of the IMF’s roster of short- 14 of 16 PFTAC countries so far term experts

72% $ 3.78 million 24% of resources (395 days) execution rate of the pre- of projected expenses provided to seven PFTAC COVID-19 work plan (1,677 TA days from a budget of $US 7.47 countries designated as fragile versus 2,341 planned), and 71% of million (approx. 51%), excluding the (Kiribati, FSM, RMI, PNG, Solomon missions (130 of 183 planned) 7% trust fund fee Islands, Timor Leste, and Tuvalu)

CHART 5: FY2021 TOTAL TECHNICAL ASSISTANCE DAYS BY COUNTRY (1677 DAYS)

Vanuatu, 2.3% Cook Islands, Tuvalu, 3.6% 10.6%

Tonga, 11.9% Tokelau, 0.0% Fiji, 10.1%

Timor-Leste, 0.5% FSM, 0.4% Solomon Islands, 6.5% Kiribati, 3.0%

Nauru, 2.9%

Niue, 0.9%

Palau, 3.9% Samoa, 16.6%

PNG, 4.7%

RMI, 4.9% Regional, 17.4%

ANNUAL REPORT 2021 | PFTAC 28 ROBUST PROGRAM DELIVERY RESPONDS TO COVID-19 PRIORITIES

PFTAC delivered a remarkably robust change financing through a regional likelihood of travel restrictions easing, and sizable CD program in FY2021 working group cochaired by PFTAC a more realistic and final update of the despite COVID-19 constraints, with the and PIFS. workplans was developed that volume of missions/activities and TA assumed all CD would continue to be days comparable to FY2020 (130 Significant investment was devoted to remotely delivered for the balance of missions up from 124, but TA days developing meaningful workplans that FY2021 and that took account of the were down slightly to 1,677 from responded to member country needs remote delivery experience since 1,764). As FY2021 began, COVID-19 and the absorptive capacity of the March. The expected number of restrictions had already taken hold in beneficiary agencies, as well as deliverable missions was reduced by the closing months of FY2020, reflecting the expertise and delivery about 24 percent (183 to 139), using necessitating a rapid pivot to delivering capacity of the IMF and PFTAC plus 27 percent fewer TA days (reduced all CD by remote means, with staff other partner contributions. from 2,341 to 1,695 days). Outturn by working remotely from home either in Development of an annual workplan April 30, 2021 against the workplans Fiji or at a place of relocation for many typically takes six months in the leadup updated in December was 94 percent of the resident advisors until return to to the start of the fiscal year. of expected activities (130 of 139 office operations in October 2020 and Therefore, the workplans for FY2020 missions) using 99 percent of the repatriation of relocated staff. After were well advanced by late February expected TA days (1,677 of 1,695 a year of no community COVID-19 2020 as the first impact of COVID-19 days). transmission in Fiji, an outbreak in began to rapidly unfold. Given the mid-April 2021 has necessitated a quickly changing situation, this pre- Strong program delivery was achieved return to WFH arrangements until the COVID-19 workplan was retained and notwithstanding the transition of three situation is contained. endorsed by a virtual briefing of of the seven resident advisors and the Steering Committee members in late recruitment of a new eighth advisor. Like all organizations, PFTAC and the April 2020, with a clear expectation Both PFM advisors (Ms. Celeste IMF had to adapt to this changed that it would need to be reviewed and Kubasta and Mr. Richard Neves) were landscape. Client organizations adjusted within a few months as the replaced in FY2021, respectively in similarly had to adjust to closed crisis further evolved. The pre-COVID- August by Mr. Iulai Lavea and October borders, remote work, and the 19 FY2021 workplan and budget was by Mr. Paul Seeds, with an overlap necessity to engage through a variety very ambitious and on par with a through end-January 2021 of Mr. of virtual communication channels with similarly ambitious program and Neves that facilitated a smooth and a great deal of patience and ingenuity. budget for FY2020 that was disrupted thorough handover. Mr. Rajinder Challenges arose and lessons were by COVID-19 in the closing months Kumar was recruited to replace Mr. learned, enabling the achievement of a with expenditure and activity outturn Benjamin Stefanou from August. The productive and impactful program of reduced to around 75 percent of three new advisors initially worked engagement. Despite the many original plans. remotely from their former locations challenges, unforeseen benefits before arriving in Fiji in November and emerged. Big cost savings accrued Against the FY2021 pre-COVID-19 December. Finally, Ms. Briar Ferguson with several million dollars of budgeted workplans, 71 percent of planned was appointed in late March to a new training and travel costs avoided. activities/missions were delivered (130 resident advisor position in the newly PFTAC staff became more closely of 183 activities), utilizing 72 percent of established Debt Management integrated with the efforts of the IMF planned TA days (1,677 of 2,341), a program, working remotely from the country teams in leveraging the quite similar result as FY2020 but UK ahead of her expected arrival in Fiji excellent networks and relationships delivered entirely remotely over the full in June 2021. The team of local forged over many years with member year versus just the final three months support staff remained unchanged country organizations and officials. of FY2020. throughout the year, working diligently There were similar experiences with from home for six months often under development partners and regional Workplans were updated in August challenging circumstances, and again organizations that enabled innovative 2020 after extensive discussion with from mid-April 2021. Given the collaboration such as the joint PEFA stakeholders. The net activity level unusual situation, the IMF approved a Climate assessment mission delivered barely changed given strong optimism fifth year extension of Mr. David remotely with Samoa, hybrid in- that COVID-19 would be quickly Kloeden, formerly titled the PFTAC person/virtual training events contained, and travel restrictions would Coordinator but from May 1, 2021 convened with USP, and efforts to ease before the end of 2020, allowing reclassified as PFTAC Director, understand and address PFM a concerted catch-up effort. However, consistent with all IMF centers. impediments to accessing climate as the year end approached with no

ANNUAL REPORT 2021 | PFTAC 29 STX Utilization declined 9.3 percent in FY2021 over FY2020 and accounting but did allow advisors (both LTX and STX) to (down from 1,256 to 1,139 days), almost offset by a 5.9 undertake concurrent missions. percent increase in LTX field utilization (up from 508 to 538 days), which in turn was reflected in a decline in the ratio of Remotely delivered CD leads to a second round of STX LTX field days to STX field days to 2.12-to-1 in FY2021, from a savings from the foregone airfares, accommodation, and peak of 2.47-to-1 in FY2020. This is not surprising given the subsistence allowances. This is starkly illustrated by the LTX were no longer traveling and were able to devote more of halving of the daily STX cost in FY2021 to $US 721 from their own time to direct TA delivery. Furthermore, the decline in $US 1,463 in FY2020, consistently seen in past years. These STX days in FY2021 does not mean a decline in output or factors explain why STX costs in FY2021 were only 44.6 productivity. This is reflected by the average number of mission percent of FY2020 STX budget ($US 820,764 versus days in FY2021 falling to the lowest level since FY2017 at 12.9 $US 1,983,004) that however financed 90.6 percent the days in FY2021, having grown annually and peaking in number of STX days in FY2021 versus FY2020 (1,139 STX FY2020 at an average of 14.0 days. Both the revenue and days versus 1,256 STX days). macroeconomics programs were exceptions given a few regional activities that utilized significant STX (revenue) or LTX CHART 6: AVERAGE DAILY SHORT-TERM EXPERT COST (macro) resources, skewing their annual averages. The average mission duration for the two statistics program and the FSS program declined, primarily from lower STX utilization with proportionately more LTX missions as mandated by the Statistics Department in early FY2021, most of shorter duration.

TABLE 1: AVERAGE MISSION DURATION

In pre-COVID-19 times, LTX time cleanly bifurcated between field days on mission or training, and office days devoted to backstopping STX work, doing their own pre- and post-mission work, or contributing to center operations such as outreach, reporting, and governance. While this has become blurred in a world of virtual TA delivery with all work performed in the office Before COVID-19, all STX missions (other than the occasional (or home office), accounting for field and office days was work-from-home activity) entailed a set number of paid travel maintained in FY2021. Beyond the 538 LTX field TA Days on days and weekends – these are not required for remote virtual mission or delivering a training event, the resident delivery. For example, a typical two-week in-country mission advisors spent another 1,125 days on TA management in the would entail 12 days between Monday and Friday including the office, a total of 1,663 TA days in FY2021, equivalent to 7 ½ intervening weekend when most STX would work, plus at least person years (assuming 225 available days a year after a travel day each end of the mission, a total of 14 paid days, allowance for annual/sick leave). This half a person year above versus typically 10 – 12 paid days for a virtual mission, a salary the seven LTX positions reflects the overlapping period that savings of at least 20 percent per mission. Unlike most pre- totaled six months between the three outgoing and incoming COVID-19 missions that typically entailed one or two weeks advisors, an average overlap of two months per advisor. This physically visiting a country, many virtual missions by necessity has been an unexpected benefit from the COVID-19 lockdown extended over a longer period of several weeks or even where an extended remote overlap is easily accommodated months, but in aggregate, equating to a week or two of TA versus an in-person/in-country handover that was usually no delivery (5 – 12 TA days). This complicates mission reporting more than one week, and sometimes did not occur at all.

TABLE 2. PFTAC TA DELIVERY BY STX/LTX DAYS AND MISSIONS: FY17, FY18, FY19, FY20, FY21, FY22 (Plan) STX Days LTX Days Total TA Days Missions Program FY17 FY18 FY19 FY20 FY21 FY22 FY17 FY18 FY19 FY20 FY21 FY22 FY17 FY18 FY19 FY20 FY21 FY22 FY17 FY18 FY19 FY20 FY21 FY22 Macroeconomic Programming 0 0 11 0 12 58 164 137 121 90 103 119 164 137 132 90 115 177 14 16 15 10 8 17 Financial Sector Supervision 154 167 198 131 122 260 88 88 55 54 83 92 242 255 253 185 205 352 20 15 16 13 21 42 Govt Finance Statistics 0 50 69 29 13 29 0 113 78 77 66 25 0 163 147 106 79 54 0 11 10 7 12 7 Real Sector Statistics 249 170 152 87 40 59 131 119 89 89 94 132 380 289 241 176 134 191 25 21 16 13 16 18 Public Financial Management 187 308 285 253 139 380 173 196 184 155 128 227 360 504 469 408 267 607 31 37 33 24 19 32 Revenue (incl Legal) 301 395 726 756 813 1187 111 87 92 43 64 126 412 482 818 799 877 1313 44 37 63 57 54 84 GRAND TOTAL 891 1090 1441 1256 1139 1973 667 740 619 508 538 721 1558 1830 2060 1764 1677 2694 134 136 153 124 130 200

ANNUAL REPORT 2021 | PFTAC 30 These 1,125 TA days of LTX time spent at PFTAC in CHART 7. FY2021 TOTAL 1,677 TA DAYS BY PROGRAM addition to 538 TA field days spent while on virtual mission, plus the 1,139 STX field days totals 2,802 TA days, the Financial Sector approximate equivalent of 12 ½ full-time equivalent (FTE) Supervision, 12% Macroeconomic person-years. Two charts illustrate the share of TA, the pie Programming, 7% chart reflects only 1,677 field mission days by program, while the bar chart also includes the apportioned LTX time Statistics, at PFTAC by country that totals 2,802 TA days. 13%

Beyond regionally related efforts (including (sub) regional workshops) that consumed 21.9 percent of TA days (up from 18.6 percent in FY2020), five countries (Samoa, Tonga, Fiji, Cook Islands, and Solomon Islands) benefitted from 48 percent of total TA days in FY2021. Four of the top five beneficiaries in FY2020 remained in FY2021 Public Financial with some reordering, with Papua New Guinea falling from Management, Revenue 16% Administration, third to seventh place in FY2021, and Samoa advancing 52% from sixth place in FY2020 to first in FY2021.

CHART 8. FY2021 EXPERT DAYS DELIVERING AND BACKSTOPPING TA

* 2,802 TA Days (includes 538 LTX and 1,139 STX Remote Mission Days plus 1,125 LTX Days at PFTAC)

A further five countries (Marshall Islands, Papua New fragile states, serious challenges were experienced in Guinea, Nauru, Tuvalu, and Palau) accounted for the next engaging virtually, with fragility clearly illustrated by 21.6 percent of PFTAC resources. connectivity limitations and staff and institutions adjusting to remote operations, while having to respond to COVID-19 The balance of 8.5 percent of TA delivery is shared by the outbreaks (both Papua New Guinea and Timor Leste) as well remaining six PFTAC member countries (Kiribati, Vanuatu, as natural disasters. FSM, Niue, Timor Leste, and Tokelau). A few countries postponed TA on the expectation of a CD efforts for the seven PFTAC members designated as resumption of travel, but if the situation remains protracted, all fragile states (Kiribati, FSM, RMI, PNG, Solomon Islands, efforts will be needed to encourage and facilitate remote Timor Leste, and Tuvalu) fell to only 23.5 percent of field TA engagement, drawing on the very positive results and delivery (395 of 1,677 days), down from 33 percent in FY2020. experiences of other PFTAC countries. Despite intentions and efforts to increase the resources to

ANNUAL REPORT 2021 | PFTAC 31 TABLE 3. EXECUTION OF WORK PROGRAM DURING FISCAL YEAR 2021 (IN PERSON-DAYS)

May 2020 through April 2021

TA Days Executed Country/Region/Seminar Baseline Baseline Updated LTX Updated Resident advisors LTX & STX Execution & STX Field Execution Short-term Total Field Days rate Days rate experts At PFTAC In-Field

COOK ISLANDS 71 69 108 248 191 93% 163 109% FIJI 78 44 126 248 205 83% 172 99% KIRIBATI 35 3 47 85 116 43% 47 106% MARSHALL ISLANDS (RMI) 74 52 30 156 65 126% 54 152% MICRONESIA (FSM) 16 7 0 23 90 8% 7 100% NAURU 70 16 33 119 111 44% 51 96% NIUE 10 0 15 25 26 58% 15 100% PALAU 22 17 48 87 58 112% 71 92% PAPUA NEW GUINEA (PNG) 72 30 49 151 159 50% 55 144% SAMOA 112 92 186 390 223 125% 279 100% SOLOMON ISLANDS 70 46 63 179 194 56% 115 95% TOKELAU 4 0 0 4 0 0% 0 0% TIMOR-LESTE 11 8 0 19 96 8% 10 80% TONGA 79 29 170 278 237 84% 202 99% TUVALU 34 0 60 94 78 77% 54 111% VANUATU 47 10 28 85 186 20% 72 53% Regional work & workshops 324 115 176 615 306 95% 328 89% GRAND TOTAL 1125 538 1139 2802 2341 72% 1695 99%

Fragile states 311 146 249 706 798 49% 342 115%

TABLE 4. IMPLEMENTATION OF THE FISCAL YEAR 2021 WORK PROGRAM (IN NUMBER OF ACTIVITIES)

Baseline Baseline Execution Updated Execution Country/Region/Seminar Activities executed Updated Plan Plan Rate Rate

COOK ISLANDS 15 11 73% 10 110% FIJI 15 11 73% 14 79% KIRIBATI 8 8 100% 7 114% MARSHALL ISLANDS (RMI) 6 7 117% 6 117% MICRONESIA (FSM) 7 1 14% 1 100% NAURU 8 6 75% 6 100% NIUE 2 2 100% 2 100% PALAU 4 6 150% 6 100% PAPUA NEW GUINEA (PNG) 12 3 25% 4 75% SAMOA 16 18 113% 20 90% SOLOMON ISLANDS 15 11 73% 13 85% TOKELAU 0 0 0% 0 0% TIMOR-LESTE 7 2 29% 2 100% TONGA 19 13 68% 13 100% TUVALU 9 5 56% 5 100% VANUATU 15 5 33% 7 71% Regional seminars and courses 25 21 84% 23 91% GRAND TOTAL 183 130 71% 139 94% Fragile States 64 37 58% 38 97%

ANNUAL REPORT 2021 | PFTAC 32 TRAINING DELIVERY in FY2021 was Overall, 17 regional events were collaboratively with IMF partners vastly different to any previous year. delivered, up from 16 in FY2020, with (MCM, FAD) or jointly with other Other than a few special hybrid very similar participation rates and centers (CDOT, SARTTAC, and STI), arrangements, all events were course metrics, albeit delivered in or partners including ABS, PITTA, delivered virtually. Two PFM events shorter, more focused sessions, some UNDP, and USP. were offered as in-person events in in just one day, and others spread out COVID-19 contained countries by over a number of days averaging 4 Beyond the LTX and STX budgets, the utilizing the campus facilities of USP days per event, slightly down from an allocation for workshop and training located across the Pacific, including average of 4.2 days in FY2020. events is the next largest item, and in the Suva campus for the first event Overall, 493 government officials were FY2021 was $US 1,204,724 yet direct delivered jointly with the UNDP, trained (steady from 492 in FY2020), costs of only $US 45,338 (4 percent) although a second Public Investment but with a reduction of about 8 percent were incurred, to contract several Management workshop with FAD was to 1,850 total training days down from presenters and for minor catering limited to campuses outside Fiji due to 2,015 in FY2020, mostly due to the costs. This compares to an outturn of a local COVID-19 outbreak. Provided slightly shorter average event duration. $US 988,386 and $US 859,565 in there was a minimum number of The proportion of female participants FY2020 and FY2019 respectively. The registrations per country, campus was marginally up from 44 percent delivery of the FY2021 virtual training facilities were used to bring together (215 of 492 in FY2020) to 45 percent program that was on par with a participants sometimes from different (222 of 493 in FY2021). FY2020 program of in-person training agencies away from the distractions of was achieved with a budget savings of their work environments to engage Each PFTAC program delivered at more than $US 1 million. However through the USP network and campus least one event, with both the FSS and other indirect costs were incurred but facilities. Other participants and Revenue programs delivering four not borne by PFTAC, including the presenters who did not have access to each, although the FSS events were sunk LTX costs (which are always a USP facility joined remotely. short 2-hour webinars delivered with incurred), as well as the costs for the MCM reflecting the early financial time of collaborating IMF staff at HQ Although counted as CD delivery for sector responses to COVID-19, while and other centers. However, the Fiji rather than within regional the revenue events ranged from 4 to massive savings arises from not activities, another major training event 15 days duration, including topics having to pay airfares for participants was delivered remotely by two PFTAC responding to COVID-19 priorities as and presenters as well as their STX from New Zealand to 75 revenue well as foundational tax training, accommodation, subsistence, and staff in several classroom locations in including an emphasis on tax audit venue costs normally required for in- Fiji, including a large cohort in Suva skills. person events. where the revenue LTX and coordinator were able to join in-person. Most events were delivered

TABLE 5. FY2021 WORKSHOP/ SEMINARS

Duration Training Sector Partner Location Topic Male Female Total (Days) Days Macro STI Virtual COVID19 Macroeconomic Impact Webinar 2 26 28 54 108 Macro STI Virtual Webinar on Macro-Fiscal Analysis 3 26 16 42 126 Roundtable Discussion on Banking and Regulation Supervision during FSS MCM Virtual 1 17 10 27 27 the COVID-19 Pandemic Roundtable Discussion on Cyber Risks of Remote Work during the FSS MCM Virtual 1 17 10 27 27 COVID-19 Pandemic Roundtable Discussion on Central Bank Support to the Financial FSS MCM Virtual 1 17 10 27 27 Markets during the COVID-19 Pandemic Roundtable Discussion on Insurance Regulatory and Supervisory FSS MCM Virtual 1 17 10 27 27 Responses During the COVID-19 Pandemic FSS Hybrid AFSPC Annual Meeting 1 11 6 17 17 GFS STA Virtual GFS Methodological Training 1 17 11 28 28 RSS ABS Virtual Quarterly National Accounts (QNA) and Seasonal Adjustment 5 6 15 21 105 RSS Virtual Annual National Accounts (ANA) 5 4 9 13 65 RSS CDOT Virtual Balance of Payments: Methodology and Compilation Challenges 5 2 6 8 40 PFM UNDP Hybrid Budget Documentation and Report Writing 5 25 24 49 245 PFM FAD Hybrid Public Investment Management Assessment (PIMA) (funded by JSA) 4 24 18 42 168 FAD/ SARTTAC/ Revenue Hybrid Response to COVID19 for Tourism Economy 6 9 2 11 66 PITAA Revenue PITAA Virtual Managing Compliance Improvement and Effective Data Analysis 4 27 21 48 192 Revenue PITAA Virtual Small State Tax Audit Training 15 12 7 19 285 Revenue Virtual Managing Return Filing and Tax Arrears 9 14 19 33 297 TOTALS 69 271 222 493 1850

ANNUAL REPORT 2021 | PFTAC 33 CD delivery in FY2021 at 130 missions and 1,677 TA days is comparable to FY2020 delivery of 124 missions and 1,764 TA days, but the expenditure outturns for both years are vastly different due to the specific peculiarities and savings from COVID-19. FY2021 expenditure outturn of $US 4.05 million (including trust fund management fee) is the lowest in many years and is just 51 percent of the $US 7.99 million budget. This extraordinary savings of $US 3.94 million is abnormal and will not be sustained once the COVID-19 crisis has abated and if there is a return to pre-COVID-19 operations. The biggest contributors to the underspend include:

• A mere 4 percent utilization of the $US 1.20 million workshop/training budget

• Savings of $US 1.56 million of the STX budget (35 percent utilization) that financed 69 percent of the expected pre-COVID-19 STX utilization (1,139 used of 1,650 pre-COVID-19 days planned).

• Savings of $US 0.35 million for LTX travel expenses, with appointment costs of new advisors only costs incurred.

• Underspend of the Macro budget of at least $US 0.3 million on costs that did not eventuate for the Correspondent Bank Relationship (CBR) initiative.

CHART 9. FY2021 FINAL PROGRAM OUTTURN – PERCENT OF BUDGET EXPENDED

TABLE 6. PFTAC FY2021 BUDGET (US DOLLARS) BY PROGRAM

Revenue PFM Macro FSS RSS GFS Other Total Resident Advisors (Long Term 340,000 678,126 351,790 333,090 324,189 324,188 - 2,351,383 Experts - LTX) LTX Travel 62,000 103,589 65,000 57,000 55,000 55,000 - 397,589

Short-Term Experts (STX) 1,187,998 401,524 205,403 334,722 124,122 39,497 90,000 2,383,266

Diagnostic Missions 150,000 50,000 150,000 - - - - 350,000

Training/Seminars/Workshops 333,031 167,827 254,415 195,000 155,000 99,451 - 1,204,724

Backstopping/Project Management 42,844 79,232 - 74,415 73,842 68,902 32,060 371,295

Other Costs (Evaluation, misc, etc) 20,744 - - - 10,142 10,142 370,233 411,261

Total TA Provision/Delivery 2,136,617 1,480,298 1,026,608 994,227 742,295 597,180 492,293 7,469,518

Trust Fund Management Fee 155,684 124,714 59,403 64,677 52,883 40,794 58,036 522,866

Total Trust Charges 2,292,301 1,605,012 1,086,011 1,058,904 795,178 637,974 550,329 7,992,384 *Trust Fund Fee is 7 percent of funds utilized for TA delivery

ANNUAL REPORT 2021 | PFTAC 34 TABLE 7. PFTAC FY2021 FINAL OUTTURN (US DOLLARS) BY PROGRAM

Revenue PFM Macro FSS RSS GFS Other Total Resident Advisors (Long Term 312,890 659,933 330,343 314,881 274,560 262,077 - 2,154,684 Experts - LTX) LTX Travel 694 17,683 9,975 6,135 - - - 34,487

Short-Term Experts (STX) 519,985 165,185 9,888 91,615 17,306 8,547 8,238 820,764

Diagnostic Missions 162,235 2,230 - - - - - 164,465

Training/Seminars/Workshops 33,623 - 355 11,360 - - - 45,338

Backstopping/Project Management 69,635 76,291 - 19,916 50,425 32,168 9,876 258,311

Other Costs (Evaluation, misc, etc) (849) - (422) - - (422) 307,049 305,356

Total TA Provision/Delivery 1,098,213 921,322 350,139 443,907 342,291 302,370 325,163 3,783,405

Trust Fund Management Fee 138,414 102,984 37,194 49,069 43,072 29,764 10,346 264,838

Total Trust Charges 1,236,627 1,024,306 387,333 492,976 385,363 332,134 335,509 4,048,243 *Trust Fund Fee is 7 percent of funds utilized for TA delivery

TABLE 8. PFTAC FY2021 FINAL OUTTURN (PERCENT) BY PROGRAM

Revenue PFM Macro FSS RSS GFS Other Total

Resident Advisors (Long Term Experts - LTX) 92% 97% 94% 95% 85% 81% - 92% LTX Travel 1% 17% 15% 11% 0% 0% - 9%

Short-Term Experts (STX) 44% 41% 5% 27% 14% 22% 9% 34% Diagnostic Missions 108% 4% 0% - - - - 47%

Training/Seminars/Workshops 10% 0% 0% 6% 0% 0% - 4% Backstopping/Project Management 163% 96% - 27% 68% 47% 31% 70%

Other Costs (Evaluation, misc, etc) -4% - - - 0% -4% 83% 74% Total TA Provision/Delivery 51% 62% 34% 45% 46% 51% 66% 51%

FUND RAISING was reported at the signed a Letter of Understanding to $US 500,000 remaining for Korea in end of FY2020 as essentially complete financially contribute to Phase V FY2022. The United States and sufficient to underwrite the operations. While remaining member government through the US Treasury expected final two years (FY2021 and contributions are most welcome, it is became the seventh donor to Phase V FY2022) of Phase V of PFTAC understood that the COVID-19 crisis of PFTAC with a contribution of operations provided all donor pledges has stretched the financial resources $US 2.0 million received in late and member country contributions of many countries. December 2020. materialized. Since then, member country contributions have increased Donor contributions rose $US 4.28 Excluded from PFTAC fund-raising, from $US 2.26 to $US 2.9 million, with million, from $US 29.9 million at end- accounting, and governance is the a balance of $US 992,067 pending FY2020 to $US 34.18 at end-FY2021. new Japanese government financed from 12 member countries, including Final and penultimate contributions Public Debt Management program $US 660,000 from two countries were received from the governments over three years through end-FY2024 (Timor Leste for $US 550,000 and of Australia and Korea, with the only from a $US 3.0 million contribution. Palau for $US 110,000) that have not remaining donor contribution for

ANNUAL REPORT 2021 | PFTAC 35 TABLE 9. STATUS OF FINANCIAL CONTRIBUTIONS FOR PHASE V (AS OF APRIL 30, 2021)

Commitments Contributions received Payments pending Currency* (partner currency) (U.S. dollars) (U.S. dollars) (U.S. dollars) PARTNERS ADB U.S. dollar 800,000 800,000 800,000 0 Australia Aust. dollar 12,600,000 9,494,573 9,267,500 0 Canada Can. Dollar 1,500,000 1,128,329 1,136,191 0 European Union Euro 6,000,000 7,013,442 6,829,368 0 Korea U.S. dollar 2,500,000 2,500,000 2,000,000 500,000 New Zealand NZ dollar 18,000,000 12,411,168 12,144,520 0 United States U.S. dollar 2,000,000 2,000,000 2,000,000 0 SUBTOTAL, PARTNERS 35,347,512 34,177,579 500,000 MEMBER COUNTRIES COOK ISLANDS U.S. dollar 110,000 90,040 19,960 FIJI U.S. dollar 687,500 625,000 62,500 KIRIBATI U.S. dollar 82,500 65,975 16,525 MARSHALL ISLANDS (RMI) U.S. dollar 110,000 50,000 60,000 MICRONESIA (FSM) U.S. dollar 110,000 40,000 70,000 NAURU U.S. dollar 82,500 81,968 532 NIUE U.S. dollar 27,500 9,975 17,525 PALAU U.S. dollar LoU Pending 110,000 0 110,000 PAPUA NEW GUINEA (PNG) U.S. dollar 1,375,000 1,375,000 0 SAMOA U.S. dollar 165,000 165,000 0 SOLOMON ISLANDS U.S. dollar 165,000 167,646 0 TOKELAU U.S. dollar 11,000 11,000 0 TIMOR-LESTE U.S. dollar LoU Pending 550,000 0 550,000 TONGA U.S. dollar 110,000 49,975 60,025 TUVALU U.S. dollar 27,500 17,500 10,000 VANUATU U.S. dollar 165,000 150,000 15,000 SUBTOTAL, MEMBER COUNTRIES 3,888,500 2,899,079 992,067 BROUGHT FORWARD FROM PHASE IV Australia U.S. dollar 159,480 European Union U.S. dollar 157,216 Korea U.S. dollar 46,196 New Zealand U.S. dollar 153,742 SUBTOTAL, FUNDS BROUGHT FORWARD 516,634 GRAND TOTAL 39,236,012 37,593,292 1,492,067

Phase V expenses through the end of FY2021 total $US 25.5 management fee) to finance the ambitious workplans that have million including the trust fund fee. Assuming that only the final been developed and are predicated on a continuation of Korean contribution is received, total available Phase V funds remote CD delivery through late 2021, with a pick-up and contributed by donors, member countries, and rolled-over return to in-country TA delivery and in-person training in the balances from Phase IV total $US 38.1, leaving a budget second half of FY2021. Several aspects that differentiate the envelope for the remainder of Phase V of $US 12.6 million, far FY2021 from the previous budget include: in excess of the needs or ability to be utilized in FY2022 that was to be the final year of Phase V. Given this, the 2021 • The winding-down of the GFS program with the end Steering Committee is asked to endorse a six month extension of the LTX position at the end of August 2021 with a of Phase V through October 31, 2022. handful of STX missions and a major regional event through the remainder of Phase V The proposed FY2022 budget is $US 7.3 million (including

ANNUAL REPORT 2021 | PFTAC 36 • The continued scaled-up efforts of the Revenue advisor is being recruited to be in place by October program with an ambitious workplan. However, given 2021 to overlap with the current LTX through the rest the extent the program has grown beyond any other of Phase V. IMF center with a single LTX, a second resident

TABLE 10. PROPOSED FY2022 & FY2023 BUDGETS (US DOLLARS MILLIONS)

Phase V Tot Ph V % of Prog FY2022 FY2023 Program Outturn Expenses Doc Budget Document Change Total to end- thru end- Proposed Proposed PD Budget FY221v end FY21 FY21 Budget Budget Diff. FY21 FY23 Resident Advisors (LTX) $12.6 $9.3 74% $2.3 $0.2 $1.2 $12.8 ($0.2) LTX Travel $2.3 $1.3 59% $0.4 $0.3 $0.2 $1.9 $0.4

Short-Term Experts (STX) $11.4 $7.1 62% $2.2 $1.3 $1.2 $10.4 $1.0

Diagnostic Missions $1.2 $1.0 83% $0.2 $0.0 $0.1 $1.3 ($0.1)

Training/Seminars/Workshops $6.0 $2.7 46% $1.1 $1.0 $0.5 $4.3 $1.7

Backstopping/Project Management $1.9 $1.2 63% $0.3 $0.0 $0.1 $1.7 $0.3

Other Costs (Evaluation, misc., etc.) $1.6 $1.1 71% $0.4 $0.1 $0.2 $1.8 ($0.2) Total TA Provision/Delivery $36.9 $23.8 64% $6.9 $3.1 $3.5 $34.2 $2.8

Trust Fund Management Fee* $2.6 $1.7 64% $0.5 $0.2 $0.2 $2.4 $0.2 Total Trust Charges $39.5 $25.5 64% $7.3 $3.3 $3.8 $36.6 $3.0 IMF and Host Country In-Kind Contribution $2.6 TOTAL $42.1 $7.3 $3.3 $3.8 $36.6 $3.0 *Trust Fund Fee is 7 percent of funds utilized for TA delivery

ANNUAL REPORT 2021 | PFTAC 37

SECTION II REVENUE

ADMINISTRATION

B

MAIN ACHIEVEMENTS

(1) Supporting the tax administrations (3) Facilitating improvements to tax (6) Strengthening the focus and of member countries that intend to administration organizational compliance management of the be a PACER Plus signatories to arrangements and introduction of large taxpayer segment; prepare for trade tax losses with function-based structures; support delivered to Samoa, (7) Facilitating improvements to the Tonga, Cook Islands, Kiribati, (4) Developing and implementing management of tax return filing and Nauru. Tax policy reviews risk-based compliance and tax arrears management; were also undertaken for Fiji, improvement strategies, including Cook Islands, and Nauru; plus, a strategies and actions plans (8) Facilitating improvements to the FAD-led review in Kiribati; focused on the impact of COVID- effectiveness of tax audits; and 19 on taxpayer compliance and (2) Developing corporate strategies, revenue; (9) Modernizing tax legislation operational plans, and business including Income Tax, VAT, and cases to motivate greater (5) Elevating the importance and Tax Administration Acts. government support and improving the effectiveness of investment in tax administration; taxpayer services;

Fiji Revenue and Customs Service Auditor Skills Development Training, March 2021

ANNUAL REPORT 2021 | PFTAC 38 PFTAC supports member countries to legislation to support the revenue The pairing of experts also had the strengthen their tax administration program objectives, as well as tax benefit of increased output per capacity, mobilize tax revenue, policy expertise from the FAD to mission. improve taxpayer compliance, and review and provide advice on tax promote the role and contribution of policy options. Extra funding from Australia enabled taxpaying citizens towards fiscal the extensive scaling-up of the sustainability. In FY2021, the Revenue program revenue program to better respond to (including Legal support) delivered 54 unmet demand for CD for the region. The Revenue Administration Program missions or activities (totaling 877 TA The scaling-up of the revenue program focuses on two key objectives: days) comprising 46 missions to started in mid-FY2019 and continued (1) strengthened revenue member countries, 6 remotely throughout FY 2020 and FY2021. It administration management and delivered regional workshops, and 2 extended PFTAC’s provision of tax governance arrangements; and (2) regionally focused initiatives. Against policy advice, tax legislation drafting, strong core tax administration the FY2021 workplan as updated in and extensive tax administration CD functions that include an accurate December 2020 to reflect ongoing with a significant proportion of the taxpayer base, quality taxpayer COVID-19 restrictions, this was an expansion directed to countries that services that support voluntary outturn of 102 percent of planned intend to be or are signatories to the compliance, and improvements to on- missions/activities (54 of 53), and 110 PACER Plus trade agreement and time return filing and payment, as well percent of planned TA days (877 of who face likely losses of revenue from as tax audit and investigations; that 800), of which 64 TA days were reducing trade taxes under the trade are supported by fit-for-purpose legal delivered by the resident advisor and agreement. The trend in CD delivery frameworks. The program is delivered 813 TA days by STX. However, the over the past four years by the PFTAC by a resident tax administration outturn against the pre-COVID-19 Revenue Administration Program advisor with peripatetic support from workplan based on no travel illustrates the extent of the scaling-up his predecessor and draws on an restrictions was 86 percent of planned in TA delivery: extensive pool of international tax missions/activities (54 of 63 planned experts. The PFTAC SC approved the activities) and 88 percent of TA days FY 19 FY 20 FY 21 FY 18 (1-year (1-year P FT AC (6 appointment of a second LTX for the (877 of 1,000 planned TA days). With (pre scaleup – scaleup – Assistance months scaleup) 2 months full year of balance of Phase V to address the travel restrictions in place, assistance CO V ID CO V ID scaleup) high workload of the Revenue program was delivered remotely, which created impacted) impacted) with an expected start by October an opportunity to introduce new STX, TA missions 28 53 50 48 T raining 7 5 7 6 2021. Specialized resources are including several very qualified women events Number of TA 482 726 799 877 provided from the IMF’s Legal to work with experienced experts on days Department to draft new or revised tax assignments in a cost effective way.

BOX 3: REINVIGORATING TAX COLLECTION AND RESTORING COMPLIANCE IMPACTED BY COVID-19

A cross-regional workshop series was workshop series. inter-regional information sharing and trialed to deliver CD during the COVID- collaboration among the like-minded 19 travel restrictions, bringing together Six countries participated in the states. countries across regions with similar workshops, namely Bhutan, Cook issues and characteristics. Islands, Fiji, Maldives, Samoa, and The drafting of country-specific and Tonga. These countries were selected targeted revenue collection plans are A workshop on reinvigorating tax on the basis that they are small key outcomes from the first workshop collections and restoring compliance administrations with economies that session. The second workshop impacted by COVID-19 was delivered are highly dependent on tourism. The session provided support to answer jointly by the FAD Revenue tourism industry has been one of the questions from participants and Administration Division with PFTAC, most severely impacted sectors from provide further advice. This was PITAA and the South Asia Regional the COVID-19 lockdown with these followed by engagements with each Training and Technical Assistance countries specifically impacted. The country to discuss their plans and Center (SARTTAC), with two webinar workshop focused on revenue make recommendations for sessions delivered in October with a enhancing strategies but recognizing improvements and refinement of the third in early December to assist in the impact of the pandemic on the action plans before the final feedback developing country-specific action economy. Including Bhutan and and evaluation session on December plans, key deliverables of the Maldives in the workshop enabled 1.

ANNUAL REPORT 2021 | PFTAC 39

Revenue Administration Officials attending Virtual Workshop on Reinvigorating Tax Collection and Restoring Compliance

BOX 4. ASSISTANCE TO COOK ISLANDS TO TACKLE COVID-19 REVENUE CHALLENGES

The COVID-19 crisis has led to revenues. In developing the new maintaining and expanding unprecedented tax administration compliance strategies, the key governments’ social protection challenges. In response, the IMF has operational risks were identified and programs. Furthermore, restoring issued a series of short technical notes developed to reflect COVID-19 compliance levels in the post-crisis to provide guidance on how revenue mitigation strategies. The compliance period will be crucial when the focus administrations can support the crisis improvement strategy focuses on: on raising revenue will need to be response of their governments. (a) registration risks; (b) outreach and renewed. Drawing on these notes, PFTAC education; (c) outstanding tax returns; assisted the Cook Islands Revenue (d) tax arrears; (e) audit; (f) large PFTAC also assisted the RMD with the Management Division (RMD) with their taxpayers; and (g) the tourism sector. development of a Business Continuity tax compliance strategies to take full The tourism sector is particularly hard Plan (BCP) to mitigate revenue account of the current COVID-19 hit by the crisis with crucial challenges administration risks emerging from the induced economic crisis. As the Cook to contain non-compliance while pandemic. The BCP balances a set of Islands has remained COVID-19 free, avoiding the closure of taxpayer initiatives to: (a) contain expected RMD has fortunately been able to businesses if avoidable. increases in non-compliance due to operate in a normal working decreased economic activity by environment without the extraordinary The existing compliance improvement boosting services and communication; precautions of remote work and staff plans that most tax administrations (b) supporting the implementation of and taxpayer health and safety have implemented may not be able to the Cook Island Government’s measures required by countries with meet the challenges of the crisis. Economic Response Package (ERP); confirmed COVID-19 cases. Compliance strategies that address and (c) readjusting core tax functions COVID-19 must assist revenue to recognize those taxpayers affected However, the pandemic has wreaked administrations to safeguard tax by the crisis and those affected to a severe economic impact from a revenue and protect financing of lesser extent. shutdown of the tourism industry with a significant government spending resulting significant decline in tax needs to address the crisis, including

ANNUAL REPORT 2021 | PFTAC 40 Other remote regional workshops taxpayer service staff in Fiji, Cook remotely, including tax policy reviews covered the large taxpayer segment Islands, and Samoa. A total of 322 and TADAT assessments, especially and compliance model, tax return filing participants attended the FY2021 where there is an existing relationship and arrears management, and a sub- regional training workshops and between the advisors and country regional webinar for the five smaller country-specific skills development counterparts. Benefits of remote work countries in the region to develop tax programs. include savings in travel costs, auditor skills. PFTAC was also a co- economical pairing of experts on the host together with PITAA, the OECD, The focus at the start of FY2021 same mission for increased and the Commonwealth Association of shifted away from the pre-COVID-19 productivity, greater flexibility and Tax Administrations (CATA) on a developed workplan to dealing with the responsiveness with requests for workshop covering the challenges challenges presented by the COVID- urgent TA starting within one week of a facing tax administrations with e- 19 pandemic. The pandemic had a request being received, higher number commence and digitalization, with severe impact on the economies of of participants in remote workshops, experts from FAD presenting various countries and revenue collection, more time and opportunity to finalize topics. In addition to the regional especially in the tourism dependent the technical report and obtain workshops, customized country countries, and had a big impact on CD feedback and comments from specific tax audit skills development delivery with assistance having to be counterparts, as well as the possibility programs were delivered to Fiji, delivered remotely. Initially it was of more frequent and quicker follow-up Tonga, and Kiribati. These programs thought that remote assistance would assistance if needed. were tailored to address specific skills be better suited to certain types of development needs for the assistance, such as legal drafting, Despite these benefits, there are administrations. Technical training was development of corporate and other several challenges with remote also provided to the tax arrears strategies, and TA to improve certain missions and a balance of remote and collections staff in Samoa, the newly core tax functions. Experience over the in-person missions is expected once established Large Taxpayer Office year, however, has shown that most travel resumes. staff in Solomon Islands, and to types of assistance can be delivered

BOX 5. TRAINING FOR FIJI TAX AUDITORS AND INVESTIGATORS

An online workshop was delivered by The sessions included group case feedback through the Workshop STX Mark Bell and Jonathon Matthews study discussions plus two in-depth Evaluation indicated that participants over two weeks to FRCS staff based in case studies provided to participants in strongly agreed or agree that the Suva, Nadi, Lautoka, and Labasa with advance of the presentations which workshop achieved its objectives. a total of 115 staff over five separate related to the analysis of financial Participants also confirmed that the locations participating in each session. accounts and asset accretion training materials distributed were The participants included 75 Tax Audit methodology. The training topics helpful and that they will be able to and Investigations staff and 40 included: (1) Auditor Development; (2) apply what they learned in their work. Customs Compliance and Audit Process; (3) VAT Audit Process; Investigation officers as observers. (4) Documentation and Risks; (5) New The FRCS audit skills development Audit Methods; (6) Using 3rd Party program and a similarly tailored The program was structured using a Information; (7) Introduction to program presented to the Tonga “building block” approach due to the Transfer Pricing; (8) Introduction to Ministry of Revenue and Customs are mix of experience of participants, Avoidance; (9) Informal Banking part of a series of workshops designed starting with introductory sessions and System; (10) Prosecution Best to meet the skills development needs then moving through to intermediate Practice; (11) Documentation and of a specific country or group of and advanced sessions, with the Filing of Evidence; and (12) Common countries to improve auditor capability. topics covering technical tax and audit Audit Issues for Group Discussion. A pilot program was also developed issues as well as soft skills. The first and presented to Kiribati, followed by workshop session on March 8 was There was excellent interaction the joint PFTAC/PITAA workshop for followed by daily training sessions for amongst the groups and with the the smaller tax administrations with two weeks with a concluding session presenters notwithstanding the large auditors from Tuvalu, Nauru, RMI, on March 19. group size. Positive participant FSM and Niue participating.

ANNUAL REPORT 2021 | PFTAC 41 Training for Fiji Tax Auditors and Investigators, March 2021

There are, however, certain drawbacks A FAD-led review of Tax Reforms in In the Cook Islands PFTAC that impact on the quality and duration Pacific Countries was undertaken in assistance led to: of a remote mission. The main early 2021 to consider developments drawbacks are lack of close interaction over the four years since the last (1) Tax policy review and and time for discussions/coaching, review in 2017, including the scaling- recommendation on policy options technology constraints such as bad up of the Revenue program and the including advice on the issue of internet connections, limited ability to significant impact of the COVID-19 territorial tax; get data and other information quickly, crisis in 2020. The findings of the 2021 no eye contact and “reading” of review will be particularly timely for the (2) Design of compliance workshop participants in terms for their development of priorities and resource improvement strategy to deal with understanding and attention to topics requirements for Phase VI of PFTAC impact of COVID-19; being discussed, and the high volume operations due to commence in 2022. of video conference meetings, The findings of the updated review will (3) Taxpayer service and seminars and workshops by different be presented for discussion at the communication strategy and development partners limiting time 2021 annual PFTAC Steering operational plan; available to do other urgent work. Committee meeting. The review Successful remote work is dependent focused on five case study countries, (4) Review of reform progress over on good communication skills by namely Fiji, Kiribati, Samoa, past two years and business case advisers and facilitators, strong Solomon Islands, and Tonga, with a motivating more investment and technology support, commitment to lighter review of the other 11 PFTAC support for the RMD. reform initiatives, the TA supporting member countries. This is consistent the reforms or improvements, and with the focus of the 2017 review. Support to Fiji included the following: reasonable response times to requests for information, input, and comments. Apart from collaboration with PITAA, (1) Tax policy review led by FAD Tax Support should be carefully tailored OECD, ADB, and CATA on regional Policy Division; with due consideration to workshops, cooperation has been administrative capacity and the impact established with the ADB, EU, DFAT (2) Review of reform progress; of the COVID-19 pandemic and and the World Bank on assistance economic shocks by other disasters. being provided to Fiji, Kiribati, Palau, (3) Taxpayer service and and the Solomon Islands. communication strategy with focus

ANNUAL REPORT 2021 | PFTAC 42 on micro-and medium taxpayers; Expanded assistance to Samoa led to: Partnership (IP) project plan with and components for: (1) relationship (1) Development of Information management, (2) leverage; and (4) Tax audit and investigations skills Technology Strategy including the (3) audit (assurance); development with tailored training Tax Invoice Monitoring System program to address specific (TIMS); (3) Audit methods to support the IP development needs. project; (2) Taxpayer service and In Kiribati, the outcomes of TA communication strategy (4) Tax audit development framework provided by PFTAC were: developed and implemented; covering recruitment, placement, promotion appropriate skills (1) Strengthened tax audit function; (3) Review of current compliance development for the different improvement strategy and plans levels of auditors, as well as the (2) Tax audit skills development; and and development of new training material; and enhanced strategy and plans with (3) Improved taxpayer services, tax focus on the COVID-19 impact on (5) Tax audit skills development arrears, and returns collections. compliance; course tailored for specific needs as identified. Revenue administration CD assisted (4) Tax administration reform review the Republic of Marshall Islands led by FAD with PFTAC LTX; CD to Tuvalu provided for the: with: (5) Improving on-time return filing and (1) Development of a strategic plan (1) A Review of PFTAC and ADB payment and management of and priorities for its first year of supported Tax Reforms and outstanding returns and tax operation; and development of strategy to take arrears; tax reforms forward. (2) Implementation and enhancement (6) Strengthened tax audit function of a compliance improvement PFTAC’s support to Nauru facilitated: and assistance with TIMS data strategy, focusing on large analysis; and taxpayers and improving taxpayer (1) Review of tax policy options to services. consider ; and (7) Development and implementation of a business continuity plan in In Vanuatu, PFTAC’s support (2) Review of tax administration COVID-19 and other natural contributed to: reform progress. disasters context. (1) Development of a corporate PFTAC assistance to Palau helped to: Engagement with the Solomon strategic plan; and Islands contributed to: (1) Support preparation for tax (2) Renewal of a compliance reforms, including finalizing (1) Implementation of the new improvement strategy with legislation and plans to implement functional structure, including a COVID-19 focus. the Palau Goods and Services business case to increase support Tax and Net Profit Tax. and investment for the SIIRD as Regional assistance was provided to: well as the development of new In PNG, the PFTAC Revenue program job descriptions; and (1) Development of PITAA strategic assisted with: plan; and (2) Implementation of the Large (1) Review of the Medium Term Taxpayer Office (LTO), including (2) 2021 PFTAC regional review. Revenue Strategy (MTRS) funded training of LTO staff. through the Revenue Mobilization PFTAC continues to support significant Trust Fund (RMTF) and In Tonga, PFTAC assistance included: tax law reform efforts by PICs. The agreement on transiting reforms primarily involve updating and assistance back to PFTAC when (1) TADAT training and formal modernizing tax legislation, particularly the RMTF program concludes in performance assessment; income tax and VAT laws. mid-2021. (2) Implementation of the Industry

ANNUAL REPORT 2021 | PFTAC 43

BOX 6. TAX LAW REFORM

PFTAC continues to support significant tax law reform efforts by PICs. The reforms primarily involve updating and modernizing tax legislation, particularly income tax and VAT laws. Work on some projects slowed in 2020 as Governments focused on immediate COVID-19 measures.

The rewrite of the Income Tax Act (ITA) in PNG continues. A draft of the rewritten ITA was released for public consultation in mid-2020 and a revised draft prepared taking account of submissions received. A further round of public consultations is planned for mid-2021 with the legislation to be submitted to Parliament in November 2021.

Work continued on modernizing and simplifying VAT legislation in Fiji and Tonga (where VAT is called “consumption tax”). A particular focus of the VAT rewrites is on improving the taxation of supplies of imported services (including the “import” of business-to-consumer digital products) and reviewing exempt and zero-rated supplies. Both countries propose enacting the rewritten VAT legislation in the second half of 2021. The Palau Tax Reform Bill was submitted to Parliament in February 2021 with the introduction of the Palau Goods and Services Tax (a VAT style tax) the centrepiece of the tax reform.

Work has also continued in some PICs on tax administration legislation. In Tonga, the Revenue Services Administration Bill was passed in the May 2020 sitting of Parliament but is still awaiting Royal Assent. A final draft of the Niue Tax Administration Bill has been prepared with the Bill intended to be submitted to Parliament in the second half of 2021. Work commenced on a Tax Administration Bill for the Cook Islands in December 2020. The drafting of the Bill is nearing completion and is expected to be submitted to Parliament in the second half of 2021.

Nauru passed amendments to the Business Tax Act to replace territorial taxation with the taxation of residents on worldwide income.

There has been ongoing work in Kiribati on small business tax and seabed mining legislation.

Tonga Ministry of Revenue and Customs: Establishment of Large Taxpayer Office

ANNUAL REPORT 2021 | PFTAC 44

BOX 7. PFTAC/PITAA ONLINE WORKSHOP ON MANAGING LARGE TAXPAYERS, COMPLIANCE IMPROVEMENT, AND EFFECTIVE DATA ANALYSIS

Fourteen Pacific Island tax opportunity to share knowledge and taxpayer compliance strategy; administrations represented by 58 learn from the experiences of others. (g) managing and measuring officials participated in the workshop performance; (h) information facilitated by two FAD experts, Stan The workshop agenda covered a wide management; (i) key compliance Shrosbree and Martin Scott. The range of topics focused on the large functions; (j) stakeholder and experience, knowledge and taxpayer segment and compliance. relationship management; backgrounds of the participants was The topics included: (a) COVID-19 – (k) addressing non-compliance; and diverse which is reflective of the size the importance of large taxpayers in (l) developing a high level and sophistication of PICs that reprioritizing revenue collections; implementation plan. participated namely, eight small, four (b) characteristics of large taxpayers; medium, and two large tax (c) applying the compliance model in Participants from Fiji, Tonga, and administrations. the large taxpayer environment (tax Solomon Islands shared their administration as a compliance experiences relating to their Large Approximately 12 hours of training was agency); (d) applying the compliance Taxpayer Management as case delivered over the 4-day workshop model in the large taxpayer studies. Their presentations covered which included 14 presentations, tasks environment (the compliance model the impact of establishing large for participants, and open forum and thinking behind it); (e) large taxpayer offices on compliance, discussions. This provided the taxpayers – governance and structure; staffing and successes to date. facilitators and participants the (f) key features of an effective large

Virtual Workshop on Managing Large Taxpayers, Compliance Improvement and Effective Data Analysis, February 2021

ANNUAL REPORT 2021 | PFTAC 45

BOX 8. PFTAC/PITAA ONLINE WORKSHOP ON RETURN FILING AND TAX ARREARS

The joint PFTAC/PITAA webinar on plan for their country. The workshop introduced strategic Managing Tax Arrears and Return payment thinking approaches, use of Filing was delivered across five days Participants improved their behavioral insights, analytics, and to 46 participants from 13 PFTAC understanding of international best reinforced respective TADAT member countries. The workshop practice and learned how to practically Performance Outcome Areas. aimed to provide participants with a implement the customized plans using good understanding of both the a framework developed from the four These plans were reviewed as part of theoretical concepts behind managing key principles of payment and arrears the workshop. Participants were tax return filing and tax arrears risks management: (1) Prevention – engage encouraged to discuss these plans and the practical application of those before the due date; (2) Early and with their executive managers and concepts. continuous engagement – engaging incorporate into existing business and after the due date; (3) Effective and operational plans. The high-level plan Workshop participants shared their timely enforcement – firmer will assist in enabling progressive country experiences and each of the enforcement; and (4) Realistic improvements. participating countries developed and compliance and recovery – write off presented a high-level customized and uneconomic to recover.

PFTAC Revenue Advisor with PITAA Head of Secretariat and Department of Foreign Affairs and Trade (Australia) Officials

ANNUAL REPORT 2021 | PFTAC 46

SECTION II PUBLIC FINANCIAL

MANAGEMENT

C

MAIN ACHIEVEMENTS

(1) Successfully piloting and (3) Updating and modernizing PFM Accounting Standards (IPSAS) completing the PEFA Climate legislation to provide and progressively reporting module in Samoa—the first such comprehensive scope and encouraged disclosures; and assessment worldwide; coverage of all elements of the PFM system, and to promote (5) Strengthening internal control (2) Formulating PFM roadmaps, fiscal responsibility and through the implementation of which are realistic and achievable transparency; risk-based audit practices in within the country context, accordance with the Institute of enabling better progress in (4) Strengthening financial reporting Internal Auditors (IIA) standards. strengthening PFM systems and via the adoption of cash-based practices; International Public Sector

Samoa Ministry of Finance CEO – Oscar Malielegaoi shares experience on PEFA Climate Assessment and PFTAC TA Support

ANNUAL REPORT 2021 | PFTAC 47 In FY2021, the PFM program delivered using the PEFA assessment tool. timeliness of the financial statements. 19 missions or activities (totaling 267 During the year, two PEFA TA days) comprising 17 missions to assessments were undertaken, Support was provided to Fiji and member countries and 2 regional including the flagship PEFA Climate Samoa to further earlier work on workshops delivered through a hybrid Module—piloted in Samoa—which modernizing internal audit practices in-person and remote modality in was the first such assessment globally. through the implementation of the IIA conjunction with USP. Against the An agile PEFA assessment was risk-based auditing standards. This FY2021 workplan that was updated in undertaken for the Cook Islands. This has had the benefit of providing a December 2020 to reflect ongoing was PFTAC’s second PEFA using the focus on the highest risk areas, rather COVID-19 restrictions, this was an agile approach, which is less onerous than spreading limited resources more outturn of 83 percent of planned and resource intensive than the thinly across all areas and missions/activities (19 of 23), and 81 regular modality and better suited to transactions. Addressing systemic percent of planned TA days (267 of remote delivery. issues in the highest risk areas is 328), of which 128 TA days were fundamental to strengthening the delivered by the resident advisors and Building upon the findings of past overall control environment. Risk 139 TA days by STX. However, the PEFAs, PFTAC assisted the assessments of governance and outturn against the pre-COVID-19 development of PFM roadmaps for emergency responses in Fiji have workplan based on no travel PNG and Tonga. Assistance was particular relevance to the COVID-19 restrictions was 54 percent of planned provided in drafting new PFM crisis. missions/activities (19 of 35 planned legislation for Niue and Tonga. activities) and 53 percent of TA days The ongoing project on cash (267 of 501 planned TA days). With PFTAC support and guidance, management in Samoa has assisted countries continue to make good the authorities to initiate a quarterly The major users of PFM TA during the progress on strengthening fiscal warranting system which is year were Samoa and Tonga (5 reporting, which has been reflected in fundamental to revising commitment missions each). It should be noted that improved audit opinions. Adoption of ceilings in response to revenue logistical constraints in some countries the cash based- IPSAS has been shocks, such as those experienced have made hosting remote missions instrumental in this. During FY2021, during COVID-19; strengthen cash more challenging. The key topic areas support on implementing cash IPSAS flow forecasting practices; and utilize where assistance was provided, was provided to Nauru, PNG, Samoa, cash resources more effectively included conducting of Public Solomon Islands, and Tonga. Many through consolidation of cash funds as Expenditure and Financial countries are going beyond the basic part of initiating a treasury single Accountability (PEFA) assessments, mandatory disclosures of Part 1 IPSAS account (TSA). updating PFM legislation, formulation and have started to progressively of prioritized and sequenced reform make their financial statements more PFTAC continues to play a leading roadmaps, implementing international informative by incorporating (optional) coordination role with active standards for risk-based internal audit, encouraged disclosures in accordance engagement of the development and strengthening financial reporting with Part 2 IPSAS, including the partners and regional institutions through the adoption of cash IPSAS, disclosure of nonfinancial assets and involved in PFM reform activities. This including progressive reporting against liabilities. Advice has been provided on has assisted in enhancing the encouraged disclosures. IPSAS compliance, providing greater effectiveness of CD within a busy clarity via policy statements in the arena. PFTAC continued to support countries notes to the statements, and improving in diagnosing their PFM performance, data quality, comprehensiveness, and

BOX 9. PEFA CLIMATE CHANGE MODULE ASSESSMENT

The PEFA Climate Change framework, (NZ), UNDP and the World Bank. The climate change oriented taxation, piloted for the first time in Samoa, report findings highlighted accounting for climate change actions examined the responsiveness of opportunities where Samoa could taking place outside central Samoa’s PFM systems to its climate enhance its responsiveness to climate government, and recalibration of some change policies. Led by PFTAC, the change through strategic allocation of of the dimensions. The PEFA climate assessment team included the PEFA resources, tracking expenditure, and change framework also highlighted the Secretariat, PRIF, World Bank, and improved prioritization of public broader question of PFM flexibility in PIFS. The report was peer reviewed investment. Issues valuable to the pilot integrating other key objectives such by ADB, DFAT, EU, IMF, JICA, MFAT phase were also uncovered such as as poverty and equality.

ANNUAL REPORT 2021 | PFTAC 48 Hybrid Workshop on Budget Documentation and Reporting at USP Fiji Campus, September 2020

A joint workshop co-hosted by the of governance assessment 2020 PEFA and taking on board UNDP and PFTAC was conducted processes, including the planning capacity constraints. remotely, as a follow up on the in- and execution of whole of person workshop delivered in FY2020. government audits, including on Support to Samoa included: The workshop targeted senior budget areas related to disaster recovery officials and members of legislative programs. (1) The PEFA Climate assessment of secretariats who provide budget the responsiveness of PFM analysis to members of parliament. Support to the Marshall Islands systems to the country’s climate Workshop sessions discussed the included: change policies and objectives; basics of good budget documentation and how to handle the COVID-19 (1) Assessing current documents (2) Strengthening cash management response in the budget; the against the IMF’s Fiscal practices, including cash flow importance of incorporating fiscal Transparency Code (FTC), forecasting, consolidation of cash policy into budget documentation; making recommendations which resources, and implementation of documenting gender responsive have been adopted for preparing a quarterly warranting system to budgeting and disaster resilience; and an explanatory document for the strengthen commitment controls developing citizens budgets to inform legislature on the presented within the financial management stakeholders. budget. system; and

In the Cook Islands PFTAC: PFTAC assisted Niue to: (3) Deepening the use of risk-based internal audit practices and (1) Undertook the Agile PEFA (1) Draft a modernized PFM Act standards and conducting a whole assessment to determine how (PFMA) to support the PFM of government audit of the payroll; PFM systems have progressed reforms. Drawing from earlier and advised on updating the since the 2014 assessment and to assistance, a revised PFMA was internal audit manual and prepare a PFM Roadmap. drafted and submitted to the establishing the Audit Committee. authorities for feedback. Due to Follow-on support to Fiji assisted: COVID-19 related delays, this The Solomon Islands benefitted from: work will be completed in FY22. (1) Risk-based audit of governance (1) A review of the 2018 Financial issues related to the Green Guidance was provided to PNG to: Statements to be compliant with Climate Fund (GCF) accreditation IPSAS cash. Due to COVID-19, process (gender, climate change, (1) Formulate a sequenced and planned follow up work has been the audit committee, and internal prioritized PFM reform roadmap postponed to FY22. audit charters), and strengthening building on the findings of the

ANNUAL REPORT 2021 | PFTAC 49

BOX 10. COOK ISLANDS AGILE PEFA

The PFTAC PFM team together with Despite the challenges of remote formulation and budgeting, and the assessment team, including delivery on such a resource and data medium term budgeting. Weaknesses members from the Pacific Association intensive activity, albeit with some remain in procurement, public of Supreme Audit Institutions (PASAI), delay, the field work was completed, investment management, bank and the PEFA Secretariat, conducted and the draft report was submitted for account reconciliation, reporting on the Cook Islands Agile PEFA peer review. This is a testament to the budget execution, internal audit, and assessment that was launched in goodwill and excellent cooperation of external audit. January 2021. The assessment the Cook Island counterparts. measured the performance of PFM The draft report, once peer reviewed, processes, practices, and systems and The preliminary findings show notable will provide the basis for formulating an the extent to which they have gains in budget classification and updated PFM roadmap, sequenced, progressed since the 2014 documentation, central government and prioritized according to the gaps, assessment. operations, fiscal risk reporting, debt shortcomings and other needs management, fiscal strategy identified in the PEFA assessment.

PFTAC assisted Tonga in: Roadmap following the 2019 related restrictions. ‘Agile’ PEFA assessment working (1) Building capacity in preparing closely with CEOs and senior PFTAC provided advice to Timor- financial statements compliant staff; and Leste on:

with IPSAS cash, reviewing the (1) Revising its draft update to the 2019/20 financial statements, and (3) Submitted a draft bill to the PFM Act, giving guidance on making recommendations on the authorities of a model PFMA that layout, scope, coverage, and changes required; supports the implementation of specific technical content. the required PFM reforms. This (2) The formulation of the PFM work is being extended to FY22 due partly to the COVID-19

BOX 11. REMOTE WORKSHOPS: BUDGET DOCUMENTATION AND PUBLIC INVESTMENT MANAGEMENT

The PFTAC PFM team undertook two The workshop sessions were participants with an understanding of remote workshops during FY2021: (i) a undertaken each with four half-day why sound management of public follow up workshop on budget sessions over three weeks for the investment is critical to the documentation, which was delivered budget documentation workshop and achievement of the most efficient and during November 2020; and (ii) a two weeks for the PIM workshop. This resilient infrastructure. The workshop workshop delivered by the FAD in spread-out approach facilitated greater introduced the IMF’s PIMA framework conjunction with PFTAC on retention of interest and participation and also presented the new PIMA strengthening Public Investment throughout. Country case studies were Climate Change module. Management (PIM) in Pacific a popular theme, with participants countries. eager to share experiences. It focused on key public investment management practices across the Despite the remote delivery modality The budget documentation workshop three stages of the PIM – planning, with its associated challenges, both generated active discussion on the allocation, and implementation as well workshops achieved excellent workshop themes which included the as on building climate resilience for participation and engagement. USP basics of good budget documentation small island states and integrating provided logistical support for both and how to handle the COVID-19 climate considerations into these events through the use of their response in the budget; the infrastructure planning, building campuses. This proved very useful importance of incorporating fiscal climate resilience, and improving especially in countries where policy into budget documentation; natural disaster responsiveness and connectivity is more challenging. documenting gender responsive access to climate finance. Whilst remote delivery is no substitute budgeting and disaster resilience; and for in-person events, in the developing citizens budgets to inform The event was attended by more than circumstances it demonstrated what stakeholders. 50 participants from 8 PICs, including was possible. officials from ministries of finance, The PIM workshop provided planning, and infrastructure.

ANNUAL REPORT 2021 | PFTAC 50 Virtual PIMA Workshop, April 2021

BOX 12. FAD REVIEW OF PFM REFORM STRATEGIES FOR PICs, 2012-2020

• PFTAC has played a pivotal role The working paper made a number of in coordinating reforms and key recommendations: contributing to improvements in PFM. • Reforms should be more realistic, prioritized, and sequenced. • Success in implementing PFM roadmaps in the region has been • PFTAC and other partners should varied. continue support to strengthening the basic PFM areas which • Roadmaps have tended to be underpin more advanced areas. overly ambitious and too broad, while failing to fully recognize • PEFA diagnostics are important capacity constraints and other but are resource intensive, it is limitations. important to balance diagnostics against implementation of FAD undertook a review of PFM • Solid improvements were noted in reforms. reform strategies for 16 Pacific Island budget execution and control and Countries (PICs) during the period fiscal reporting, but less progress • Focus should be on addressing 2010-2020. The strategy was was noted in areas such as areas of identified weaknesses, endorsed by the finance and economic budget credibility, internal and e.g., climate, gender, PIM ministers of the region (FEMM) in external audit, and procurement. institutions, SOE oversight, etc. 2010. The paper analyzed more than 30 PEFA assessments carried out • Strengthening PFM broadly will be • Improving transparency should be across the region. The region shares a contributing factor to accessing a key area of reform. the generally slow pace of PFM reform climate funds. that is also a feature of most • Lessons learned from COVID-19: developing countries. • COVID-19 has had an immediate use new modalities (remote and impact on countries and their hybrid delivery) to strengthen The study noted a number of findings: systems which will reach into the continuous engagement. medium term. https://www.imf.org/en/Publications/WP/Issues/2020/09/04/Review-of-the-Public-Financial-Management-Reform-Strategy-for-Pacific-Island-Countries-2010-49709 Authors: R. Allen; Majdeline El Rayess, Laura Doherty, and Priya Goel

ANNUAL REPORT 2021 | PFTAC 51

BOX 13. PIFS TECHNICAL WORKING GROUP ON PFM AND CLIMATE FINANCE

The informal technical working group strengthening countries PFM systems consideration including shifting from (TWG) on PFM and climate change and practices, with a view to short to longer term; incremental to finance was established in March 2020 strengthening the case for countries’ transformative; funding to financing; in accordance with the decisions of the accreditation and direct access to and climate financing to resilience 2019 FEMM Action Plan. The TWG is climate funds. The meetings provide a financing. co-chaired by PIFS and PFTAC, each forum for discussing key areas of alternately hosting the meetings. interest to development partners, In addition to these three workstreams, Meetings are convened periodically, including transparency of public guest presentations have been made with a total of nine meetings held finances; the management of assets by: (i) the Pacific Regional through the end of FY2021. The TWG and liabilities; predictability of funding; Infrastructure Facility (PRIF) on the operates with a strong mandate from budget execution controls; and role of infrastructure in the recovery the FEMM which highly commended reporting—all areas vital to effective efforts of Pacific Island countries the group at its meeting of August and resilient public investment. The (PICs) from COVID-19, such as better 2020. TWG was kept abreast of the Samoa connectivity, more reliable and PEFA Climate module, from planning cheaper energy, ICT, and access to The membership comprises through to completion and publication. water & sanitation; and (ii) the Green representatives from PIFS, PFTAC, Climate Fund (GCF) on the status of the IMF Fiji resident representative, Under Workstream 2, PIFS has been climate financing in the region, and UNDP, the World Bank, ADB, the EU, working actively on identifying GCF’s support for regional readiness Australia (DFAT), New Zealand progress and learning lessons from programs—although none have been (MFAT), UNDP, and the UK country experiences endeavoring to mobilized yet in the Pacific. The UNDP Department for International gain accreditation and tap into the is also providing support to high-level Development (DFID). climate funds. The workstream has events, such as COP26. developed three key outputs: (i) a The TWG oversees 3 workstreams: policy brief on Pacific experiences In May 2021 (after the financial (i) PFTAC support to the climate seeking accreditation for the Green yearend), FAD made an advanced related PFM agenda; (ii) PIFS Climate Fund (GCF) and Adaptation presentation of its study on climate guidance on the accreditation process Fund (AF); (ii) a Mapping report on finance. which is due to be published for accessing climate funds; and PICs’ interests for accreditation; and later in the year. (iii) UNDP research into climate (iii) a Draft Regional NIE guideline, to finance and its effectiveness, assist member countries in their The TWG is another example of the identifying enablers and barriers to accreditation application process. collaboration efforts between PFTAC, climate financing. These workstreams development partners and regional feature as standing agenda items for Workstream 3 has undertaken in-depth institutions – something which is vital the meetings. research into areas of climate finance, for assisting PICs in addressing based on desk-based literature review, climate change and reflective of the Workstream 1 provides regular update and key stakeholder interviews. The IMF’s increased commitment on on PFTAC activities aimed at study highlights emerging concepts for climate change issues.

ANNUAL REPORT 2021 | PFTAC 52 TABLE 11. PEFA AND PIMA ASSESSMENTS AND PFM ROADMAPS IN PACIFIC ISLAND COUNTRIES

Number Most PFTAC Most Roadmap Planned of Planned Completed Country Recent Guided Self- Recent Development Roadmap PEFAs PEFAs PIMA External Assessments Roadmap Support Development (Final)

Agile: Cook Islands 20141 2 2013 - 2016 Self - FY21 FSM 2012 1 2016 - - 2018 Self - PFTAC/ Fiji 2019 2 2019 - - 2020 PEFA - Secretariat Kiribati 2009 2 2017 - 2018 2011 EU -

Nauru 2010 1 2016 - - Revised ADB/PFTAC FY19

Revised Niue 2011 1 - - - PFTAC - 2014 Agile: Palau - 0 2013 - - - FY21 FY21 PNG 2019 4 2014-15 - - 2021 PFTAC/FAD FY21

RMI 2012 1 2012 - - 2013 PFTAC - Samoa 20182 4 2013 - - 2020 PFTAC - Solomon 2012 2 2012 - - 2018 PFTAC - Islands Timor-Leste 2019 3 - - 2017 - - -

Tokelau - 0 2018 - - 2019 PFTAC - Tonga 2019 2 2014 - - 2014 PFTAC - Tuvalu 2011 2 2015 - - 2017 PFTAC - Vanuatu 2012 3 2015 - - 2016 PFTAC -

1 The Cook Islands agile PEFA undertaken in FY2021 is currently being reviewed and yet to undergo PEFA Check. 2 This refers to the most recent main PEFA – Samoa also undertook the PEFA Climate module assessment which was finalized and published February 2021.

ANNUAL REPORT 2021 | PFTAC 53

SECTION II MACROECONOMIC PROGRAMMING AND

ANALYSIS

D

MAIN ACHIEVEMENTS

(1) Assisting countries to better (3) Undertaking ‘webinars’ for changes affecting those sectors; understand their macro-fiscal member countries in the region and position and outlook to better combining theoretical training and inform policy decision making; practical policy discussions with a (5) Providing support for a regional focus on the impact and response electronic Know Your Customer (2) Assisting countries to undertake to COVID 19; (KYC) Facility for use by regional scenario analysis of the effects of banks and money transfer different recovery pathways out of (4) Assessing sectoral economic operators to improve the efficiency COVID-19, particularly for tourism contributions to assist member of regional remittance flows and dependent countries; countries better understand the reduce bank ‘de-risking’ pressure. impact of potential regulatory

Joint PFTAC STI Macro-Fiscal Training, March 2021

ANNUAL REPORT 2021 | PFTAC 54 The work of the Macroeconomic tackling the loss of Correspondent due to COVID-19. program over the course of FY2021 Banking Relationships (CBR). Against occurred largely remotely, though one the FY2021 workplan that was The macroeconomic program is mission was conducted in person in updated in December 2020 to reflect focused on assisting members to Fiji and a further training course was ongoing COVID-19 restrictions, this develop quantitative tools for use in attended in person by Fijian was an outturn of 73 percent of policy analysis, forecasting, debt government officials. planned missions/activities (8 of 11), sustainability, and external and 78 percent of planned TA days vulnerability analysis. These tools take In most cases the remote delivery of (115 of 147), of which 103 TA days a graduated approach depending on TA was effective in communicating were delivered by the resident advisor the needs of the country and seek to concepts and in undertaking analysis. and 12 TA days by an STX. contribute to: (1) Basic Budgeting; In some cases, remote delivery also (2) Medium Term Forecasting; had the benefit of being able to reach However, the outturn against the pre- (3) Scenario analysis; (4) Fiscal a wider audience in the case of COVID-19 workplan that far more Strategy; and (5) Broader workshops and to undertake more ambitiously anticipated greater use of Macroeconomic Analysis. frequent meetings of regional projects. STX and considerably more resources to support the CBR initiative, the A further goal of the macroeconomic In FY2021, the Macro program mission/activity outturn was 33 percent program is to aid countries in delivered 8 missions or activities (8 of 24 planned activities) and 54 undertaking macroeconomic policy (totaling 115 TA days) comprising 5 percent of TA days (115 of 212 analysis through formal training missions to member countries, two planned TA days). This lower than combined with policy discussions with remotely delivered regional expected resource use was due to a a focus on practical application in the workshops, and a significant large number of in person workshops Pacific. contribution to a regional initiative and regional travel that did not occur

BOX 14. JOINT MACROECONOMIC AND STI WEBINARS

The PFTAC Macroeconomic Adviser in accounts and their relationship with the The final webinar presentation was on conjunction with the IMF’s Singapore fiscal sector. This approach is Fiscal Policy during the pandemic in Training Institute (STI) conducted two particularly important for the Pacific which provided insights into joint ‘webinars’ over the course of understanding the impact of changes developments and policy initiatives Fiscal Year 2021. in fiscal policy on the broader undertaken across the Pacific. The economy, including as governments presentation examined the impact of The first, which also benefited from a look to withdraw fiscal support during a COVID-19 on the economies and their presentation by the IMF’s Pacific future post COVID-19 recovery stage. government’s fiscal position of a Resident Representative, Leni Hunter, number of Pacific countries as well as was on the Economic Impacts of The workshop also examined fiscal examining past and possible future COVID-19 on Pacific Countries. risks and their mitigation as well as policy responses in light of this Approximately 50 government officials debt sustainability. This is of high analysis. from across the Pacific attended along importance as many Pacific countries with economists from Australian have faced considerable increases in The webinar also benefited greatly (DFAT). Participants were also trained their debt levels as a result of the from the involvement of the IMF’s APD on a model that assisted in forecasting pandemic. Pacific Division Deputy Chief, Scott the economic impact of COVID-19 Roger, who facilitated a round table under different scenarios in Pacific A hands-on session on debt discussion on policy options and their countries. sustainability was also included as part implications for Pacific countries as of the webinar allowing participants to they look to their recovery post- The second, on Fiscal Analysis, Debt gain a greater understanding of the COVID. Member countries were able Sustainability and Risks took place implications for debt sustainability of to directly discuss their situation with over three days and was attended by different fiscal and economic Scott, drawing upon his extensive 42 participants across the Pacific. The pathways. experience in the region. sessions covered macroeconomic

In Fiji, the macroeconomic adviser forecasting and analysis model in one the authorities to examine the impact worked closely over an extended of the very few opportunities where in- on the Fiji economy and fiscal position mission period with Ministry of person TA was able to be delivered of a range of scenarios, including Economy staff and Reserve Bank of anywhere by the IMF during FY2021. different timeframes for the return of Fiji staff to build a new macro-fiscal The purpose of the model is to enable tourists to Fiji, changes in government

ANNUAL REPORT 2021 | PFTAC 55 spending decisions, and the impact of report will assist the authorities to sovereign wealth fund, and risk cyclones. The model is GDP(E) based better understand the impact on their analysis around the future of the and involved mapping government economy of any possible regulatory offshore processing Centre located in expenditure to the appropriate national changes that could affect the sector. Nauru. accounts components on a GFS and Overall, the report recommended Fiji Government Fiscal year basis. using GNI as well as GDP, when The macroeconomic adviser was also The model produces a range of assessing the impact of the seconded remotely to both the Nauru indicators on both a numerical basis international financial sector in Samoa, and the Tuvalu APD country teams and as ratios of GDP out to 2030-31. enabling a fuller understanding of the based in Washington, to assist in The model will ultimately help inform impact on economic welfare. analytical work. In relation to Nauru, the Fiji government of the impact of its this focused on examining Nauru’s fiscal decisions under different return Working remotely in Nauru, STX Jyoti debt sustainability, including the of tourism assumptions. Rahman and the Macroeconomic impact of outstanding defaulted debt. Adviser provided assistance on At the request of the Samoan construction of a macro-fiscal model A remote mission to the Solomon authorities, the macroeconomic for use in fiscal forecasts as well as Islands undertook work with the adviser undertook an assessment of projections and scenario analysis. The Ministry of Finance and the Central the contribution of the international model will aid the authorities in making Bank to review existing inflation financial sector to Samoa’s economy, assessments about the policy tradeoffs forecasting models and frameworks as including both GDP and GNI, as well they face under different fiscal policy well as examining the uses of different as revenue collection. The resulting positions, accumulation in their measures of inflation.

BOX 15. CORRESPONDENT BANKING RELATIONSHIPS

Since the Global Financial Crisis, central banks of the South Pacific Chief, Scott Roger also provides authorities in Australia, New Zealand (Australia, Fiji, New Zealand, Papua advice to the Steering Committee. In and the Pacific islands have been New Guinea, Samoa, Solomon addition, the World Bank, ADB, the concerned about losses of Islands, Timor-Leste, Tonga and UN, and other International Financial Correspondent Banking Relationships Vanuatu) agreed to develop a regional Institutions are frequent participants. (CBR) by small banks and money Know Your Customer (KYC) utility. In transfer operators (MTOs) in the March 2020 a Steering Committee to The objective of the KYC Facility is to region. Remittances from Australia, oversee the project was established, improve Customer Due Diligence – New Zealand, and the US are together with a Working Group to take that is identification – of financial important sources of income for the project forward. The Steering transfer senders and receivers. This several countries in the region, and Committee comprises members of the will give Australian, New Zealand and CBR losses make such transfers more region’s central banks and is co- US Banks greater confidence in Anti- difficult and help keep remittance costs chaired by New Zealand and Australia, Money Laundering and Counter amongst the highest in the world. with the IMF/ PFTAC as the Terrorism Financing regulations, secretariat. reducing pressure on them to cancel In November 2019, and in response to their CBR. this concern, Governors of the nine The IMF’s APD Pacific Division Deputy

ANNUAL REPORT 2021 | PFTAC 56

SECTION II MACROECONOMIC

STATISTICS

E

MAIN ACHIEVEMENTS

(1) Providing general and targeted implementing expenditure side and aligned to the classifications training to local staff to build GDP compilation; according to the Government compilation capacities; Finance Statistics Manual 2014 (4) Compiling, disseminating, and (GFSM 2014) for automation in (2) Improving the timeliness of GDP ensuring the timeliness of GFS for the financial systems; and data by introducing quarterly GDP the BCG, and expanding programs in several countries; coverage to the GG; (6) Increasing the coverage in the compilation of public sector debt (3) Extending the coverage of (5) Ensuring that new national Charts statistics (PSDS). national accounts by of Accounts (CoA) are mapped

Hybrid Workshop on Quarterly National Accounts and Seasonal Adjustment at Fiji Bureau of Statistics Office, September 2020

ANNUAL REPORT 2021 | PFTAC 57 WORK PROGRAM EXECUTION

GOVERNMENT FINANCE the GFS is automated as part of planned missions/activities and 66 STATISTICS the process; percent (134 of 203) of planned TA days. Compared to the workplan Due to the unprecedented and (3) Assisting in the compilation and adapted to the new circumstances in challenging times caused by the dissemination of GFS for the BCG December, 100 percent of planned COVID-19 pandemic, the entire GFS for decision making and IMF missions/activities and 88 percent of program was delivered remotely. The surveillance as well as for planned TA days, with all 16 planned duration of most CD activities was reporting to the IMF’s GFS annual missions/activities delivered, utilizing shortened to one-week to allow the database; 134 of 152 planned TA days. compilers to focus on other important challenging tasks arising from the (4) Twelve reports were submitted One of the 16 delivered activities was pandemic. with data to the annual database, a remote mission to Tuvalu covering the same number as in FY2020. External Sector Statistics. Over FY2021, 12 GFS missions Hands on training in the GFS (totaling 79 TA field days) were compilation process was provided Three regional workshops were delivered: 66 days by the PFTAC GFS in Cook Islands, FSM, Nauru, delivered with one concentrating on resident advisor and 13 days by STX. Palau, RMI, Timor-Leste, Tonga, annual national accounts and another This is effectively 84 percent delivery and Vanuatu; on quarterly national accounts. PFTAC (TA days) of the workplan as adjusted contributed to a further workshop in in late 2020. (5) Expanding coverage to the GG in cooperation with CDOT on BoP FSM, Palau and RMI while compilation. All workshops were The program also delivered one progress in data preparation was delivered remotely. training event: a virtual regional made in Fiji and Solomon workshop in April 2021 focused on Islands; The most important achievements in how to record COVID-19 related FY2021 were: government policy interventions in (6) Increasing coverage in the fiscal statistics. Attending the compilation of PSDS with (1) Finalizing and publishing quarterly workshop were 34 officials from 11 progress made in FSM, Palau, national accounts program in Fiji; member countries, all except Nauru, RMI, Solomon Islands, and Tuvalu, and Timor-Leste, who were Vanuatu; (2) Starting seasonal adjustment unable to attend given staff programs to QNA figures for Cook constraints. (7) Preparing detailed business Islands and Samoa; and process documentation to better The main themes in FY2021 for the understand compilation processes (3) Finalizing a program on GFS program were: in Cook Islands, FSM, Palau, expenditure side GDP (GDP-E) RMI, Timor-Leste and Tonga; calculation on an annual basis in (1) Assisting with recording the most and Samoa. commonly observed interventions in fiscal accounts during the (8) Increasing the frequency of GFS The sole objective of the RSS program COVID-19 pandemic in all the reporting in Cook Islands, while is to strengthen macroeconomic and region; progress was made in Palau and financial statistics compilation and Tonga. dissemination. (2) Reviewing the coding and mapping of the new national CoA REAL SECTOR STATISTICS The COVID-19 pandemic has aligned to the guidelines provided increased the demand for timely QNA through the GFSM 2014 in Fiji, The COVID-19 pandemic has been a to better inform recent economic Tonga and Vanuatu. A new challenge for countries and their developments and support effective information system became statistical offices and also for PFTAC’s and evidence based economic operational in Palau, while CD delivery. Due to travel restrictions, policymaking. Governments, reforms progressed in Fiji, FSM, TA missions were delivered remotely businesses, and citizens require and RMI. These reforms may see throughout the year with the exception timely, high frequency data to track the potential improvements in of Fiji. Nevertheless, the outturn depth of the recession and the pace producing financial statistics and against the pre-COVID-19 workplan of and shape of the recovery. will ensure improved timeliness if RSS was 94 percent (16 of 17) of

ANNUAL REPORT 2021 | PFTAC 58

BOX 16. QNA AND SEASONAL ADJUSTMENT

Quarterly National Accounts (QNA) economic policy and surveillance can been developed in past years, their allow for the compilation of Gross be increased substantially by adjusting application needs careful training and Domestic Product (GDP) on a the results for such influencing factors. instruction. Users also have to be quarterly basis. As such, results are Otherwise, quarters can only be informed about the nature of this published typically 3 – 4 months after compared with those of the previous process. PFTAC provides such the end of a quarter, with information years, but not informing the most training on internationally about recent economic developments recent changes in national production. recommended software in its QNA available faster, allowing a swifter courses as well as bilaterally during its policy reaction. Further, this timeline The adjustment of such variations is TA missions. allows for the earlier publication of not straight forward, as they show up preliminary results of the last year’s in different series with different production – as the sum of its quarters. intensity, and patterns can change over time. For this reason, the As quarterly production is usually adjustment is based on mathematical/ influenced by calendar and seasonal statistical time-series models. variations – like tourist seasons – the usefulness of QNA for informing Although, user friendly software has

In the Cook Islands: to a new base year; and In Samoa, support mainly focused on: (1) GFS data was submitted to the (2) assisting in the compilation of IMF’s annual GFS database; annual BCG GFS. (1) assisting the Samoa Bureau of Statistics with finalizing annual (2) compilation of quarterly GFS was In Marshall Islands, technical GDP by expenditure estimates; finalized; and assistance helped: (2) assisting with compiling (3) a mission assisted with compiling (1) the authorities to continue to seasonally adjusted QNA data on seasonally adjusted QNA data on develop National Accounts an experimental basis; and an experimental basis. independently of external providers with PFTAC support; (3) Assisting the Samoa Bureau of Fiji received assistance on statistical Statistics in refining the GG GFS issues towards: (2) to compile and disseminate BCG compilation processes. GFS FY 2019; (1) incorporating the classification In the Solomon Islands, the PFTAC adjustments in the BCG time (3) to expand the GFS coverage program contributed to: series (2010-2019) and submitting towards GG by completing a the data to the IMF GFS consolidated time series FY 2008- (1) Compiling the classification of database; 18; and functions of government (COFOG); and (2) expanding coverage towards GG (4) to compile data for public and progressing on consolidation; corporations. (2) integrating GFS data into GDP and compilation and updating GDP to In Palau, PFTAC’s support contributed 2019. (3) finalizing and publishing to: seasonally adjusted experimental The focus of PFTAC assistance to QNA data up to 2019Q4. (1) expand the GFS coverage Tonga was: towards GG by completing a Technical assistance to FSM included: consolidated time series FY2008- (1) starting the implementation of an 18; experimental QNA program; and (1) reviewing the compilation process for BCG and State Governments; (2) compile data for public (2) reviewing the existing GFS time corporations; series and creating a consistent Nauru was supported with process to compile the BCG GFS (3) to compile and disseminate BCG in the future. (1) updating annual national accounts GFS FY 2019;

ANNUAL REPORT 2021 | PFTAC 59 In Timor-Leste: (1) compiling the balance of In Vanuatu, PFTAC’s support payments and international contributed to: (1) PFTAC assisted in the compilation investment position (IIP) for 2017– of annual GFS data for FY 2019; 2018 and revising the 2013 (1) refining the BCG GFS compilation statistics; and process. In Tuvalu PFTAC assisted in: (2) rebasing and updating GDP.

Virtual National Accounts Mission to Solomon Islands, June 2020

BOX 17. COVID-19 - HOW TO RECORD GOVERNMENT POLICY INTERVENTIONS IN FISCAL STATISTICS

Governments across the world have both key fiscal indicators, such as from international organizations and introduced different forms of policy government deficit, as well as other foreign governments; (7) liquidity and interventions in their battle against macroeconomic indicators, such as quasi-fiscal operations by public COVID-19 in trying to keep their GDP. financial corporations; and (8) debt citizens safe and well and reducing the reorganization. financial impact on corporations and The IMF Statistics Department households. produced a guidance note on this PFTAC conducted a virtual workshop topic, covering eight broad categories for 34 officials from 11 countries to PFTAC countries, particularly tourism- of intervention: (1) increased explain in detail each of the most reliant economies, are no exception healthcare spending; (2) provision of commonly observed interventions and with the COVID-19 pandemic having assistance to households; its recording in GFS. had an extraordinary impact. (3) relaxation of tax obligations for households and corporations; Participants from different PFTAC Applying the recommended recording (4) provision of financial assistance to countries prepared presentations in international guidelines, such as the corporations; (5) capital injections, based on their country examples, the Government Finance Statistics Manual lending facilities, and provision of challenges faced, and areas that 2014, helps to ensure the accuracy of guarantees; (6) emergency assistance required further technical assistance.

ANNUAL REPORT 2021 | PFTAC 60

Virtual Regional GFS Training, April 2021

ANNUAL REPORT 2021 | PFTAC 61

SECTION II FINANCIAL SECTOR

SUPERVISION

F

MAIN ACHIEVEMENTS

(1) Contributing to financially inclusive (2) Developing and implementing financial sector legislative macroeconomic stability and Financial Supervision Framework reforms; and growth through stable, well- Enhancement strategies; supervised financial institutions; (4) Upgrading prudential and risk (3) Supporting and facilitating management standards.

18th Virtual Annual Meeting of the Association of Financial Supervisors of Pacific Countries (AFSPC), March 30, 2021 hosted by PFTAC

ANNUAL REPORT 2021 | PFTAC 62 WORK PROGRAM EXECUTION

FINANCIAL SECTOR SUPERVISION of 33 planned missions/activities (64 To develop MTSES and TA plans, percent outturn) in FY2021, using 205 PFTAC and the supervisory authorities The FSS FY2021 program contributed days of remote field TA versus 312 of the relevant member countries to significant enhancement and reform planned days (66 percent outturn), assessed the structure and operation of the financial sector regulatory and comprising 83 LTX days and 122 STX of the supervision frameworks in supervision frameworks of member days. Though the outturn during relation to the size and complexity of countries, further aligning them with FY2021 both in terms of missions and their respective financial sectors and international standards. PFTAC TA days was lower than planned, the against international supervision delivered TA continued to assist number of TA missions conducted, standards and practices. countries modernize their risk-based and TA days used in FY2021 were supervision frameworks and provided higher than that in the previous year by SFEP focuses on three key support in reforming some long- 62 percent and 11 percent, components of risk-based supervision standing gaps and inefficiencies in respectively. This reflected the strong (RBS) frameworks: supervisory systems. Work continued commitment of the authorities to with the Supervision Framework continue regulatory reforms despite (1) Risk identification and Enhancement Program (SFEP), the COVID-19 disruptions. assessment (off-site and on-site Banking Regulatory Reforms, and the supervision processes); Insurance Regulatory Reform project. Figure 1: Four Pillars of PFTAC TA on FSS (2) Risk-rating models; and Owing to travel restrictions in the wake of COVID-19, the annual workplan had (3) Supervisory action planning. to be frequently revised over the year. TA activities that could only effectively SFEP has been designed to reflect the be delivered on-site within country upgrading of prudential and risk were postponed, while in many cases management standards under the the authorities’ priorities themselves Banking Regulatory Reforms project. changed as they were preoccupied in During FY2021, the SFEP was addressing the impact of COVID-19 on extended to Palau and Marshall their economy and financial systems. Islands. Since 2017, PFTAC has In responding to the pandemic, PFTAC undertaken 31 missions on the project reprioritized TA topics to focus on (PNG (9), Cook Islands (8), Vanuatu those that would strengthen the safety (3), Solomon Islands (7), Palau (2), and soundness of the financial system and Marshall Islands (2)) across one and enhance supervisory capacity to or more components of SFEP and the analyze financial risks that banks face. Banking Regulatory Project. These missions account for a large share of PFTAC also increased its informal The success of PFTAC’s FY2021 FSS program resources utilized since interaction with the authorities to workplan is mostly attributed to a 2017. discuss the regulatory and supervisory strategic focus that builds on challenges created by the crisis, foundational efforts around four key The Cook Islands has completed all offering guidance based on the pillars: Strategic, Focused, Innovative, four components of the project laying policies developed by the IMF. With and Efficient (see Figure 1). the foundation to commence work on the support of MCM, a roundtable further aligning its prudential conference of Pacific supervisory SUPERVISION FRAMEWORK framework with Basel II/III during the authorities in May 2020 facilitated the ENHANCEMENT PROGRAM Phase VI program cycle. PNG and sharing of national responses and Solomon Islands have started regulatory treatment by AFSPC In 2017, PFTAC initiated the SFEP, a reviewing and upgrading their member countries to help understand medium-term strategic approach to prudential and risk management the issues AFSPC members faced and assist Pacific countries to enhance the standards, off-site supervision, risk their responses to these challenges. structure and operational effectiveness analysis and risk rating frameworks, The TA provided by PFTAC is of their FSS frameworks focusing on and aim at completing their gradually but steadily reflecting the the banking sector. Initial diagnostic implementation during FY2022. supervisory tools and prudential missions and the establishment of Another three countries have regulations that have been adopted medium-term supervision commenced work on at least one internationally following the global enhancement strategies (MTSES) and component of the SFEP. Due to travel financial crisis. TA plans were completed in 2017 for restrictions throughout FY2021, a the Cook Islands, PNG, Solomon remote training SFEP component was Overall, the FSS program delivered 21 Islands and Vanuatu. added to successfully complete

ANNUAL REPORT 2021 | PFTAC 63 delivery to the staff of the Palau standards to align them with Basel their banking legislation and prudential Financial Institutions Commission and Core Principles and Pillar 1 Basel standards frameworks from the Marshall Islands Banking guidance on risk management. Marshall Islands Banking Commission. Table 12 shows the Commission, the FSM Banking Board status of SFEP in these six countries. Most PICs are expected to commence and the Financial Institutions adoption of Pillar 2 and Pillar 3 of Commission of Palau, the IMF Legal BANKING REGULATORY REFORMS Basel capital framework, PFTAC- Department (LEG) reviewed the assisted simplified versions of banking sector legislation of these The bank regulatory reform project has standardized approaches of Basel III countries and provided them drafting three components to: (i) review and macroprudential capital buffers suggestions in 2019 and 2020. The financial sector legislation, (ii) upgrade during Phase VI of the PFTAC’s authorities have been working to the prudential standards to align them program cycle. finalize the amendments and expect to with Basel II/III standards, and introduce the revised legislation during (iii) upgrade the risk management In response to TA requests to enhance FY2022.

TABLE 12. SUPERVISORY FRAMEWORK ENHANCEMENT PROGRAM

- Off-site Supervision - On-site Supervision - Risk Rating Framework Supervision In Tables 12, 13 and 14 Countries - Prudential Reporting - On-site Examination - Supervision Action Planning Manual - Risk Analysis - Risk Management Assessment C1 to C7 refer to seven countries – Vanuatu, C1 Cook Islands, FSM, RMI, Samoa, Solomon Islands, C2 and PNG. For C3 confidentiality reasons, the countries have not C4 been displayed in the C5 charts in any specific order. C6

TABLE 13. PRUDENTIAL STANDARDS – ALIGNMENT WITH BASEL II (PILLAR 2) AND BASEL III (PILLAR 1 AND 3) – PHASE 1

Definition Leverage Credit Counterparty Market Operational Large Related Party Countries LCR NSFR IRRBB of Capital Ratio Risk credit risk Risk risk Exposures Transactions

C1

C2

C3

C4

C5

C6

C7

TABLE 14. RISK MANAGEMENT STANDARDS – ALIGNMENT WITH BASEL CORE PRINCIPLES AND BASEL III GUIDANCE

Business Risk Fit and Credit Market Forex Operational Cyber Liquidity Stress Countries Governance IRRBB Continuity Outsourcing Management Proper Risk Risk risk risk Risk Risk Testing Management

C1 C2 C3 C4 C5 C6 C7

Key: PFTAC TA not yet commenced Draft under preparation Framework finalized/ Standard issued but not yet in force Framework/ Standard in force

ANNUAL REPORT 2021 | PFTAC 64 18th Virtual Annual Meeting of the Association of Financial Supervisors of Pacific Countries (AFSPC), March 30, 2021 hosted by PFTAC

During FY2021, the legislative work INSURANCE REGULATORY providing STX support to clarify was followed by TA to upgrade some REFORM questions raised by the authorities on of the prudential regulations and risk the example laws and standards. management standards in FSM and Using the banking regulatory reform RMI. Besides these, the Central Bank project structure as a model for Tonga has also conducted an industry of the Solomon Islands (CBSI) and insurance regulatory reform, PFTAC consultation of the draft insurance law Bank PNG (BPNG) have also and MCM commenced the Insurance and PFTAC is engaged with the NRBT commenced work to upgrade their Regulatory Reform project in FY2019 to assist in the law’s finalization. These prudential and risk management by holding a workshop on insurance countries are expected to introduce standards with PFTAC assistance. regulations that was attended by new insurance sector legislation and PFTAC is also assisting BPNG to representatives from Cook Islands, prudential standards during FY 2022. introduce a framework for consolidated Fiji, PNG, Samoa, Solomon Islands, supervision of financial institutions and Timor-Leste, Tonga, and Vanuatu. CYBER RISK REGULATION AND extension of prudential regulation to The workshop: (1) provided SUPERVISION CAPACITY non-banking financial entities. Cook information on international good DEVELOPMENT PROJECT Islands and Samoa issued the revised practice on insurance legislation and prudential statements on risk prudential standards (content and With MCM assistance, PFTAC has management in FY2021. Tables 13 structure); (2) facilitated a self- been implementing a cyber risk and 14 indicate the status of assessment of current legislation and regulation and supervision CD project development and alignment of standards against international in the Pacific since FY2020. The prudential and risk management standards; and (3) established a project has two components: (i) Cyber standards with international standards regulatory reform strategy and TA plan risk regulation CD, and (ii) Cyber risk in Cook Islands, Marshall Islands, for Fiji, Samoa, and Tonga. Following supervision CD. Following a cyber risk Samoa, Solomon Islands, PNG, the development of the draft example workshop held at the 2018 AFSPC FSM, and Vanuatu. law and prudential standards during Annual Meeting, the four participating FY2020, PFTAC followed up this work countries (Fiji, PNG, Samoa, and The Government of Kiribati is during FY2021 with remote training Tonga) have been working to finalize undertaking a comprehensive review and familiarization missions to Fiji, their national prudential standard on of its financial sector legislation and Samoa, and Tonga. cyber security drawing on an example prudential framework with the help of prudential standard provided to all an external consultant. The IMF has During the year, all three countries PFTAC members to use in developing agreed to support the initiative be made considerable progress towards their own country-specific standards. providing a peer review of the finalization of the legislation and All four countries are close to finalizing consultant’s output. prudential standards with PFTAC their draft prudential standards. During

ANNUAL REPORT 2021 | PFTAC 65 FY2021, the IMF provided further in June 2020. The overall progress of to COVID-19, namely training on assistance to BPNG to finalize the the project during FY2021 has been cyber risk in collaboration with STI standard. PFTAC organized a remote rather slow as the two sequential followed by cyber risk on-site conference on ‘Cyber Risks of Remote components planned during the year examination program in the countries. Work’ during the COVID-19 pandemic have been postponed to FY2022 due

BOX 18. ANNUAL MEETING OF THE ASSOCIATION OF FINANCIAL SUPERVISORS OF THE PACIFIC COUNTRIES (AFSPC)

A virtual, abridged meeting of the At the outset, Mr. David Kloeden, The forum agreed to set up a sub- AFSPC was held on March 30, 2021. PFTAC Director introduced the Phase group with membership from AFSPC AFSPC meetings are generally held VI Program cycle of PFTAC and member countries, Word Bank, ADB annually around August – September requested member countries to assist and a few donors to refine the ideas but the 2020 meeting was postponed PFTAC in articulating potential CD identified and transform them into due to the COVID-19 pandemic. Given priorities in various sectors for the next concrete projects for the consideration the limitations of virtual meetings, this cycle due to begin in 2022. In the first of the Steering Committee at its July 2, delayed meeting was restricted to a session of the meeting, the 2021 meeting. Representatives of four day versus the usual five-day event. participants provided an update of the AFSPC member countries volunteered latest financial sector developments in to join the working group. Later, the The meeting was hosted by PFTAC their countries including the measures World Bank and the ADB also and chaired by Mr. Ellison Pidik, taken to mitigate the economic impact provided nominations for the group. Assistant Governor, Bank of Papua of COVID19. New Guinea (BPNG). In addition to The group will conduct a survey PFTAC, 17 participants from 9 In the second session, participants among the PFTAC member countries countries attended the meeting. shared their current regulatory and to ascertain their regulatory and PFTAC and Reserve Bank of Fiji supervisory activities and their supervisory priorities over the next six (RBF) participants attended in-person preliminary ideas for the potential CD years and short list the thematic in the PFTAC office with all others projects for PFTAC around financial projects for implementation with connected virtually. sector supervision during its Phase VI possible TA support from PFTAC. Program cycle (2022 – 2028).

ANNUAL REPORT 2021 | PFTAC 66

SECTION III

WORK PROGRAM (MAY 2021 – APRIL 2022)

ANNUAL REPORT 2021 | PFTAC 67

SECTION III SUMMARY AND

OVERVIEW

A

This section summarizes the work WORKPLAN DEVELOPMENT context of responding to the COVID-19 program developed for delivery over crisis and the policy dialogue between the period May 1, 2021 to April 30, Since late 2019, the IMF has been member countries and the IMF teams, 2022, corresponding to the 2022 IMF reengineering its business processes and issues around scheduling, fiscal year (FY2022). The work for the management of CD as well as a sequencing, and remote delivery of program reflects the strategic reconfiguration of the annual CD CD. By early April 2021, workplans objectives programmed over the fifth timeline. This has led to a shift in the had been tentatively formulated, and operational phase of PFTAC financing, scheduling of annual SC meetings until were crystallized by early May 2021 covering the period November 2016 – after the start of the FY instead of the with the start of the new FY. From April 2022, but expected to be past practice before the end of the FY2022, workplans and budgets are extended to October 31, 2022. concluding FY. This allows for a single, now being managed and monitored final version of the Annual Report to be from the IMF’s new IT platform, produced with the actual budget and Capacity Development – Management activity outturn rather than projected and Administration Program (CD- results in a draft report for the SC MAP). Significantly enhanced and meeting that is subsequently updated expanded products will be available after the start of the new FY. However, from CD-MAP to report on workplan scheduling the SC meeting later progress and financial developments means that the process of endorsing and should begin to be visible in the the budget and workplans now occurs FY2022 Quarterly Reports. shortly after the start of the FY. In the meantime, PFTAC has In line with the shift of planning, produced detailed FY2022 workplans reporting, and governance calendars for review and endorsement at the for all IMF CD Centers, development June 29, 2021 SC meeting in the same of the FY2022 workplans was format as recent years, presented from launched in early January 2021 with two perspectives: (1) by program (e.g. extensive engagement with the many PFM), structured around country stakeholders, most importantly the projects defined by an RBM objective authorities and CD beneficiaries of the working towards achievement of one 16 PFTAC member countries, or more targeted outcomes; and (2) by development partners and donors, country, similarly documented by regional organizations, and the APD programs and RBM-defined projects. teams and mission chiefs for the 13 These workplans are also provided in PFTAC countries that are IMF summarized tabular form in the members. These conversations respective chapters for the various covered ongoing CD projects and PFTAC programs in this section of the reforms, identification of new or Annual Report. emerging priorities, particularly in the

ANNUAL REPORT 2021 | PFTAC 68

BOX 19. UPDATE ON THE CAPACITY DEVELOPMENT MANAGEMENT AND ADMINISTRATION PROGRAM (CDMAP)

Over the past year, the CDMAP project has continued implementation of its IT solution through a number of releases that aim to provide the capabilities required to manage the IMF’s CD portfolio. This has commenced with the FY2022 budget progress for which the new system has been gradually building its capabilities. As of May 1, 2021, IMF CD operations are now managed within CDMAP and the implementation of CDMAP will conclude in 2021.

One of the key features of CDMAP is the new reporting structure for execution of activities from FY2022 onwards, which will be categorized under the following 11 activities under 3 broad modalities:

• CD Delivery: This includes field and duty station-based work (preparation and delivery of CD support to beneficiary country officials through diagnostic and technical advice at the beneficiary country or remote location), Resident Advisor (delivery of CD support on a long term basis by external expert residing in the beneficiary country), interactive learning and workshops (prepared/delivered in-person or remotely), online learning, peer-to-peer engagement

• Analytics and Development: Research and analytical work for the development of CD tools (standardized assessment tools/analytical guides for future CD delivery); development of training courses or other learning materials; development of general CD technical materials.

• Management and Administration: CD project management and RCDC administration (operational costs not directly associated with CD delivery or project management).

The number of budgetary categories has been marginally reduced from 14 to 11. This standardized budgeting and reporting framework would help reduce administrative costs and allow more resources to be applied to actual CD delivery.

As there is no one-to-one relationship between the existing and new budgeting and reporting structures, conversion of data for existing funding programs would have been challenging and full comparability across fiscal years would not have been possible. Hence there will be a transition period for existing funding programs and until existing funding programs end, all reports will include two sections: (i) execution through FY21 using the old reporting structure; and (ii) execution from FY22 onward using the new structure.

WORKPLAN ASSUMPTIONS similarly for a resumption of travel to down with a small number of STX support in-person training. If travel missions over the remainder of The shadow of the COVID-19 remains curtailed, the CD program will FY2022 plus a regional event to pandemic will continue to weigh on the be delivered virtually for the balance of conclude the program, plus several economies and wellbeing of PICs for FY2022, continuing the mode of final STX missions during the expected the foreseeable future and will delivery that has been in place since Phase V extension in the first half of continue to influence and drive PFTAC March 2020. In this event, the FY2023. operations well into FY2022 and likely utilization of the budget provision for beyond. At least for the first half of the mission travel and in-person training The two longest serving advisors, the year (through end-October 2021), all will not materialize leading to an RSS expert Mr. Marcus Scheiblecker planned CD is expected to be underspend as experienced in and the Revenue advisor Mr. Georg delivered remotely. From November, FY2021. Eysselein are expected to remain at the workplans have optimistically been PFTAC throughout FY2022, with a developed around a gradual STAFFING CHANGES second resident Revenue advisor to resumption of travel to enable a return be recruited and in place by October to face-to-face engagement and Barring unforeseen circumstances, 2021. The size of the team of experts training, with budgets accordingly only two changes in the team of (including the new DM advisor) will reflecting a gradual uptick in travel and PFTAC resident experts are remain at eight throughout FY2022 training related expenses. This will anticipated in FY2022. After an with the departure of the GFS advisor only be possible if circumstances are additional but final extension, the offset by arrival of a second Revenue safe and it is feasible for the PFTAC assignment of Mr. Luis Temes, the advisor. As at June 1, 2021, all team advisors to travel and be received in resident GFS advisor will conclude on members are physically in Fiji, other member countries, including points of August 31, 2021 following two than the expected May 2021 arrival of transit, and be able to return home (Fiji extensions of a year and four months the evacuated GFS advisor and the for LTX and elsewhere for STX) respectively. Following his departure, new DM advisor delayed because of a without the need to quarantine, and the GFS program will gradually wind- local COVID-19 outbreak in Fiji.

ANNUAL REPORT 2021 | PFTAC 69

BOX 20. PUBLIC DEBT MANAGEMENT PROGRAM

The IMF in partnership with PFTAC has launched a three-year CD program in Debt Management (DM) for the Pacific region. The program, which is funded by the Government of Japan and to be implemented over FY 2022–2024, will primarily assist PFTAC member countries in strengthening public DM capacity.

Enhancing capacity in DM activities strongly complements PFTAC’s current work program. Managing debt risks is closely aligned with PFTAC’s increased emphasis on developing medium-term fiscal planning and budgeting in order to be able to cope effectively with the uncertainties and costs of climate change, natural disasters, non-communicable diseases, aging populations, gender inequality, as well as external economic shocks.

With both the size and the complexity of debt stocks increasing throughout the region, debt levels and DM are areas of significant macro-critical concern for PICs. The COVID-19 crisis, combined with a long pipeline of development projects, is likely to put upward pressure on debt ratios in some countries. This has increased the importance of delivering CD to help address these issues and ensure that effective DM frameworks are established to safeguard future sustainability.

The PFTAC DM program is designed to strengthen the capabilities of PFTAC member countries by: (i) building capacity in debt-related analyses and reporting; (ii) strengthening the institutional arrangements for DM; (iii) building capacity to implement debt and risk management strategies; and (iv) improving the functioning and depth of domestic debt markets.

More broadly, the program will aim to strengthen capacity and make progress in the following areas:

(1) Establishing good quality debt database, and commencing regular reporting on public debt;

(2) Improving the institutional structure for DM with better policy coordination and legal frameworks;

(3) Improving staff capacity in Medium Term Debt Management Strategy (MTDS) formulation and implementation, and loan negotiations;

(4) Developing a MTDS;

(5) Implementing DM strategies through an Annual Borrowing Plan (ABP) and an issuance calendar consistent with the MTDS;

(6) Improving staff capacity relating to domestic market financing; and

(7) Facilitating the introduction of instruments to improve resilience to climate shocks.

The program will adopt a comprehensive and programmatic approach to country needs, and will focus on building institutional capacity on a sustainable basis through the close support of a long-term resident advisor based in PFTAC.

The placement of an LTX is expected to enable the type of responsive, frequent, and customized assistance that has been successful in building similar capacities in other regions, such as West and Central Africa and the Caribbean. The program will aim to leverage and closely integrate CD efforts of other development partners.

ANNUAL REPORT 2021 | PFTAC 70 TRAINING/WORKSHOP EVENTS at countries were already very limited break of several years. One event will the regional or sub-regional level are before the COVID-19 crisis, and may be delivered jointly by the Macro and expected to be up marginally with 19 be limited to even fewer, indirect, and PFM programs, following up on events planned versus 17 delivered in more expensive options in the future. previously well-acclaimed workshops FY2021. More than half of the program This would have PFTAC budget focused on managing fishing revenues is expected to be delivered remotely ramifications for participants who may for such endowed countries. The through 10 webinars or virtual require more pre- and post-event days Macro program will continue its very workshops, while the balance has for attendance. As a regional travel effective joint delivery with STI with been tentatively planned as in-person hub, Fiji is likely to remain the three planned events, two virtually, events for the second half of FY2022 preferred and most cost effective and a third late in FY2022 delivered in- provided travel resumes. If travel venue, particularly Nadi given person if possible. The PFM program remains fully or partly curtailed, these proximity to the international airport will contribute to a long-delayed 9 events will be delivered remotely, or rather than Suva. Accordingly, all but regional symposium led by PIFS with if their viability requires in-person one of the nine events are expected to other partners for Finance Ministry interaction, they may be postponed be convened in Nadi, the exception heads. A major IMF event is targeted until travel resumes. Hybrid events are being a financial sector supervision for February 2022 subject to a another option throughout the year workshop targeted for Port Moresby in resumption of travel to launch the Debt drawing on the experience in FY2021 conjunction with the annual AFSPC Management program, with a three with two PFM workshops delivered meeting that the Bank of PNG hopes day technical workshop culminating in virtually that included some in-person to host in early 2022. a High Level Dialogue (HLD) for senior interaction using the USP campus Pacific policy makers and officials. The network across the Pacific. Every PFTAC program is scheduled to event would be modelled on three deliver at least one training event, with successful HLD events held jointly by When travel into and within the Pacific the Revenue program accounting for PFTAC and APD in Fiji between 2017 restarts, it is likely to be rebuilt five, collaborating closely in their and 2018. gradually. Flight availability and delivery with PITAA as in the past as networks for several PFTAC member well as one event with the OCO after a

TABLE 15. FY2022 PLANNED WORKSHOPS/ SEMINARS

Duration Sector Partner Location Topic Estimated Date (Days) Macro STI Virtual GDP Forecasting/ Now casting Workshop Jun 16 - 18, 2021 3 Macro STI Virtual Inflation Forecasting Workshop Sep 15 - 17, 2021 3 Macro/ STI Fiji Fishing Revenue Workshop Nov 29 - Dec 2, 2021 3 PFM Macro STI Fiji Macro-Fiscal Forecasting Mar 16 - 18, 2022 3 Cyber Risk Regulation and Supervision Project - Second FSS MCM Virtual June 1 - 5, 2021 5 component - online training by HQ FSS Virtual Macro-prudential Supervision and Capital Buffers Sep 2 - 3, 2021 2 FSS PNG AFSPC Annual Workshop Jan 25 - 30, 2022 5 GFS Virtual GFS and PSDS methodological training March 2022 3 RSS Virtual Quarterly National Accounts Compilation October, 2021 5 RSS Fiji Annual National Accounts Compilation November, 2021 5 PFM Virtual PEFA and PFM Reform Prioritization Workshop Jul 29 - 30, 2021 4 PFM Fiji Fiscal Risk and Transparency Feb 1 - 4, 2022 4 PFM Fiji PFM Symposium Mar 8 - 11, 2022 4 Workshop and High Level Dialogue (HLD) on Debt DM APD Fiji February, 2022 4 Management and Sustainability Revenue Virtual Risk Management and Data Analysis July, 2021 4 Revenue Virtual Effective Taxpayer Services and Communication July, 2021 3 Revenue Virtual Strategic and Operational Management October, 2021 4 OCO/ Revenue Fiji Tax Investigations - VAT November, 2021 5 PITAA Revenue Fiji Leadership, Integrity and Good Governance Jan 24 - 27, 2022 4 TOTAL 73

ANNUAL REPORT 2021 | PFTAC 71 FY2022 WORK PROGRAM ambitiously targets a return to will reverse in FY2022, with missions planned to increase pre-COVID-19 levels of activity—expanding significantly on the 68 percent (from 19 to 32), returning to FY2019 levels, but FY2021 outturn that was nevertheless impressive given it was utilizing substantially more TA days, growing 127 percent remotely delivered: (from 267 to 607 days), predominantly from 173 percent greater STX utilization (from 139 to 380 days), and 77 • 2,694 TA Field days are planned (721 LTX and 1,973 percent more LTX field delivery (up from 128 to 227 days). STX), up 60.6 percent from 1,677 days. • With the new FSS advisor similarly now fully familiarized • 200 Activities are planned (181 missions and 19 with the region, a major ramping up of the FSS program is workshops/regional events), up 53.8 percent over 130 envisaged with a doubling in the number of activities (113 missions and 17 workshops/regional missions/activities (up from 21 to 42). These will be events). delivered almost entirely by a 113 percent increase in STX utilization (from 122 to 260 days) and a modest 11 percent The respective workplans are summarized in annexes to the higher LTX contribution (83 to 92 field days), with overall following program chapters. Full FY2022 plan details are TA days up 72 percent (from 205 to 352 days). available at www.pftac.org from two perspectives, program-by- program and additionally by country. • The Macro program will see more than twice as many missions delivered (up from 8 to 17), achieved by 54 Changes to the overall work program are as follows: percent more TA days (from 115 to 177), primarily from more STX resources (from 12 to 58 days), and a modest • The Revenue program will continue at a scaled-up level increase in LTX days (from 103 to 119 days). While the throughout FY2022 and for the remainder of Phase V, Macro advisor will continue to devote at least 10 percent although the heavy burden borne by the single resident of his time to non-mission CBR issues, he is expected to advisor will be shared beginning in the second half of the personally deliver slightly more, but shorter missions, year with the recruitment of a second advisor. Overall, the supplemented by the highest STX utilization for the Macro number of missions and activities will grow 56 percent program in Phase V. over FY2021 (84 up from 54), but 33 percent above the Phase V highpoint in FY2019 when the Revenue program • Overall, the volume of activity under the two Statistics delivered 63 missions. The planned number of TA days programs will slightly decline in FY2022 (down from 28 to will grow 49 percent, up from 877 to 1,313 days, although 25 missions), due entirely to the end of the GFS resident the mix between LTX and STX days will slightly shift with a advisor position in August 2021. Indeed, the RSS mission second advisor on the ground for the last six months. count is marginally higher (up from 16 to 18), whereas Planned LTX field days will grow 97 percent (64 to 126 GFS declines from 12 to 7. A total of 245 TA days is days), while STX utilization will increase 46 percent (813 planned, up from 213 TA days in FY2021, from 42.5 to 1,187 days). percent growth in the RSS program (from 134 to 191 days, of which STX days are up from 40 to 59 days, but LTX CHART 10. DISTRIBUTION OF FY2022 MISSION DAYS days increase from 94 to 132 days), while the GFS BY PROGRAM program TA days will decline 32 percent (79 to 54 days), with LTX days down from 66 to 25, with a slight offset in STX days up from 13 to 29 days.

Macro • In response to continued high levels of demand, the share 7% PFM of the Revenue program remains elevated but down from 22% 52 percent in FY2021 to slightly under half of overall PFTAC TA field delivery in FY2022 at 49 percent. At 13 percent and 7 percent respectively, the FSS and Macro programs will maintain their same share as in FY2021, but the winding back of the GFS program produces a FSS reduction of the two Statistics programs from 13 to 9 Revenue 13% percent in FY2022, offset by growth of the PFM program 49% from 16 to 22 percent. The two fiscal programs together GFS will hit an all-time record of 71 percent of overall PFTAC 2% RSS activity (excluding the new DM program). The proportion 7% of resources targeted to the seven fragile Pacific states in FY2022 will return to pre-COVID-19 levels of 35 percent of total TA days (941 of 2,694 days), a significant reversal of the decline to just 24 percent in FY2021 arising from • With the two new PFM advisors having fully settled into COVID-19 challenges. their roles, the contraction of the FY2021 PFM program

ANNUAL REPORT 2021 | PFTAC 72 COUNTRY LEVEL planning will see slightly more than half of the 2,694 days of field delivery in FY2022 provided to six countries, with Fiji (11.3 percent), Cook Islands (10.0 percent), Samoa (9.1 percent), Timor-Leste (7.0 percent), Papua New Guinea (6.8 percent), and Tonga (6.8 percent). Fiji will return to top place, with Samoa and Tonga slipping from first and second place in FY2021 to third and sixth respectively, and are the only two countries that will receive slightly less CD than the very robust volume of support they received in FY2021 given how well both countries adapted to remote CD delivery. All 14 other PFTAC member countries will see an increase in CD in FY2021, in some cases a substantial increase, particularly the fragile states and smaller countries. Cook Islands moves from third to second place, and Papua New Guinea moves from the middle of the group to the top six, and Timor-Leste advances the most from second lowest beneficiary in FY2021 to fourth. However, these two countries received significantly less CD in FY2021 than had been planned because of disasters that preoccupied both countries as well as remote delivery difficulties, so the ambitious FY2022 plans will depend on a resumption of travel and/or overcoming remote delivery challenges. CHART 11. FY2022: 200 PLANNED MISSIONS/ ACTIVITIES The next five countries will account for 26.6 percent of PFTAC resources, with Vanuatu, 12 Cook Islands, Palau (6.4 percent), Vanuatu (5.9 Tuvalu, 9 17 percent), Solomon Islands (5.6 percent), RMI (4.2 percent), and Tonga, 15 Fiji, 22 Nauru (4.1 percent). And the final group of five countries accounts for the Tokelau, 1 remaining 13.7 percent of activity, with Timor-Leste, 8 Kiribati (3.9 percent), FSM (3.8 FSM, 6 percent), Tuvalu (3.6 percent), Niue (2.0 percent), and Tokelau (0.4 Solomon Kiribati, 9 percent). Islands, 13 Nauru, 5 A further 8.8 percent of PFTAC Niue, 5 resources (237 TA field days) are Samoa, 18 currently earmarked to regional Palau, 12 activities, primarily in the preparation and delivery of 19 planned workshops, RMI, 11 seminars, or other events, including PNG, 16 Regional, 21 remote training, as well as other regional support such as the Macro CHART 12. FY2022: 2,694 PLANNED TA FIELD DAYS assistance to the regional CBR initiative. Vanuatu Cook Islands Tuvalu 5.9% 10.3% Finally, the 2,694 TA Field Days that 3.6% constitute the FY2022 work program Tonga excludes the time spent by the 6.8% resident advisors in managing and Tokelau Fiji overseeing their respective programs 0.4% 11.2% from the PFTAC office in Fiji, or since Timor-Leste COVID-19, from a remote location. 7.0% This has been tracked, attributed to FSM the beneficiary countries, and reported 3.8% in the FY2021 results and amounted to Solomon Islands an additional 1,125 days of advisor Kiribati 5.6% 3.9% time, but is expected to decline in FY2022 with advisors devoting more Nauru time to direct field delivery. Each 4.1% Samoa resident advisor has approximately Niue 9.1% 225 available working days per year, 2.0% and in FY2021, each advisor delivered Palau RMI an average of 76 TA field days that is 6.4% 4.2% planned to increase to an average of Regional PNG 6.8% 101 TA field days per advisor in 8.8% FY2022.

ANNUAL REPORT 2021 | PFTAC 73 CHART 13. FY2022 WORKPLAN (2,694 DAYS) vs. FY2021 OUTTURN (1,677 DAYS)

350 303 300 278 246 250 237

184 189 200 173 183 151 158 150 110 114 102 105 96 100 53 50 12 0

FY21 Outturn FY22 Plan

The budget that is assured of being million remaining budget envelope is six month extension. In this event, an available at the start of FY2022 is ample to finance an ambitious program even longer extension to Phase V approximately $US 12.64 comprising in FY2022, plus a continuation at an could be considered. Alternatively, carried-forward Phase IV funds and all even higher level for the six month Phase V could end as planned on donor and member contributions extension of Phase V that has been October 31, 2022 with the remaining received so far plus a final donor proposed for the first half of FY2023. If balances rolled-over to Phase VI if contribution due in 2021. Phase V COVID-19 constraints restrict travel individual donor rules allow, or a expenses through the end of FY2021 and generate further budget savings proportionate share returned to those total $US 25.5 million, reflecting a as was the case in FY2021, even with donors where it is not permitted. This fund-raising shortfall of $US 1.5 million a robust remotely delivered program, would be a decision for the 2022 SC against the PD target of $US 39.5 the available funds at the end of meeting. million. However, the $US 12.64 FY2022 may exceed the needs for a

TABLE 16. PROPOSED FY2022 BUDGET BY LINE (US DOLLARS MILLIONS)

% of Prog Phase V Tot Ph V FY2021 FY2022 FY2023 Program Doc Outturn Expenses Document Budget Total to end- Final Proposed Change Proposed PD Budget thru end- end FY21 Outturn Budget FY221vFY21 Budget Diff. FY21 FY23 Resident Advisors (Long Term $12.6 $9.3 74% $2.2 $2.3 $0.2 $1.2 $12.8 ($0.2) Experts - LTX) LTX Travel $2.3 $1.3 59% $0.0 $0.4 $0.3 $0.2 $1.9 $0.4 Short-Term Experts (STX) $11.4 $7.1 62% $0.8 $2.2 $1.3 $1.2 $10.4 $1.0 Diagnostic Missions $1.2 $1.0 83% $0.2 $0.2 $0.0 $0.1 $1.3 ($0.1) Training/Seminars/Workshops $6.0 $2.7 46% $0.0 $1.1 $1.0 $0.5 $4.3 $1.7 Backstopping/Project $1.9 $1.2 63% $0.3 $0.3 $0.0 $0.1 $1.7 $0.3 Management Other Costs (Evaluation, $1.6 $1.1 71% $0.3 $0.4 $0.1 $0.2 $1.8 ($0.2) misc., etc.) Total TA Provision/Delivery $36.9 $23.8 64% $3.8 $6.9 $3.1 $3.5 $34.2 $2.8 Trust Fund Management Fee* $2.6 $1.7 64% $0.3 $0.5 $0.2 $0.2 $2.4 $0.2 Total Trust Charges $39.5 $25.5 64% $4.0 $7.3 $3.3 $3.8 $36.6 $3.0 IMF and Host Country In-Kind $2.6 $0.5 Contribution TOTAL $42.1 $4.5 $7.3 $3.3 $3.8 $36.6 $3.0 *Trust Fund Fee is 7 percent of funds utilized for TA delivery

ANNUAL REPORT 2021 | PFTAC 74 THE PROPOSED FY2022 BUDGET IMF CD budget categories have been • The PFM, RSS, and FSS program of $US 7.3 million including the restructured from the start of FY2022 budgets essentially remain management fee is substantially (55 with the introduction of CD-MAP and unchanged, but their significantly percent) more than FY2021 outturn of do not equate to the high-level scaled-up plans for FY2022 will be $US 4.0 million, but below the pre- categories provided in previous Annual possible through a much higher COVID-19 budget for FY2021 of Reports (such as LTX, STX, utilization of the budget than $US 8.0 million, and less than the Workshop, and Backstopping achieved in FY2021 or even approved budgets in FY2020 ($US 8.5 charges). However, for comparability earlier years in the case of the million) and FY2019 ( $US 7.9 million). with the first four years of Phase V, the PFM program. The workplan for FY2022 targets 200 FY2022 budget proposal to support missions/activities using 2,694 TA the proposed workplans is presented • The Macro program budget days, which is at least 10 percent more below in a consistent manner, reverts back to the FY2019 than workplans in the three previous although outturn in FY2022 will be baseline, with a sizable reduction years that had slightly larger budgets. reported using the new structures but from FY2021 that included a However, travel and training costs that mapped where possible to the historic significant allocation to support were close to zero in FY2021 will only categories. The budget for each CBR efforts that did not pick-up in the second half of FY2022 program is consistent with previous materialize given COVID-19 travel but will still fall short of pre-COVID-19 years with the following exceptions: restrictions. expenditure levels, and remote CD delivery including both missions and • The Revenue program budget • The GFS budget for FY2022 is training using STX will deliver envelope essentially remains close to half of FY2021 given the additional budget savings. The unchanged at the scaled-up level end of the resident advisor continuation of these COVID-induced that began in FY2019 but position, but a modest savings will thus finance a very rebalanced with a higher LTX continuation of the program ambitious work program in FY2022 allocation to cover the second delivered by STX and managed with a smaller budget envelope than resident advisor from November directly from Washington. pre-COVID-19 years. 2021, offset by a modest reduction in the STX budget.

TABLE 17. PROPOSED FY2022 BUDGET BY PROGRAM (US DOLLARS MILLIONS)

Revenue PFM Macro FSS RSS GFS Other Total Resident Advisors (Long Term Experts - 510,000 678,126 351,790 342,083 324,189 108,063 2,314,251 LTX) LTX Travel 90,000 103,589 55,000 57,000 55,000 18,000 378,589

Short-Term Experts (STX) 1,027,998 401,524 100,000 334,722 140,000 75,000 90,000 2,169,244

Diagnostic Missions 150,000 50,000 - - - - 200,000

Training/Seminars/Workshops 333,031 167,827 120,000 195,000 155,000 99,451 1,070,309

Backstopping/Project Management 42,844 79,232 - 74,415 73,842 22,967 12,962 306,262

Other Costs (Evaluation, misc, etc) 20,744 - - 10,142 10,142 376,331 417,359

Total TA Provision/Delivery 2,174,617 1,480,298 626,790 1,003,220 758,173 333,623 479,293 6,856,014

Trust Fund Management Fee 152,223 103,621 43,875 70,225 53,072 23,354 33,551 479,921

Total Trust Charges 2,326,840 1,583,919 670,665 1,073,445 811,245 356,977 512,844 7,335,935 *Trust Fund Fee is 7 percent of funds utilized for TA delivery

ANNUAL REPORT 2021 | PFTAC 75 SECTION III REVENUE ADMINISTRATION

B

PFTAC’s FY2022 CD strategy for revenue administration maintains a continuation of focus and TA activities working towards:

• Objective 1: Strengthened revenue administration management and governance arrangements; and

• Objective 2: Strengthened core tax administration functions.

Under the proposed FY2022 workplan, 84 missions/activities are planned versus an outturn of 54 missions in FY2021, a 55 percent increase, requiring an expected 1,313 TA field days (126 LTX and 1,187 STX), up 49 will continue in FY2022. The CD revenue and replace future losses percent from 877 in FY2021 (64 LTX delivered during FY2020 and FY 2021 from trade tax revenue. The TA and 813 STX). The FY2022 missions reflected an upscaling of the Revenue include new or enhanced tax include 10 missions (88 STX days) to Program over previous years that instruments, legislative changes, assist with tax legislation in 7 began in November 2018 so PFTAC measures to overcome administrative countries. The increase in the very could address a large unmet demand constraints, and improvements to tax ambitious TA delivery plan for FY2022 for TA. The fully expanded program administration processes and is based on a second LTX being will continue through FY2022 to the procedures to improve efficiency and appointed to the Revenue Program by end of Phase V at the end of October enable revenue mobilization. October 2021 (as endorsed by the 2022. PFTAC SC) to assist the current LTX PFTAC continues to promote the to respond to the unmet demand for The countries facing the biggest use of the International Survey of CD. The workplan is also based on the impacts from the PACER Plus trade Revenue Administration (ISORA) assumption that travel will resume agreement will continue to receive and the Tax Administration before the end of calendar year 2021, assistance with tax policy and tax Diagnostic Assessment Tool but this may have to be revisited if administration reforms. Support will be (TADAT), with both embedded into further COVID-19 outbreaks occur or provided to Samoa, Solomon training workshops and CD missions. travel remains curtailed. Islands, Cook Islands, Tonga, TADAT is a diagnostic tool that Nauru, and Tuvalu to increase provides an objective and The scaling-up of the revenue program

ANNUAL REPORT 2021 | PFTAC 76 standardized performance assessment and refreshing Compliance assist with further development and of a country’s system of tax Improvement Strategies (CIS). introduction of a new organizational administration. PFTAC also supports structure, refresh the ITAS project plan the development and implementation The Cook Islands benefited from and assist with development and of a Medium-Term Revenue Strategy continued capacity building over the implementation of change (MTRS) for countries considering past two years. This will continue management plan, support substantive reforms. Taxation and tax throughout FY2022 with seven implementation of a taxpayer services administration capacity is required if missions to assist with implementation strategy, and improve the integrity of the state is to fulfill its role in facilitating of a new functional structure, the taxpayer register and introduce sustainable and inclusive growth. implementation of the new Tax new business processes to ensure the Taxation is thereby at the center of Administration Act, improve register remains up to date. development policies with direct management of tax return filing and impact on overall prosperity. The tax arrears, tax audit skills The increased assistance to Samoa MTRS starts from the formulation of a development and strengthening the over the past year will continue with high-level road map of tax system audit function, and development of seven missions to renew the reform in a country that will extend standard operating procedures for core Corporate Strategy and Operational over 4 to 6 years. It is the sustained tax functions. Plans, improve risk management and process of implementation of this tax data analysis, enhance the industry system reform over time, which is of Fiji is a major beneficiary of PFTAC partnership strategy, implement the critical importance in view of the Revenue CD with eight missions taxpayer services and communication revenue collection challenges that planned for FY2021. Support will be strategy, further strengthen debt and countries face due to economic shocks provided to improve risk management returns management, improve tax caused by epidemics, pandemics, and and data analysis, enhance public and audit, optimize TIMS, and review natural disasters in the region. private rulings, implement industry progress with tax administration partnership strategy; improve reforms. AT THE REGIONAL LEVEL, delivery management of tax return filing and of the Revenue Administration tax arrears, further improve taxpayer The assistance to the Solomon program in FY2022 includes five services, and continue with the tax Islands will continue with six missions regional workshops down from six in audit skills development. planned to support the design and FY2021. The FY2022 workshops will implementation of an MTRS as well as be delivered in partnership with PITAA Kiribati will receive two missions to assistance with the implementation of and cover the following topics: assist with audit skills development VAT, full implementation of the new and a review of progress with tax LTO, implementing the taxpayer • Strategic and operational administration reforms. This will service strategy, and strengthening the management; complement stepped-up assistance audit function. being financed by the EU. • Risk management and Data The Timor- Leste diagnostic review analysis; The Marshall Islands will receive has been carried over from FY2021 assistance with the potential with two other missions covering • Leadership, integrity, and good implementation of VAT (dependent on implementation of VAT and a TADAT governance; tax policy reforms going ahead), the assessment. management of tax arrears and • Workshop on Tax Investigations - returns, and strengthening the audit After two years of extensive assistance VAT (jointly with OCO); and function with a focus on the cash and good progress being made, economy. Tonga will receive slightly less • Effective taxpayer services and assistance with five missions planned communication. Two missions are planned for Nauru for FY2022. Support will be provided with support to review and renew the with the renewal of the Corporate IN TERMS OF COUNTRY compliance improvement strategy with Strategy and Operational plans, risk ACTIVITIES, assistance in FY2022 a focus on large taxpayer segment and management and the CIS as well as entails TA delivery to PICs by two assistance with improving taxpayer strengthening core tax functions such resident advisors with a substantially services, debt and returns as audit and the Point of Sale System higher proportion provided by STX, management, and the audit function. as well as filing and tax arrears managed, and backstopped by the two collections. resident advisors and HQ staff. Key Support to PNG will be increased as PFTAC assistance themes for the year the MTRS implementation support Tuvalu will receive three missions with include MTRS, tax legislation support, project funded through the Revenue assistance to review and enhance the implementing LTOs or a focus on the Mobilization Trust Fund and CIS as well as improving taxpayer large taxpayer segment, implementing backstopped by FAD comes to an end. services, return filing and tax arrears Industry Partnership Strategies (IPS), PFTAC will provide four missions to management, and audit.

ANNUAL REPORT 2021 | PFTAC 77 Assistance will be provided with seven Assistance with tax legislation will be anti-BEPS (Base Erosion and Profit missions to Vanuatu to provide provided to the Cook Islands on the Shifting) provisions; and Tonga with TADAT training, review the IT Master finalization and assistance with the finalization of consumption tax Service Agreement, develop a implementation of a tax administration rewrite. Niue will finalize renewal of taxpayer service strategy, review and Act; Fiji with rewrite its tax their income tax and tax administration enhance the CIS, strengthen audit, administration act; Kiribati will receive acts and Palau with complete and improve the management of return support on tax legislation reforms with regulations for the PGST and business filing and tax arrears. a focus on simplification for small profit tax. taxpayers; Samoa on implementing

TABLE 18. FY2022 WORK PROGRAM – REVENUE ADMINISTRATION

Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

STRATEGIC OBJECTIVE 1: BETTER REVENUE ADMINISTRATION, MANAGEMENT AND GOVERNANCE ARRANGEMENTS

Function based structure part of business case for Economic impact of Cook STX Implementation of Function based structure modernization developed pandemic can impact on Islands [Remote] organizational structure introduced by 12/31/2021 with PFTAC assistance funding for new positions and approved

Assistance with Tax administration act STX implementation of Tax Training to be included Cook close to finalization - no Tax administration act [Remote/ In- Admin Act, including for implementation of tax Islands implementation plan in implemented by 4/30/22 Country] development of administration act. place project/implementation plan Review overall reform PFTAC has provided TA Cook LTX No review done by new progress and status of Review reform progress across objective 1 & 2 Islands [In-Country] LTX PFTAC recommendation - that needs to be reviewed introduce new LTX Finalization and assistance PFTAC supporting Cook STX Legislation has to be Tax Administration Act with implementation of Tax modernization of tax Islands [Remote] finalized finalized by 12/31/22 Admin Act, including training laws. Enhancing compliance High-risk compliance can CIS's due for renewal and STX improvement strategies, risk New CIS's implemented by be improved through Fiji data analysis to be [Remote] management and data 11/30/21 enhancing CIC's and enhanced analysis data analysis. Work has commenced on the public and private Public and private rulings A public and private ruling STX Enhance Public and Private ruling program put paused, are important for self- Fiji process in place by [Remote] Ruling Program additional technical assessment introduced 4/30/22. assistance is needed to by FRCS support implementation. Industry partnership needs Design industry Further assistance with the Industry partnership STX further enhancement and partnership strategy to Fiji Industry Partnership developed and [Remote] focus on high-risk improve compliance in approach; implemented industries COVID-19 context Review overall reform PFTAC has provided TA LTX No review done by new progress and status of Fiji Review reform progress across objective 1 & 2 [In-Country] LTX PFTAC recommendation - that needs to be reviewed introduce new LTX PFTAC supporting STX Rewrite of the tax Legislation has to be Tax administration act Fiji modernization of tax [Remote] administration act finalized implemented by 12/31/21 laws. Diagnostic review carried Identify need for Diagnostic review will STX Diagnostic review of the Tax over from FY 21 as FSM modernization and reform determine TA to be [In-Country] Administration. requested, ideally should and agree on TA delivered be in-country

Outcome of diagnostic Develop modernization Modernization plan, CIS review will determine To be finalized once STX plan and assist with CIS FSM and strengthening core tax specific assistance diagnostic review has [In-Country] and strengthening core tax function required - outcome & been completed functions. activity may change

ANNUAL REPORT 2021 | PFTAC 78 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk Review overall reform PFTAC has provided TA LTX No review done by new progress and status of Kiribati Review reform progress across objective 1 & 2 [In-Country] LTX PFTAC recommendation - that needs to be reviewed introduce new LTX Tax legislation reforms with PFTAC supporting STX Small taxpayer tax Kiribati focus on simplification for Legislation to be finalized modernization of tax [Remote] implemented 4/30/22 small taxpayers laws. Marshall STX Decision still to be taken VAT implementation Political support for tax Implementation of VAT Islands [In-Country] on implementation of VAT readiness by 10/31/22 reform needed

CIS developed to Improve monitoring and Further assistance on CIS CIS facilitating high levels STX CIS due for review and evaluation of compliance Nauru with focus on large taxpayer of compliance implemented [In-Country] renewal risk mitigation with focus segment by 12/31/21 on large taxpayer segment PFTAC supporting STX Finalization of income tax Income tax rewrite finalized Niue Legislation to be finalized modernization of tax [In-Country] rewrite by 11/30/21 laws. Assist with implementation Guidance and support LTX/ STX of Palau Goods and provided to progress PGST VAT implementation Tax reform Bill to be Palau [Remote/ In- Services Tax (PGST) and and NPT through readiness by 12/31/22 approved by Congress Country] Net Profit Tax (NPT) Congress

STX Regulations for the PGST VAT implementation Tax reform Bill to be Palau Regulations to be finalized [Remote] and business profit tax readiness by 12/31/22 approved by Congress Refresh the ITAS project Key interdependencies and STX plan and assist with ITAS project plan and Papua New more breakdown elements Funding required for new [Remote/ In- development and change management plan Guinea to be included in ITAS ITAS project Country] implementation of change implemented by 12/31/21 project plan management plan New structure should be used to introduce Further development and New organizational Papua New STX Initial work done on new strategically focused introduction of new structure implemented by Guinea [Remote] organizational structure practices and organizational structure 4/30/22 performance-based culture

Improving risk management Risk management and Framework for improved Risk management STX Samoa – development of framework data analysis need to be management of compliance identified as a priority [Remote] and Improving data analysis strengthened risk by 12/31/21 area for improvement

New IT Strategy and TPS Renewal of Corporate New Corporate strategic STX Strategic plan due for strategy to be Samoa Strategy and Operational plan implemented by [Remote] renewal in 2021 incorporated into Plans 10/31/21 Corporate strategy

Industry partnership needs Renewing of industry Industry partnership High-risk compliance can STX to be reviewed and Samoa partnership for high risk developed and be improved through [Remote] renewed with a focus on industries implemented by 11/30/2021 industry partnerships. high-risk industries

Review overall reform PFTAC has provided TA LTX No review done by new progress and status of Samoa Review reform progress across objective 1 & 2 [In-Country] LTX PFTAC recommendation - that needs to be reviewed introduce new LTX

STX Initial work done on BEPS Meeting BEPS Decisions to be taken on Samoa BEPS Implementation [Remote] by legal expert (STX) requirements 10/31/22 BEPS requirements

A decision to implement a VAT has been made with a Implementation strategies The COVID pandemic Solomon LTX Assist with implementation request from the and plans for VAT finalized has impacted on plans to Islands [In-Country] of VAT authorities to support by 12/31/21. implement VAT implementation. FAD led mission. Solomon LTX/ HQ Design and implementation MTRS implemented by Commitment required to Carried over from FY 2021 Islands [Remote] of MTRS 4/30/22 be able to move forward with MTRS design

ANNUAL REPORT 2021 | PFTAC 79 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

LTO established during FY 2021, additional staff to be The COVID pandemic Solomon STX Assist with implementation LTO fully implemented by recruited and trained, may impact on funding Islands [Remote] of LTO 4/30/22 processes to be reviewed for new positions in LTO and adjusted

Review overall reform PFTAC has provided TA Solomon LTX No review done by new progress and status of Review reform progress across objective 1 & 2 Islands [In-Country] LTX PFTAC recommendation - that needs to be reviewed introduce new LTX A decision to implement a VAT has been made with a Implementation strategies STX Assist with implementation Full political support Timor-Leste request from the and plans for VAT finalized [In-Country] of VAT needed for VAT authorities to support by 12/31/21. implementation. Diagnostic review carried Identify needs for STX over from FY 21 as PFTAC not involved with Timor-Leste Diagnostic review modernization and reforms, [In-Country] requested, ideally should TL for past years agree on CD be in-country Comprehensive information to be STX TADAT assessment TADAT assessment Timor-Leste TADAT Assessment provided to enable a [Remote] requested by authorities completed by 12/31/21 remote performance assessment PFTAC has assisted A renewed CIS that takes Tonga in the development into account the Improving Risk of a CIS approach, now in An effective CIS facilitating challenges presented by STX management and its second year. A review Tonga high levels of compliance the COVID pandemic is [In-Country] compliance improvement will be carried out to implemented by 12/31/21. critical to reinvigorate strategy; measure its effectiveness revenue collections and and suggestions for its maintain compliance further improvement.

Corporate strategic plan Renewal of MoRC STX Corporate strategic plan New Corporate strategic to take into account the Tonga Corporate Strategy and [Remote] due for renewal plan implemented impact of COVID Operational Plans pandemic on revenue

Review overall reform PFTAC has provided TA LTX No review done by new progress and status of Tonga Review reform progress across objective 1 & 2 [In-Country] LTX PFTAC recommendation - that needs to be reviewed introduce new LTX PFTAC supporting STX Finalization of consumption Legislation has to be Consumption tax rewrite Tonga modernization of tax [Remote] tax rewrite finalized implemented by 12/31/21 laws. CIS is vital to increase STX Review and enhance the Review of first CIS to New CIS implemented by Tuvalu voluntary compliance and [Remote] CIS inform wider scope CIS 12/31/21 to mobilize revenue Review overall reform PFTAC has provided TA LTX No review during past 3 Tuvalu Review reform progress progress and status of across objective 1 & 2 [In-Country] years PFTAC recommendation that needs to be reviewed Training requested to STX Provide training to enable TADAT self-assessment Formal TADAT Vanuatu perform a TADAT "self- [Remote] TADAT self-assessment completed by 11/30/21 assessment at later stage assessment" STX Review RMS provider Agreement signed in 2000, RMS Master Service The IT support needs to Vanuatu [Remote] Master Service Agreement needs to be reviewed Agreement reviewed be improved Improve taxpayers STX Develop taxpayer service Taxpayer service strategy Taxpayer Service Strategy Vanuatu services and [Remote] strategy required implemented by 12/31/22 communication. Review of existing CIS's An effective CIS facilitating STX Reviewing and enhancing Current CIS's due for and compliance risks Vanuatu high levels of compliance [In-Country] the CIS's renewal leading to renewal of implemented by 12/31/21. CIS's Review overall reform PFTAC has provided TA LTX No review done by new progress and status of Vanuatu Review reform progress across objective 1 & 2 [In-Country] LTX PFTAC recommendation - that needs to be reviewed introduce new LTX

ANNUAL REPORT 2021 | PFTAC 80 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

Workshop on strategic LTX/ STX Strategic and operational Management capacity As per PITAA training Regional planning delivered by [Remote] management building required needs analysis priorities 10/31/2021 Workshop on Risk LTX/ STX Risk management and Data Follow-up to workshop As per PITAA training Regional Management delivered by [Remote] analysis delivered during FY 20 needs analysis priorities 8/31/2021 LTX/ STX Leadership, integrity and Leadership capacity Workshop on leadership As per PITAA training Regional [In-Country] good governance building required delivered by 1/31/2022 needs analysis priorities

STRATEGIC OBJECTIVE 2: STRENGTHENED CORE FUNCTIONS EVIDENCED BY AN ACCURATE TAXPAYER BASE, TAXPAYER SERVICES SUPPORTING VOLUNTARY COMPLIANCE, IMPROVEMENTS IN FILING, PAYMENT AND AUDIT SERVICES On-time filing and Assistance requested by Further improvement payments operating at the authorities to improve Cook STX Strengthen Debt and required for management improved efficiency levels current returns and Islands [Remote] Returns management of outstanding returns and by 31/12/2021 and payment compliance tax arrears measured against TADAT levels. dimensions. More efficient and Developing Standard RMD does not have effective processes Cook STX SOP's approved and Operating procedures for standardized core tax required - vital for Islands [Remote] implemented core tax functions procedures in place planned upgrade of IT system Tax avoidance and Cook STX Audit skills development Audit skills development Auditor skills level low evasion requires high Islands [Remote] program completed level of audit skills The audit function operating at improved The authorities have Improvements required for Cook STX efficiency levels by requested TA to assist in Strengthen audit function the audit function to meet Islands [In-Country] 30/4/2022 and measured building audit function the required standards against TADAT and capability. dimensions. On-time filing and TA assistance requested Further improvement payments operating at by the authorities to STX Strengthen Debt and required for management improved efficiency levels Fiji improve current returns [Remote] Returns management of outstanding returns and by 31/12/2021 and and payment compliance tax arrears measured against TADAT levels. dimensions. Taxpayer services and Increase in voluntary Taxpayer service and communication important STX Improving taxpayer services compliance and decrease Fiji communication strategy to in COVID-19 context and [In-Country] and communication in number of taxpayer be implemented to improve voluntary complaints compliance Improvements required for Audit case work to be STX Fiji Strengthening tax audit the audit function to meet Quality of audits improved improved as requested [In-Country] the required standards by authorities Skills level of auditors and Build on first audit skills STX Audit skills development Fiji Developing tax audit skills investigators to be development program [Remote] program completed improved delivered during FY 2021 Auditing of cash based Strengthening tax audit with Improvements required for STX businesses with poor Kiribati focus on tax audit methods the audit function to meet Quality of audits improved [Remote] record keeping presents to detect undeclared income the required standards challenges Further improvement Increase in voluntary Capacity and capability Marshall STX Improving tax arrears and required for management compliance and decrease present challenge and no Islands [Remote] returns management of outstanding returns and in number of taxpayer IT tax system support tax arrears complaints Strengthen tax audit Improvements required for Audit case work to be Marshall STX function (challenges posed the audit function to meet Quality of audits improved improved as requested Islands [In-Country] by cash economy) the required standards by authorities

ANNUAL REPORT 2021 | PFTAC 81 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

Taxpayer services, on-time filing and payments and Improve taxpayer services, Further improvement audit operating at improved Capacity and capability STX debt and returns Nauru required for core tax efficiency levels by present challenges and [In-Country] management and audit functions 31/12/2021 and measured no IT support function against TADAT dimensions. Taxpayer services, on-time filing and payments and Improve taxpayer services, Further improvement audit operating at improved Capacity and capability STX debt and returns Niue required for core tax efficiency levels by present challenges and [Remote] management and audit functions 31/12/2021 and measured no IT support function against TADAT dimensions. Taxpayer Services, on-time filing and payments Improve taxpayer services, operating at improved STX Core tax functions to be Capacity and capability Palau debt and returns efficiency levels by [Remote] strengthened present challenges management 31/12/2021 and measured against TADAT dimensions. Improved delivery of Assistance with Finalization, approval and taxpayer services by Papua New STX Support implementation of implementing taxpayer implementation of taxpayer 12/31/2021 and measured Guinea [In-Country] taxpayer services strategy service strategy services strategy needed against TADAT requested by authorities dimensions. Complete the cleansing of Work has commenced on More accurate and reliable taxpayer register and Papua New STX cleansing the taxpayer taxpayer information held in Integrity and accuracy of introduce new business Guinea [In-Country] register of ceased and centralized database by taxpayer register vital processes to ensure the inactive cases 10/31/22 register remains up to date Improved delivery of Taxpayer services and Assistance with Taxpayer service strategy taxpayer services by communication important STX Samoa implementation of the already developed, needs 12/31/2021 and measured in COVID-19 context and [In-Country] taxpayer service strategy to be implemented against TADAT to improve voluntary dimensions. compliance On-time filing and payments operating at Strengthening return filing STX On-time filing and on-time improved efficiency levels Follow-up to assistance Samoa and tax arrears [In-Country] payment to be improved by 31/12/2021 and provided during FY 2021 management measured against TADAT dimensions. The audit function operating at improved Improvements required for Management of TIMS STX Strengthening audit and efficiency levels by Samoa the audit function to meet data and case selection [Remote] optimizing TIMS 4/30/2022 and measured the required standards key focus against TADAT dimensions. Improved delivery of Taxpayer services and Taxpayer service and Assistance with taxpayer services by communication important Solomon STX communication strategy to implementation of the 12/31/2021 and measured in COVID-19 context and Islands [Remote] be developed and taxpayer service strategy against TADAT to improve voluntary implemented dimensions. compliance

The audit function operating at improved Improvements required for Audit capability and Solomon STX Strengthen tax audit efficiency levels by the audit function to meet capacity present Islands [Remote] function 12/2/2021 and measured the required standards challenges against TADAT dimensions.

On-time filing and payments operating at Assistance requested to STX Improving debt and returns On-time filing and on-time improved efficiency levels improve current returns Tonga [In-Country] management payment to be improved by 31/12/2021 and and payment compliance measured against TADAT levels. dimensions.

ANNUAL REPORT 2021 | PFTAC 82 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

The audit function operating at improved Strengthen tax audit Improvements required for Assistance with building STX efficiency levels by Tonga function and optimize VAT the audit function to meet audit function and [In-Country] 31/12/2021 and measured POS the required standards capability requested against TADAT dimensions.

Core tax functions operating at improved Improve taxpayer services, Further improvement STX efficiency levels by Capacity and IT support Tuvalu return filing and tax arrears required for core tax [Remote] 4/30/2021 and measured present challenges management and audit functions against TADAT dimensions. The audit function operating at improved Improvements required for Audit capacity and STX Strengthening audit and efficiency levels by Vanuatu the audit function to meet capability present [Remote] audit skills development 31/12/2021 and measured the required standards challenge against TADAT dimensions. On-time filing and Further improvement payments operating at Strengthening return filing STX required for management improved efficiency levels Training for collectors to Vanuatu and tax arrears [Remote] of outstanding returns and by 31/12/2021 and be part of TA management tax arrears measured against TADAT dimensions. Workshop delivered in Workshop on VAT tax LTX/ STX Workshop on Tax terms of training needs Regional Carried over from FY 2021 Investigations delivered by [In-Country] Investigations - VAT identified and agreement 2/28/22 with OCO Taxpayer services and Workshop on taxpayer LTX/ STX Effective taxpayer services As per PITAA training Regional communication to be services delivered by [Remote] and communication needs analysis priorities improved 4/30/21

ANNUAL REPORT 2021 | PFTAC 83

SECTION III PUBLIC FINANCIAL MANAGEMENT

C

In FY2022, PFM assistance and CD will continue in all topic objective areas, including the topic objective new to FY2022 – Public Investment Management (PIM).

Specifically, support will be provided on:

• Undertaking PEFA assessments, with a PEFA Climate Module planned for Fiji and Vanuatu, an ‘Agile’ PEFA and Gender Module for Nauru, and completing the Palau PEFA which was postponed from FY2021 due to the pandemic;

• Developing sequenced and travel to member countries will open AT THE REGIONAL LEVEL, 4 prioritized PFM reform roadmaps, up by the second half of the fiscal year regional workshops are planned in based on the results of PEFA with 32 missions planned, down from FY2022: assessments; and completing 35 missions originally planned for ongoing work on modernizing and FY2021, but up from an updated plan • A PFM Symposium (in conjunction updating legal frameworks; of 23 missions and an actual outturn of with PIFS) targeting financial 19 missions. secretaries/CEOs. • Strengthening transparency of budget documentation and budget FY2022 sees a sharp increase in • A workshop on formulating credibility; improved budget planned utilization of STX field days sequenced and prioritized PFM execution; and stronger asset, (607 up from 501 in the FY2021 reform roadmaps, based on liability, and risk management; workplan). This reflects a higher issues highlighted in PEFA and; proportion of STX led missions relating assessments. to ongoing projects and the delivery of • Strengthening the quality of fiscal three PEFAs and one PIMA which are • In conjunction with the PFTAC reporting as well as in-year and resource intensive. macro program, a workshop on annual financial reporting, and fisheries revenue forecasting, accountability. PFTAC will continue its role in (following a similar workshop coordinating with other PFM TA delivered in FY2020); and The FY2022 PFM work plan is an providers to harmonize efforts and ambitious one, in the expectation that leverage synergies between partners. • A regional workshop on oversight

ANNUAL REPORT 2021 | PFTAC 84 of State-Owned Enterprises of banking arrangements. audit standards, strengthen warranting (SOEs) fiscal risks and and cash management practices, and transparency, (postponed from Further assistance will be provided to broaden the analysis and disclosure of FY2021). RMI to provide greater transparency in fiscal risks. the presentation of the budget, IN TERMS OF COUNTRY including a breakdown by economic In conjunction with FAD, advise ACTIVITIES, planned delivery includes item, and a better integration of the Timor-Leste on strengthening the the following: capital and recurrent budget; budget process by reflecting binding, Strengthening budget reporting via the medium-term ceilings in the budget In the Cook Islands, the PFM design and implementation of a chart documents; and formulating a Roadmap will be developed following of accounts aligned to modern prioritized and achievable PFM reform the FY2021 Agile PEFA assessment to standards. roadmap. define actions to tackle issues identified in the assessment. Continued support to Nauru includes Support for Tokelau will target the Moreover, a PIMA will be conducted building capability required for need for an integrated, transparent, towards the end of FY2022. pursuing compliance with IPSAS cash and accountable budget framework. standards. An Agile PEFA assessment In Fiji the second PEFA Climate including a gender responsive PFM Support for Tonga will focus on assessment for the region is planned. review is also planned to take stock of building local capacity to implement Additionally, work will continue to PFM progress since the last self- the next stage of IPSAS cash reinforce risk-based internal audit assessment done in 2016. reporting. Additionally, assistance will practices, and further strengthen the be provided to MOF to design and oversight and management of fiscal Support will continue for Niue to implement an asset management risks. update the PFM Act to support the framework. As well, support will be reform initiatives. directed at finalizing the modified To support the new FMIS being PFMA. developed, assistance to FSM will Prepare and conduct an ‘agile’ PEFA focus on strengthening local capacity assessment in Palau, which will then Assist Tuvalu in implementing to produce timely and quality fiscal form the basis for designing the PFM commitment controls and reporting of reports. reform roadmap. arrears; and deliver training on financial reporting and the chart of Support to Kiribati will include Assist PNG strengthen its commitment accounts. strengthening budget execution via the and expenditure controls and integrate introduction of quarterly warranting debt and cash management functions. Support to Vanuatu will continue to and commitment controls and improve the reconciliation processes facilitating more effective utilization of In Samoa work will continue on and tackling the issues raised in the cash resources through consolidation ongoing projects to implement internal audit.

TABLE 19. FY2022 WORK PROGRAM – PUBLIC FINANCIAL MANAGEMENT

Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

STRATEGIC OBJECTIVE 1: IMPROVED LAWS AND EFFECTIVE PFM INSTITUTIONS

The mission is proposed The Agile PEFA assessment in to be done in-country PFM Roadmap peer review stage, will identify the due to the lack of local Cook LTX/ STX completed with clear Roadmap development PFM areas that need attention capacity. If Covid travel Islands [Remote] actions for which forms the core of the PFM restrictions continue it implementation. Roadmap. could delay implementation. PEFA climate Significant work undertaken to start assessment Fiji is currently grappling LTX/ STX PEFA Climate addressing climate change, undertaken, and PFM Fiji with an unexpected [In-Country] Assessment building resilience and systems made more outbreak of COVID. management of natural disasters responsive to climate change. The last self-assessment was conducted in 2016. The proposed Prolonged pandemic and LTX/ STX Agile PEFA Agile PEFA assessment will take The Agile PEFA Nauru availability of local [In-Country] Assessment stock of where PFM systems and assessment completed. counterparts. processes are relative to five years ago. The assessment will define

ANNUAL REPORT 2021 | PFTAC 85 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk the PFM issues for priority action.

An updated and A draft legislation has been STX modernized PFMA bill Delayed feedback from Niue Updating the PFMA submitted to the authorities for [Remote] submitted to the the authorities. feedback. authorities.

Agile' PEFA undertaken Resource intensive LTX/ STX Postponed from FY21 due to findings used as Palau PEFA Assessment activity which requires a [In-Country] COVID-19. foundation for the PFM return to travel. reform roadmap.

The current PFMA legislation Delayed government STX Review draft proposed A draft bill is provided Tonga needs to be updated to support feedback on the draft [Remote] legislation to the government. PFM reform initiatives. bill.

Prioritized and Potential risk of LTX/ STX Developing a PFM Roadmap been in development for sequenced roadmap competing priorities - Timor-Leste [Remote] Roadmap some time drafted and guiding natural disaster on top of PFM reforms COVID-19

Reform roadmaps in region not Constant pressure to Workshop delivered LTX/ STX PEFA and PFM Reform adequately sequenced, prioritized address all issues, and Regional and roadmaps made [Remote] Prioritization Workshop and cognizant of capacity capacity limitations in more achievable constraints some countries.

To follow closely after Symposium delivered the meeting of the LTX Annual activity supported by the and senior executives Regional PFM Symposium FEMM - being [In-Country] FEMM in consensus on undertaken in priorities conjunction with PIFS. STRATEGIC OBJECTIVE 2: STRENGTHEN BUDGET PREPARATION TOWARDS MORE COMPREHENSIVE, CREDIBLE & POLICY ORIENTED BUDGET

Risk of limited capacity Increase transparency Budget presentation based on Budget presentation Marshall STX and staffing changes in the presentation of funds rather than GFS economic includes economic item Islands [Remote] impact implementation of the budget item classification reforms Budget documents Strengthening Top- 2018 PEFA identified areas for (including the Budget LTX Need for strong Timor-Leste Down Approaches to strengthening medium term Strategy Paper) reflect [Remote] engagement Budgeting budgeting binding ceilings over the medium term Review current budget The Aide Memoire with Tokelau process and basic dated June 2019, identified the A credible and policy LTX elements of fiscal need for an integrated, transparent Prolonged covid Tokelau based budget [In-Country] information to ensure and accountable budget framework pandemic. framework completed. quality control in which forms the basis for the spending proposed support. Skills imparted and Capacity issues in some LTX Fishing Revenue Regional Follow on from FY2020 workshop revenue forecasts countries impact skills [In-Country] Workshop made more reliable retention

STRATEGIC OBJECTIVE 3: IMPROVED BUDGET EXECUTION AND CONTROL

Follow on work on Risk based audit Internal Audit and Good STX implementing risk based standards implemented IAGG continues to Fiji Governance (IAGG) payroll and [In-Country] auditing standards and in accordance with the progress well governance audits completed practices IIA Implementing quarterly Design for quarterly Potential risk FMIS not STX warranting system and Effective controls will be needed for warrant releases and Kiribati configured as [In-Country] strengthening the new FMIS commitment controls in recommended commitment controls the FMIS are agreed Arrears management Action plan developed and commitments Payroll arrears in Provinces. Papua New STX for strengthening Risk of low compliance controls, including the Obligations only recorded at Guinea [In-Country] commitment and by Province officials management of payroll invoicing stage not at commitment expenditure controls expenses

ANNUAL REPORT 2021 | PFTAC 86 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

Next steps to Follow on work on Risk based audit consolidate government STX implementing risk based Risk based audits undertaken on standards implemented Samoa wide reports - IIAD [In-Country] auditing standards and procurement and payroll in accordance with the rolling out training practices IIA program to MDAs. Implementing arrears Potential risk FMIS not STX Identified needs for strengthening Design for commitment Tuvalu management and configured as [In-Country] commitment controls in FMIS controls in FMIS agreed commitment controls recommended

STRATEGIC OBJECTIVE 4: IMPROVE COVERAGE AND QUALITY OF FISCAL REPORTING

A new FMIS is being developed with donor support but need to Training of local staff on LTX/ STX Availability of local FSM Review of Reports strengthen local capacity to be able improved fiscal [In-Country] counterparts. to produce timely and quality fiscal reporting delivered. reports. Strengthening capacity to comply with IPSAS cash and improved Advice on compliance Capability and STX Follow-up on IPSAS Nauru reporting in the financial statements with IPSAS cash is availability of local [Remote] Cash Reporting are key factors in the quality of the provided to authorities. counterparts. audit opinion. Strengthening financial reporting, including Revised Chart of Marshall Budget reports analyzed by fund Risk of limited capacity STX[Remote] alignment of the Chart Accounts (CoA) Islands rather than GFS economic item to implement CoA of Accounts to implemented GFSM2014 Following earlier TA support, Review and implement Advice on compliance STX building local capacity to implement Availability of local Tonga improvements to the with IPSAS cash [Remote] the next stage of IPSAS cash counterparts. reconciliation process provided to authorities. reporting was considered critical. Skills developed on Risk of limited capacity National training on STX Agreement on strengthening cash financial reporting and to implement skills and Tuvalu financial reporting and [In-Country] accounting/reporting role of CoA in their improve the presentation chart of accounts production of financial reports Previous PFTAC TA support Advice on improving Continue improvement identified the need for improved LTX/ STX the reconciliation Commitment of local Vanuatu on audit reconciliation processes and [Remote] process provided to counterparts. recommendations addressing audit local counterparts. recommendations.

STRATEGIC OBJECTIVE 5: IMPROVED ASSET AND LIABILITY MANAGEMENT

Inventory of bank Consolidation and Risk that more effective STX Significant cash resources under- accounts and plan for Kiribati effective use of cash utilization of cash [In-Country] remunerated. No TSA consolidating resources resources not a priority resources.

TOR and action plan Review of institutional developed for an Need for coordination Papua New LTX Separate institutional arrangements arrangements for debt integrated Debt and and cooperation of units Guinea [In-Country] for debt and cash management and cash management Cash Management involved Department

Quarterly warrants Risk of competing Cash Management/ Quarterly warranting and LTX implemented. Plan for priorities impinging on Samoa Review progress and commitment controls ready for [In-Country] consolidation of bank cash management identify next steps operationalization accounts activities. The draft asset Implementation Plan for Support will be provided to MOF to STX management Local counterpart staff Tonga the Asset Management design and implement an asset [Remote] framework is provided availability. Framework management framework. to authorities.

STRATEGIC OBJECTIVE 6: STRENGTHEN IDENTIFICATION, MONITORING, AND MANAGEMENT OF FISCAL RISKS

Framework adopted for SOE compliance on strengthening SOE STX Continue improvement Mission postponed from FY21 due governance Fiji oversight and [Remote] on fiscal risk analysis to COVID-19. arrangements needs to monitoring of fiscal be enforced risks STX Strengthen Risk Mission postponed from FY21 due Fisk risk framework and SOE compliance on Samoa [Remote] Framework to COVID-19. reporting process is governance

ANNUAL REPORT 2021 | PFTAC 87 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk adopted by MOE. arrangements needs to be enforced Risk that travel LTX Fiscal Risk and Postponed from FY21 due to Workshop completed restrictions may dictate Regional [In-Country] Transparency COVID-19. and skill developed this is undertaken remotely

STRATEGIC OBJECTIVE 7: IMPROVE PUBLIC INVESTMENT MANAGEMENT

An active program of investments PIMA undertaken and is being pursued by the Prolonged covid Cook LTX/ STX recommendations Conduct a PIMA government to diversify its pandemic could delay Islands [In-Country] made for strengthening economy and enhance growth implementation. public investment opportunities.

ANNUAL REPORT 2021 | PFTAC 88

SECTION III MACROECONOMIC PROGRAMMING AND

ANALYSIS

D

Under the macroeconomic programming and analysis FY2022 CD work program, efforts will contribute towards five outcomes:

• Outcome 1: Timely, high quality macroeconomic monitoring, analysis, and research available for policymaking.

• Outcome 2: Ready public access to key monetary, fiscal, and financial soundness information.

• Outcome 3: Sound medium-term macroeconomic framework.

• Outcome 4: Strong institutional structures for macroeconomic policy making. In addition to PFTAC’s program for AT THE REGIONAL LEVEL, PFTAC Macroeconomic Analysis and will host a number of workshops and • Outcome 5: Customer due Programming, in FY2022, the IMF’s seminars: diligence and compliance with Institute for Capacity Development Anti-Money Laundering/ (ICD) has launched a complementary (1) A Webinar on the Fiscal policy Combating the Financing of but separately financed CD program and analysis delivered jointly with Terrorism (AML/CFT) safeguards, for the development of macroeconomic STI; remittance flows, and CBR. frameworks, particularly in financial programming and forecasting and (2) A Webinar on GDP forecasting Under the proposed FY2022 workplan, policy analysis systems. This ICD delivered jointly with STI; 17 missions/activities are planned program will help policymakers better versus an outturn of 8 missions, a incorporate the relationships between (3) A webinar on Fisheries revenue more than 100 percent increase over fiscal policy, monetary policy, and forecasting delivered jointly with FY2021, requiring an expected 177 TA exchange rate regimes into the PFM program; and field day (119 LTX and 58 STX), up 54 macroeconomic policy making. In percent from 115 field days in FY2020 FY2022 it is expected to assist the (4) A webinar on Macro-fiscal (103 LTX and 12 STX). This increase governments and central banks of analysis delivered jointly with STI. primarily arises from a greater Papua New Guinea, Samoa, expected use of STX in FY2022. Solomon Islands, and Tonga. IN TERMS OF COUNTRY

ANNUAL REPORT 2021 | PFTAC 89 ACTIVITIES, TA and training in Ensuring the use of a basic budget Fiscal Strategy FY2022 will continue to develop and execution model with relevant support the use of quantitative tools, economic parameter inputs that (1) Countries devise, publish, and particularly in relation to: includes forward estimates. National implement (including in legislation government and development budgets where appropriate) prudent fiscal (1) Macro-fiscal frameworks, should (ideally) be integrated. It frameworks. including in FSM; Kiribati; RMI; includes: PNG; Samoa; Timor-Leste; Broader Macroeconomic Policy Tonga; and Vanuatu; (1) Expenditure and revenue (1) Overall, incorporating the forecasts; relationships between fiscal (2) Inflation forecasting including in policy, monetary policy, and the Solomon Islands; (2) Economic parameter forecasts; exchange rate regimes into macroeconomic policy making, (3) Fiscal policy analysis; and (3) Ideally on a GFS basis; and that is critical for the promotion of stable economic growth and (4) Tax and non-tax revenue (4) Incorporation of the model into the development. forecasting and analysis, including budget process. in Fiji, Palau and Niue. The CBR project aims to support the Medium Term Forecasting ability of Pacific Islanders to send and Overall, the TA aims to strengthen receive financial remittances quickly, PFTAC member countries ability to (1) Use of a fully integrated macro- inexpensively, and securely. make informed macroeconomic as well fiscal model for medium to long as broader economic policy choices. run forecasting. It is also anticipated that the project will reduce pressure from ‘de-risking’ The macro-fiscal aspect of the Scenario Analysis by regional banks to occur. Macroeconomic program’s TA can be broadly divided into four steps, with (1) Use of a macro-fiscal model to This will be supported through assistance aimed at progressing along undertake shock and scenario enhanced ‘Know Your Customer’ this path. analysis to aid understanding of facilities that provides regulatory the relationships between fiscal certainty to financial institutions in Basic budgeting and other macroeconomic relation to their compliance with variables. AML/CFT obligations.

BOX 21. MACRO-FISCAL MODELLING

Macro-fiscal modelling seeks to or exchange rate settings. For understand the long run consequences answer key questions in relation to a example, an important question asked of existing fiscal rules, including in country’s economic and fiscal outlook. by authorities in Fiji was ‘what will the relation to sovereign wealth funds, The key amongst these is whether or likely economic and fiscal outcomes resource extraction, and medium term not a country’s debt levels are look like over time, under different fiscal plans. Again, being able to easily sustainable under current fiscal policy return of tourism assumptions?’ vary the parameters in relation to settings or whether adjustment is these fiscal rules enables policy needed in order to reduce the risk of Working jointly with the authorities, makers to get a clearer picture of their runaway debt levels, or even a default. these questions were able to be policy options. While economic models cannot be answered through the construction of a definitive about such questions, due to macro-fiscal model of the Fiji PFTAC takes an approach of ensuring the strong influence of a range of economy, including the government that models are ‘fit for purpose’. This additional qualitative factors, they can sector. A thorough understanding of means that in some cases, particularly point country authorities in the right the government’s role in an economy small countries with a limited number direction. is critical for understanding the of relevant staff, more straightforward outcomes of different scenarios. It is models will be constructed. In other A further important task of macro-fiscal for this reason that the expenditure cases, where countries are larger and models is to undertake scenario measure of GDP (GDP-E) readily more staff are available more analysis, particularly in relation to lends itself to macro-fiscal modelling. sophisticated models may be built, changes in government spending and including derivations of the IMF’s taxation, other economic variables, or Yet another critical task of macro-fiscal Financial Programing model. potentially to changes in interest rate models is to enable authorities to

ANNUAL REPORT 2021 | PFTAC 90

TABLE 20. FY2022 WORK PROGRAM – MACROECONOMIC PROGRAMMING AND ANALYSIS

Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

STRATEGIC OBJECTIVE 1: WELL FUNCTIONING MACROECONOMIC POLICY AND INSTITUTIONS: IMPROVED MACROECONOMIC POLICY ADVICE TO GOVERNMENT AND CENTRAL BANK MANAGEMENT

Need stronger linkages This Mission would LTX between revenue Fiji Revenue Forecasting Improved revenue forecasts be appropriate for in [In-Country] forecasts and economic person delivery parameters Better understanding by FSM LTX Need for a sound macro- FSM Macro-Fiscal Framework government of macro-fiscal [In-Country] fiscal framework outlook Better understanding by LTX Need for a sound macro- Kiribati Macro-Fiscal Framework Kiribati government of macro- [In-Country] fiscal framework fiscal outlook Appropriate non-tax Niue Government has STX Report with reform revenue shares of Niue Non-tax revenue modelling decided to review all non- [Remote] recommendations GDP to also be tax revenues examined Support the use of the Marshall Islands Fiscal Economic and revenue Marshall LTX Assistance requested on Model (MI_FM) forecasts for use in the RMI Completed Islands [Remote] Budget forecasts preparations and policy Budget analysis

Analysis to support LTX/ STX Report with Palau Tax reform modelling possible tax policy [Remote] recommendations changes in Palau Financial programming Joint Mission with Papua New LTX Macro-Fiscal Modelling New Financial Programing mission requested by Singapore Training Guinea [Remote] (Financial Programing) Model for PNG Central Bank Institute Joint Mission with Papua New LTX Macro-Fiscal Modelling Follow up support to Increased staff capacity Singapore Training Guinea [In-Country] (Financial Programing) earlier FP Mission Institute Support the use of the LTX Samoa Economic and Support use of existing Samoa Increased staff capacity [Remote] Revenue Forecasting macro-fiscal model (SERF) Model

LTX Build a new macro-fiscal Better understanding of Oil revenue a key Timor-Leste Macro-fiscal framework [In-Country] model for Timor macro-fiscal outlook issue

Support the use of the LTX Tonga macroeconomic Support use of existing Tonga Increased staff capacity [Remote] programming framework in macro-fiscal model budget preparations

GDP (I) Modelling, Revenue STX Support for economic Improved economic and Vanuatu Forecasting, Macro Fiscal Multipart request [In-Country] forecasting revenue forecasts Framework LTX Analysis of forecasting Joint with PFM Regional Fishing Revenue Workshop Improved revenue forecasts [In-Country] techniques program LTX GDP Forecasting/ Analysis of forecasting Improved economic Joint with Singapore Regional [Remote] Nowcasting Workshop techniques forecasting Training Institute

LTX Inflation Forecasting Analysis of forecasting Joint with Singapore Regional Improved inflation forecasting [Remote] Workshop techniques Training Institute

LTX Analysis of forecasting Improved macro-fiscal Joint with Singapore Regional Macro-Fiscal Forecasting [In-Country] techniques forecasting Training Institute Establish a Regional Know Threat to Correspondent LTX Your Customer Facility Establishment of a regional Joint with regional Regional Banking Relationships [Remote] (Correspondent Banking Know Your Customer Facility Central Banks and high remittance costs Relationships)

ANNUAL REPORT 2021 | PFTAC 91 Better understanding by Papua New Macroeconomic Need for improved ICD government and central bank Guinea Frameworks macroeconomic forecasts of macroeconomic outlook

Better understanding by Macroeconomic Need for improved Samoa ICD government and central bank Frameworks macroeconomic forecasts of macroeconomic outlook Better understanding by Solomon Macroeconomic Need for improved ICD government and central bank Islands Frameworks macroeconomic forecasts of macroeconomic outlook

Better understanding by Macroeconomic Need for improved Tonga ICD government and central bank Frameworks macroeconomic forecasts of macroeconomic outlook

ANNUAL REPORT 2021 | PFTAC 92

SECTION III MACROECONOMIC

STATISTICS

E

The macroeconomic statistics program that comprises sub-programs for GFS and RSS with a small component for External Sector Statistics (ESS) works towards one broad objective:

• Objective 1: Strengthen compilation and dissemination of data on macroeconomic and financial statistics for decision making according to the relevant internationally accepted statistical standards, including developing/ improving statistical infrastructure, source data, serviceability and/or metadata.

GOVERNMENT FINANCE STATISTICS and dissemination guided by the workshops are planned to provide TA internationally accepted statistical coverage to six member countries, After its final year of full funding, and standard, the GFSM 2014. namely Fiji, FSM, Marshall Islands, following a short and final extension, Palau, Papua New Guinea, and the term of the resident GFS advisor The COVID-19 pandemic will move the Samoa. Like the real sector and will continue until August 31, 2021. GFS program focus on how to compile external sector statistics programs, the The program will however continue PSDS guided by the public-sector debt GFS program works to share effective, through the end of Phase V in a statistics guide for compilers and users functional guidance on managing reduced manner without a resident 2013 (PSDSG 2013). people and projects to increase the advisor. Through the end of August, likelihood that technical developments the GFS advisor will continue to deliver AT THE REGIONAL LEVEL, one come to timely fruition. These CD and for the balance of Phase V closing wrap-up regional GFS training objectives and associated milestones overseen from Washington, on the workshop is planned for FY2022. related to planned missions and same themes focusing on compilation However, country-specific TA will still activities are summarized below and and dissemination using appropriate represent most of PFTAC’s support detailed in the FY2022 workplan. statistical techniques, higher frequency with advisory in-country missions and data and concurrently expanding remote support. Data are compiled and disseminated coverage; updating and releasing using the coverage and scope of the metadata; and developing customized IN TERMS OF COUNTRY latest guidelines. The majority of solutions and methods for compilation ACTIVITIES, bilateral missions and PFTAC member countries that receive

ANNUAL REPORT 2021 | PFTAC 93 bilateral assistance have adopted the term. Assistance in expanding PSDS more than in FY2021 (16 missions to 8 internationally accepted statistical to include the scope of stocks of all countries). standard, the GFSM 2014 for debt liabilities of general government compilation and dissemination of GFS. and public corporations and their The Cook Islands regularly publish TA in FY2022 will continue to work classification aligned to the PSDSG QNA. The usefulness of these data with country counterparts to improve 2013 will be provided. can be improved by providing the standards and methodology additional seasonally adjusted figures. implemented. Released metadata have been Such data have been compiled by strengthened consistent with the PFTAC in FY2021 and are currently Data are compiled and disseminated dataset to enhance interpretation and available internally on an experimental using appropriate statistical analysis. Work with member countries basis only. PFTAC will provide CD in techniques, including to deal with data to ensure that comprehensive sources the form of a training workshop as well sources, and/or assessment and and methods are documented, as through a TA mission to enable validation of intermediate data and updated and disseminated regularly, finalization and publication of these statistical outputs. Collaboration inclusive of IMF guided dissemination data. A second TA mission will assist between various disciplines will assist standards, like special data with help with reducing the difference in the financial programming dissemination standards (SDDS), between GDP(P) and GDP(E). framework as part of the general data dissemination system macroeconomic and fiscal framework (GDDS) and enhanced general data After the finalization of experimental initiatives in the region. The framework dissemination system (e-GDDS). Five QNA data in Fiji, PFTAC will review adopts the GFS methodology which countries in the region are now the data, implement new annual produces internationally comparable participating to the e-GDDS initiative benchmarks for 2020, update and fiscal data and are particularly useful by releasing statistics through the for debt sustainability analysis. Cross National Summary Data Page (NSDP), Country activities concentrate on collaboration and technical support Fiji, FSM, Samoa, Timor-Leste and increasing staff capacities, the between the GFS and PFM programs Vanuatu. release of metadata and the will ensure that the national CoA and documentation of business its linkages to the bridge tables derive REAL SECTOR STATISTICS processes, the use of up-to-date appropriate GFS that can be used as concepts, definitions and input into the financial programming The real sector and external sector classifications, data coverage and framework. These efforts in turn will statistical CD needs vary significantly scope, the use of adequate source improve and strengthen the over the PFTAC member countries. data and the increase of timeliness. compilation of budget documentation While some small countries struggle to and medium-term fiscal frameworks keep up regular work due to an extend quarters to 2022/Q1, and assist aligned to the GFSM 2014 statistical or insufficient number of staff, others are with publication of results. an equivalent standard. able to improve quality, scope, and timelines of their national accounts PFTAC will provide training to local GFS is compiled and disseminated for statistics. The RSS program tries to staff in FSM on GDP compilation and the BCG and GG and its subsectors cover all such needs, from CD to work on reviewing and updating the with higher frequency, timeliness, and limited capacity substitution. business process documentation in accuracy. Several PFTAC member line with the latest system’s operation. countries have started the compilation AT THE REGIONAL LEVEL, one of annual GG GFS. Assistance in annual national accounts regional For Kiribati, a remote mission is FY2022 will continue to focus on workshop is scheduled to train staff planned to evaluate and improve the improving the compilation and newly hired by statistical offices in usability of administrative data and to dissemination methods and processes order to build initial capacity. implement the latest HIES results for to derive reconciled GFS time series compiling a new vintage of national for the GG. Member countries that More and more countries of the region accounts data. may progress in their GG consolidation intend to embark on QNA programs in and dissemination are Fiji, Samoa, order to improve the timeliness of their As staff capacity is still too low to FSM, Palau, and RMI. Several economic statistics. Therefore, a QNA independently compile GDP, PFTAC member countries have not yet fully course including seasonal adjustment will support Nauru and Niue with a implemented the Classifications of the methods is planned in FY2022 as in mission to assist the statistical offices Functions of Government (CoFoG) the previous year. with updating their GDP data. that serves as a very important input and measure for GDP calculation to IN TERMS OF COUNTRY Palau will be assisted with define government spending by ACTIVITIES, in FY2022 the RSS strengthening their capacity to purpose and social-economic activity. program plans to deliver 18 TA independently compile GDP with one CoFoG requires focused attention to missions to 14 member countries, mission. make progress in the near-to-medium

ANNUAL REPORT 2021 | PFTAC 94 Papua New Guinea is planned to added and production for non-market PFTAC missions on the receive a TA mission to assess the activities and to investigate the quality implementation of experimental QNA quality of data sources to be used to of tax data to be used for NA programs will be provided. compile financial and construction purposes. industry's output. As staff capacities in Tuvalu do not A mission to the Solomon Islands will suffice to allow unassisted regular In RMI, a PFTAC TA mission will help support the Central Bank with the updates of annual results, two the statistical office to compile national implementation of an experimental missions are scheduled. One will accounts independently from the US QNA data program. assist in analyzing source data and to Graduate School. This year’s mission update GDP and the other to update will give training on compiling value- Likewise, for Tonga and Vanuatu BoP data.

TABLE 21. FY2022 WORK PROGRAM – MACROECONOMIC STATISTICS (GOVERNMENT FINANCE STATISTICS)

Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

STRATEGIC OBJECTIVE 1: STRENGTHEN MACROECONOMIC AND FINANCIAL STATISTICS COMPILATION AND DISSEMINATION

Compile, review and disseminate data to the IMF Statistics Given that source Department. Submit PSDS to the World CoA and FMIS reforms are data is readily Bank for publication. GFS ongoing. Annual BCG data available. Better A comprehensive sources and automated in the new FMIS LTX completed up to 2019. coordination methods document is disseminated to compile reports. Fiji (In- Unconsolidated GG data up between internal and updated regularly Complete a consolidated Country] to 2017. Expanding stakeholders GG time series. Business coverage to public sector needed. Staff Refine compilation techniques for process documentation initiated. capacities are using various administrative data completed. adequate. sources to reduce statistical discrepancies

Refine compilation techniques for GFS sustained by graduate Submit PSDS to the World using various administrative data school USA. Annual data for Bank for publication. GFS sources to reduce statistical BCG and the four state automated in the new FMIS STX discrepancies governments up to FY 2019. to compile reports. New staff needs to FSM [In- Expanding coverage to the Complete a consolidated be fully trained. Country] Compile, review and disseminate rest of the public sector. GG time series. Continue data to the IMF Statistics Ongoing reform of the CoA with business process Department. and FMIS documentation

Refine compilation techniques for using various administrative data GFS sustained by graduate sources to reduce statistical school USA. Annual BCG Submit PSDS to the World STX Staff shortage Marshall discrepancies data up to FY 2019. Annual Bank for publication. GFS [In- generates risks for Islands consolidated GG data up to automated in the new FMIS Country] medium term Compile, review and disseminate FY 2018. Ongoing reform of to compile reports. data to the IMF Statistics the CoA and FMIS Department.

Refine compilation techniques for using various administrative data GFS sustained by graduate Staff capacities are sources to reduce statistical Submit PSDS to the World STX school USA. Annual BCG adequate. Staff discrepancies Bank for publication. GFS Palau [In- data up to FY 2019. Annual turnover may pose automated in the new FMIS Country] consolidated GG data up to a risk in the Compile, review and disseminate to compile reports. FY 2018. medium term. data to the IMF Statistics Department. Assist in the verification and revisions of the COA mapping and associated compilation procedures for quarterly reporting. Annual data for BCG up to Complete the institutional FY 2019. Quarterly GFS All the stakeholders unit classification. Complete Prepare a reconciliation and submitted since 2019 Q1. need to provide the Papua New LTX balanced statement of include data for the financial Institutional unit necessary data. Guinea [Remote] operations with narrowing balance sheet and public sector classification started. Staff capacities are down the statistical data to the monetary statistics and Reconciliation for financial adequate. discrepancies. balance of payments. balance sheet initiated.

Assist in the verification and revisions of data compiled for GFS.

ANNUAL REPORT 2021 | PFTAC 95 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

Submit PSDS to the World Annual consolidated data for Bank for publication. Compile, review and disseminate LTX GG up to FY 2019. Compile and disseminate Staff capacities are Samoa data to the IMF Statistics [Remote] Expanding coverage to quarterly GFS. Refine the adequate. Department. public sector. compilation working files. Expand COFOG coverage

Assess progress made during the project. Identify GFS and PSDS methodological data gaps and future needs All PFTAC member LTX/ HQ training, practical workgroup Regional for each country. Trained countries will attend [Remote] exercises and country data staff for improved GFS and be trained. compilation. compilation and dissemination.

TABLE 22. FY2022 WORK PROGRAM – MACROECONOMIC STATISTICS (REAL SECTOR STATISTICS)

Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

STRATEGIC OBJECTIVE 1: STRENGTHEN COMPILATION AND DISSEMINATION OF DATA ON MACROECONOMIC AND FINANCIAL STATISTICS Decrease discrepancy between GDP(P) and LTX/ STX Gap between GDP(P) and Better consistency of Source data quality too Cook Islands GDP(E) estimates and [Remote] GDP(E) too big. GDP(P) and GDP(E) low to reduce. finalize and publish adjusted ESS estimates

Review seasonal adjusted Publication of seasonal Endorsement of the LTX Only unadjusted quarterly Cook Islands GDP(P) and provide adjusted quarterly GDP numbers by the [Remote] GDP data are available. training on techniques. data authorities.

Current experimental A new vintage of quarterly Implementing new annual Starting point of regular quarterly GDP data cover GDP data reaching up to benchmarks in QNA QNA publications periods only up to 2019Q4. 2021Q2 is published LTX Fiji A business process This part of the mission [In-Country] Business process documentation is an will take place only if there Review of business documentation consists of important means of is time left otherwise will process documentation only fragmented reference and provides be covered by another descriptions. compilation instructions. mission.

Train local staff to produce GDP compilation is Staff is able to compile independent estimates of performed by the Graduate value-added for some GDP School US. market industries. LTX FSM Review and update [In-Country] BPD is an important previous Business Process BPD is outdated not means of reference and The BPD will be provided Documentation (BPD) in covering latest innovations. provides compilation for revision. line with latest system's instructions. operation New source data are If quality is regarded as If quality of the HIES is Evaluate the quality of last available but not yet sufficient, the survey data poor, these surveys HIES, administrative and assessed for their usability can serve as the new base cannot serve as the new business survey data in secondary statistics year for GDP and CPI STX basis for GDP calculation. Kiribati production. statistics. [Remote] Rebase and update NA A new HIES is available, but GDP is updated according GDP remains based on according to controlled and not yet implemented into to a new price base year. old price base year adjusted source data GDP compilation.

Provide training on the GDP compilation is Compiler trained in Compiler is engaged into compilation of non-market performed by the Graduate deriving industries non- many other statistics value-added School US. market output. works. Marshall LTX Decision about the Islands [Remote] Tax data not assessed for usability of tax data for NA Quality control and data being used to produce Tax data not provided or purposes and editing of tax data secondary economic quality insufficient. recommendations for statistics. improvements are given.

ANNUAL REPORT 2021 | PFTAC 96 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

LTX Update annual national GDP is covering years up to Not sufficient source data Nauru GDP updated to 2018/19. [In-Country] accounts to 2018/19. 2017/18, only. provided.

STX Update annual national GDP is covering years up to Niue GDP updated to 2018/19. [Remote] accounts to 2018 2017, only.

GDP compilation is Staff is able to compile LTX Assist independent GDP Palau performed by the Graduate value-added for some [In-Country] calculation School US. market industries. Authorities requested an Assessing quality of data assessment of new data Quality of source data is sources to be used to Papua New LTX sources to be used to assessed and compile financial and No access to source data. Guinea [In-Country] compile financial and recommendations about construction industry's construction industry's improvements were made. output output Review seasonal adjusted Publication of seasonal Endorsement of the LTX Only unadjusted quarterly Samoa GDP(P) and provide adjusted quarterly GDP numbers by the [Remote] GDP data available. training on techniques. data authorities

Work files are installed and Not sufficient source data Update extrapolation of Only some initial work on value-added is compiled at a quarterly/monthly QNA QNA has been done so far. Solomon LTX for many industries. basis available. Islands [In-Country] Provide training on QNA Currently, no CBSI staff is Compiler is trained to

compilation trained in QNA compilation. maintain QNA work.

Work files are installed and Not sufficient source data Update extrapolation of Only some initial work on value-added is compiled at a quarterly/monthly QNA QNA has been done so far. LTX for many industries. basis available. Tonga [Remote] Provide training on QNA Currently, no TDoS staff is Compiler is trained to

compilation trained in QNA compilation. maintain QNA work.

New survey data to be New benchmark data is GDP does not include STX Analyze benchmark source Tuvalu assessed before implemented in GDP and latest benchmark survey [Remote] data and update GDP implementation. time series are extended. data.

Access to data on the STX BoP mission work on ESS data covers years up to ESS data are extended up value of construction Tuvalu [In-Country] updating ESS data 2017/18, only. to 2018/19. services undertaken by nonresident contractors

Annual GDP not rebased Work files are installed and to 2019 HIES, not Update extrapolation of Only some initial work on value-added is compiled sufficient source data at a QNA QNA has been done so far. LTX for many industries. quarterly/monthly basis Vanuatu [In-Country] available.

Provide training on QNA Currently, no VNSO staff is Compiler is trained to

compilation trained in QNA compilation. maintain QNA work.

Countries planning to LTX/ STX Regional workshop on Capacities increased by Connection problems Regional publish QNA need trained [Remote] QNA compilation training activities. during training. staff.

LTX Regional workshop on Newly hired NA staff needs Capacities increased by Regional [In-Country] ANA compilation to be trained. training activities.

ANNUAL REPORT 2021 | PFTAC 97

SECTION III FINANCIAL SECTOR

SUPERVISION

F

The FSS CD work program for FY2022 will continue to focus on three core strands:

• Developing and implementing supervision framework enhancement strategies,

• Supporting and facilitating financial sector legislative reforms, and

• Upgrading prudential and risk management standards.

The CD programs will cover all major segments of the financial sector with the banking sector continuing to dominate TA activities in the region in At the regional level, PFTAC will asset quality concerns as the proportion to its importance in the continue to organize multi-topic regulatory measures taken in the wake financial sector. Under the proposed workshops in FY2022; and support the of COVID-19 are unwound and the FY2022 workplan, 42 missions/ AFSPC Annual Meeting to be held in COVID-related credit losses are activities are planned versus an PNG provided a resumption of travel is reflected in the banks’ financial outturn of 21 missions/activities in possible. The cyber risk project that statements. FY2021. The number of activities in was put on hold during FY2021 is FY2021 was impacted by travel expected to resume. This will include Supervision Framework restrictions with the authorities in some regional training to be delivered by the Enhancement Program countries preoccupied with measures IMF’s Cyber Risk Team from the MCM to mitigate the impact of COVID-19 on Department. A series of short During FY2022, follow-up missions will the financial sector. While the number Webinars will be delivered on COVID- assist PNG, Solomon Islands, and of missions/ activities planned for 19 related topics including unwinding Tuvalu to finalize and embed the FY2022 is large, it is a reasonable the regulatory support measures taken major components of SFEP (off-site target with the program’s expanded by the authorities to mitigate the and on-site supervision, on-site focus on cyber risk, progression of the impact of COVID-19, introduction to supervision frameworks, risk ratings insurance regulatory reform project, Pillar 2, Basel III, and macro-prudential and supervisory action planning for the and the banking regulatory reform policies. banking sector). Cook Islands will be project concentrating on regulation assisted to finalize the supervision drafting, which can rely on supervision An overarching risk to the achievement manual drafted by the FSC. During the expertise. Travel is also expected to of the work plan is the likelihood of year, SFEP will be extended to Palau, re-open in the second half of FY2022. authorities being pre-occupied with RMI and Tonga.

ANNUAL REPORT 2021 | PFTAC 98 Banking Regulatory Reform Project PNG and Solomon Islands will also Capacity Development Project will be be assisted to finalize the upgrade of completed in the Fiji, Samoa, PNG The Banking Regulatory Reforms their prudential and risk management and Tonga. An online regional training project initiated by PFTAC in 2018 standards that began in 2018. These event on cyber security risk seeks to assist the PICs to review their countries will be ready to embark on management has also been planned financial sector legislation and upgrade adoption of the remaining modules of during FY 2022. their prudential and risk management Phase 1 to further align their prudential standards. From FY2021, this project standards with the Basel Core Other Financial Sector Reforms has been expanded to include Pillar 1 Principles and Basel III Reforms. of Basel III and some of the new Many PICs have indicated to PFTAC elements of Basel III reforms package During FY2022, Tonga and Vanuatu their priorities regarding other financial (Large Exposures, Liquidity Standards will commence Phase 1 of Banking sector reforms covering other and monitoring tools, IRRBB)3. Reforms and Cook Islands will initiate segments including non-banking adoption of the remaining standards of financial companies, credit unions, FY2022 is expected to see RMI and Basel III Reforms package. payments systems, pension and Palau complete reviews of their provident funds, and credit information banking sector legislation. RMI, Palau, Insurance Regulatory Reforms reporting. A few PICs have also Project expressed interest in seeking TA on 3 During the Phase VI program cycle financial crisis management. While starting November 2022, PFTAC intends to The FY2022 workplan includes follow- some of these activities may be assist the PICs in aligning their prudential up missions to finalize the insurance supported by PFTAC, others are standards with Basel Core Principles and regulatory reforms project in Fiji and expected to be aided by other TA Basel III reforms package with appropriate adjustments commensurate with the size Samoa. During the year, the project providers active in the Pacific or and complexity of their financial systems. will be expended to Solomon Islands, external consultants from the private This work will be completed in two phases – where the scope of the project will also sector engaged by the authorities. (i) Phase I: Alignment with Basel III micro- prudential standards, and (ii) Phase 2: include introduction of Financial Health Alignment with Basel III macro-prudential and Soundness Indicators. These projects may run in parallel with standards. Given the large number of the banking and insurance sector prudential standards comprising the micro- prudential set, various elements of micro- Pacific Cyber Risk Regulation and reforms projects. PFTAC will continue prudential standards will be added Supervision Capacity Development to coordinate with other TA providers progressively to the prudential framework, Project that are active in the region to ensure taking account of the priorities of the smooth implementation of the projects, individual PICs in consultation with the relevant authorities. Phase I can be divided Contingent upon the resumption of avoid overlap with them, and advise into four distinct modules: (i) Upgrade of international travel, the on-site authorities on appropriate prioritization risk management standards (ii) Basel III examination component of the Cyber of the reforms. (Pillar 1), (iii) Basel II (Pillar 2), and (iv) Basel III (Pillar 3). Risk Regulation and Supervision

TABLE 23. FY2022 WORK PROGRAM – FINANCIAL SECTOR SUPERVISION

Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

STRATEGIC OBJECTIVE 1: DEVELOP AND STRENGTHEN BANKING REGULATIONS IN LINE WITH INTERNATIONAL STANDARDS

Aligning Cook Island FSC's Regulation on Definition of Definition of capital Cook LTX/ STX Capital with Basel III Definition of The current definition of Minimal risk. Authorities will be aligned to Islands [In-Country] Capital- Assisting authorities to capital is based on Basel 1. are committed to reforms. Basel III. draft revised capital adequacy regulation

Aligning Cook Island FSC's Regulation on Definition of Minimal risk. Authorities Capital with Basel III Definition of are committed to reforms. Definition of capital Cook LTX/ STX Capital- Assisting authorities to The current definition of The activities will be will be aligned to Islands [In-Country] finalize the draft revised capital capital is based on Basel 1. contingent upon timely Basel III. adequacy regulation, conduct completion of the impact study and issue draft for previous step. industry consultation Financial sector May be delayed due to Peer Review of MFAT The drafting by the LTX regulatory regime in non-availability of legal Kiribati Consultant's work- Draft financial consultant is to commence [Remote] line with international experts to undertake sector legislation soon. standards. drafting as planned.

ANNUAL REPORT 2021 | PFTAC 99 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

Follow-up mission - Assisting Banking sector RMI BC in the finalization of Marshall LTX/ STX Draft regulations are under regulatory regime in Minimal risk. Authorities prudential standards by reviewing Islands [Remote] preparation. line with international are committed to reforms. the industry feedback on draft standards. prudential standards

SFEP - Regulatory Framework - Training on risk Banking sector Prudential Standards - Assist management undertaken by LTX/ STX regulatory regime in Minimal risk. Authorities Palau Palau FIC develop the authorities. [In-Country] line with international are committed to reforms. comprehensive suite of prudential Amendments to banking law standards. standards -Follow-up are being finalized.

Minimal risk. Authorities are committed to reforms. SFEP - Regulatory Framework - Financial sector However, the timing of Prudential Standards - Assist Papua New LTX/ STX Draft regulations are under regulatory regime in the mission will be BPNG in finalizing Guinea [Remote] preparation. line with international contingent upon review of comprehensive suite of prudential standards. draft regulations created standards in the first mission by the authorities. Minimal risk. Authorities Implementation of are committed to reforms. Background training business continuity However, the timing of LTX Training on business continuity material provided by PFTAC management Samoa the mission will be [Remote] management for banks is being reviewed by the regulation in line with contingent upon review of authorities. international the training material by standards. the authorities. Considering the content Implementation of of the topic, the Assist with Quantitative Impact credit risk Draft regulation on credit authorities have Study (QIS) on IFRS 9 and management LTX/ STX risk management and IFRS- preference for on-site Timor-Leste finalization of credit risk regulation and IFRS-9 [In-Country] 9 is being reviewed by the mission. Will be management and IFRS 9 in line with authorities. contingent upon the regulation international reopening of international standards. travel. Considering the content Implementation of of the topic, the credit risk Draft regulation on credit authorities have management LTX/ STX risk management and IFRS- preference for on-site Timor-Leste Training on IFRS 9 regulation and IFRS-9 [In-Country] 9 is being reviewed by the mission. Will be in line with authorities. contingent upon the international reopening of international standards. travel.

SFEP - Regulatory Framework - The prudential standards for Banking sector Prudential Standards - Assist LTX/ STX banks issued by NRBT need regulatory regime in Minimal risk. Authorities Tonga NRBT in enhancement to [Remote] to be aligned with line with international are committed to reforms. prudential and risk management international standards. standards. standards

The Banking Commission SFEP - Regulatory Framework - may not have adequate Banking sector Prudential Standards - Assist The authorities are yet to staff to undertake the LTX/ STX regulatory regime in Tuvalu Tuvalu authorities in issue prudential standards regulatory work. [In-Country] line with international enhancement to prudential and for banks. However, authorities are standards. risk management standards making efforts to recruit the staff. SFEP - Regulatory Framework - Depends on the Prudential Standards - Assist The prudential standards for Banking sector authorities’ priorities LTX/ STX RBV develop comprehensive banks issued by RBV need regulatory regime in Vanuatu which may change [Remote] suite of prudential standards - to be aligned with line with international resulting in delay in industry and stakeholder international standards. standards. executing the mission. consultation

Many PICs will be ready to Familiarization with LTX/ STX Pillar 2 (SREP, ICAAP,ILAAP) transition to Basel III and the new set of reforms PFTAC is ready to hold Regional [In-Country] and Basel III Pillar 2 of Basel II by the in preparation to their the Conference. beginning of FY 2023. implementation.

Some of the PICs will be Familiarization with LTX/ STX Macro-prudential supervision and ready to implement macro- macro-prudential PFTAC is ready to hold Regional [Remote] capital buffers prudential policies by the policies in preparation the Conference. beginning of FY 2023. to their

ANNUAL REPORT 2021 | PFTAC 100 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk implementation. STRATEGIC OBJECTIVE 2: DEVELOP/ STRENGTHEN REGULATION OF INSURANCE COMPANIES (ic) AND RISK BASED SUPERVISION CAPABILITY OF THE INSURANCE SUPERVISOR (IS)

RBF is in the process of Finalization of draft insurance law Insurance sector finalizing the amended draft STX - Review of comments received regulatory regime in Minimal risk. Authorities Fiji legislation and making it [Remote] from industry on the draft law and line with international are committed to reforms. ready for industry standards standards. consultation. CBS is in the process of Insurance sector finalizing the amended draft Finalization of draft insurance law regulatory and STX legislation and making it Minimal risk. Authorities Samoa and prudential standards- Impact supervisory regime in [Remote] ready for industry are committed to reforms. study line with international consultation including standards. impact study. CBS is in the process of Finalization of draft insurance law Insurance sector finalizing the amended draft and prudential standards- Review regulatory and STX legislation and making it Minimal risk. Authorities Samoa of comments received from supervisory regime in [In-Country] ready for industry are committed to reforms. industry on the draft law and line with international consultation including standards standards. impact study. CBSI intends to undertake Insurance sector comprehensive review of its regulatory and Solomon STX insurance sector Minimal risk. Authorities FSI for insurance sector supervisory regime in Islands [Remote] regulations, supervision and are committed to reforms. line with international sectoral risk analysis standards. framework.

STRATEGIC OBJECTIVE 3: DEVELOP/ STRENGTHEN CYBERSECURITY REGULATIONS AND PRUDENTIAL NORMS

Cyber risk Cyber Risk Regulation and Draft regulation on cyber management STX Supervision Project - Review Minimal risk. Authorities Fiji risk management is under framework in line with [Remote] and finalization of draft regulation are committed to reforms. preparation. international prepared by RBF standards.

Cyber risk on Cyber Risk Regulation and Draft regulation on cyber supervision STX International travel may Fiji Supervision Project - third risk management is under framework in line with [In-Country] not re-open. component - onsite examination preparation. international standards.

Cyber risk on Cyber Risk Regulation and Draft regulation on cyber supervision Papua New STX International travel may Supervision Project - third risk management is under framework in line with Guinea [In-Country] not re-open. component - onsite examination preparation. international standards. Cyber risk on Cyber Risk Regulation and Regulation on cyber risk supervision STX International travel may Samoa Supervision Project - third management has been framework in line with [In-Country] not re-open. component - onsite examination issued. international standards. Cyber risk on Cyber Risk Regulation and Regulation on cyber risk supervision STX International travel may Tonga Supervision Project - third management has been framework in line with [In-Country] not re-open. component - onsite examination issued. international standards. Cyber risk on Cyber Risk Regulation and Regulations on cyber risk supervision STX Supervision Project - Second management have either PFTAC is ready to hold Regional framework in line with [Remote] component - online training by been issued or under the Conference. international HQ preparation. standards.

STRATEGIC OBJECTIVE 4: IMPLEMENT A RISK-BASED SUPERVISION (RBS) SYSTEM AND UPGRADE OTHER SUPERVISORY PROCESSES Updated supervisory The authorities have manual aligned with Cook LTX/ STX To review the draft supervisory recently finalized the Off-site upgraded prudential Minimal risk. Authorities Islands [Remote] manual prepared by the CI-FSC risk analysis and risk rating standards, off-site risk are committed to reforms. frameworks. analysis and risk rating frameworks.

ANNUAL REPORT 2021 | PFTAC 101 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

Kiribati is currently undertaking a Off-site financial risk The review/development comprehensive review of its analysis framework to SFEP - Off-site financial risk of legislation and LTX/ STX financial sector legislation complement the Kiribati analysis including training - prudential standards may [In-Country] and develop prudential revised financial Mission-1 be delayed due to standards, with the help of sector legislation and scarcity of experts an externally appointed prudential standards. consultant. Palau is currently reviewing amendments to the banking law suggested by the IMF. Off-site financial risk Also commencing review of analysis framework to banking prudential LTX/ STX SFEP - Review of off-site complement the Minimal risk. Authorities Palau standards. To complement [In-Country] financial risk analysis framework revised financial are committed to reforms. these regulatory initiatives, sector legislation and Palau will undertake prudential standards. upgrade of off-site supervision framework as well. Off-site financial risk PNG is in the process of analysis framework Papua New LTX SFEP - Finalize off-site financial testing and embedding the aligned with Minimal risk. Authorities Guinea [Remote] risk analysis reform off-site financial risk analysis international best are committed to reforms. reform practices and existing prudential standards

PNG is in the process of Market and liquidity Papua New LTX SFEP - Finalize market and Minimal risk. Authorities testing and embedding the risk examination Guinea [Remote] liquidity risk examination reform are committed to reforms. reform reform

RMI is currently reviewing amendments to the banking law suggested by the IMF. Off-site financial risk Also commencing review of analysis framework to SFEP - Off-site financial risk Marshall LTX/ STX banking prudential complement the Minimal risk. Authorities analysis including training - Islands [Remote] standards. To complement revised financial are committed to reforms. Mission-1 these regulatory initiatives, sector legislation and RMI will undertake upgrade prudential standards. of off-site supervision framework as well.

Off-site financial risk analysis framework to Solomon Islands is currently Solomon LTX SFEP - Finalize off-site financial complement the Minimal risk. Authorities reviewing banking off-site Islands [Remote] risk analysis reform revised financial are committed to reforms. supervision framework. sector legislation and prudential standards.

Solomon Islands is currently Bank risk framework SFEP - Bank Risk Rating and Solomon LTX/ STX testing the risk rating aligned with best Minimal risk. Authorities Supervisory Action Planning - Islands [In-Country] framework reviewed by international are committed to reforms. Mission 1 PFTAC in March 2020. practices. Solomon Islands is currently reviewing banking prudential Training in RBS and new Sound supervision of Solomon LTX standards and undertaking Minimal risk. Authorities prudential standards (IRRBB and IRRBB and Liquidity Islands [In-Country] upgrade of off-site are committed to reforms. Liquidity risk) risk supervision framework as well. An outline of enhancements to NRBT intends to undertake banking sector a comprehensive review of LTX/ STX Diagnostic mission to identify legislation, prudential Minimal risk. Authorities Tonga its banking sector [Remote] enhancements to RBS standards and are committed to reforms. regulations, supervision and supervisory risk rating frameworks. frameworks along with ab roadmap.

NRBT intends to undertake On-site examination LTX/ STX Review and strengthening on-site review and strengthening framework aligned to Minimal risk. Authorities Tonga [Remote] examination procedures -1 on-site examination best international are committed to reforms. procedures. practices.

ANNUAL REPORT 2021 | PFTAC 102 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk The authorities are testing and embedding the off-site SFEP - Review of off-site Finalization of off-site Minimal risk. Authorities LTX supervision and risk Tuvalu financial risk analysis framework- supervision and risk are committed to training [Remote] analysis framework Mission 2 analysis framework the staff. suggested by a 2019 PFTAC mission Enhanced knowledge Minimal risk. If a physical and experience meeting is not possible LTX/ STX Regional AFSPC Annual Workshop Annual Workshop sharing among the due to travel restrictions, [In-Country] PICs and skill a virtual meeting can be upgrade. held.

PAYMENTS AND INFRASTRUCTURE: DEVELOP/ REFORM FINANCIAL MARKET INFRASTRUCTURE, INCLUDING PAYMENTS SYSTEM Authorities are committed to reforms in the Regulatory and Payments Systems, Develop regulatory and supervisory MCM-PI RBF has recently enacted a though the timing of the Fiji supervisory framework for framework for [Remote] Payments Systems law. mission is a bit uncertain payment systems operators payment systems due to other pressing operators priorities of the authorities. FINANCIAL CRISIS MANAGEMENT: IMPLEMENT A FRAMEWORK TO REDUCE PRIVATE DEBT OVERHANGS

A formal feasibility/appropriateness A framework for study for AMCs in To assist RBV in designing a RBV intends to strengthen operation of Vanuatu is yet to be MCM-FC framework for operation of Vanuatu NPL resolution strategies in distressed assets undertaken. AMCs may [Remote] distressed assets resolution Vanuatu resolution companies not be feasible companies ( AMCs) (AMCs) in/appropriate for resolution of NPLs in Vanuatu.

ANNUAL REPORT 2021 | PFTAC 103

SECTION III PUBLIC DEBT

MANAGEMENT

G

The IMF in partnership with PFTAC is launching a three-year CD project in Debt Management (DM) for the Pacific region. The project, which is funded by the Government of Japan and to be implemented over FY2022–FY2024, will primarily assist PFTAC member countries to strengthen public debt management capacity.

To achieve the primary goal to strengthen public debt management capacity, efforts will focus on the following objectives in FY2022:

• Building capacity on debt related analyses, recording and reporting;

• Strengthening institutional Medium Term Debt Management authorities in PFTAC member arrangements for debt Strategies (MTDS) formulation and countries to identify the unique management; implementation will then follow, subject challenges being faced and provide to country demand. CD on domestic options for CD that addresses these • Building capacity to formulate and market development may also be challenges. Constructing a country CD implement debt management possible in the most advanced plan will be undertaken following a strategy and manage debt countries. The FY2022 DM work programmatic approach, providing portfolio risks; and program will target delivery of 10 sequenced assistance beneficial to country activities, however the country authorities in building • Improving the functioning of program will be responsive to the sustainable capacity. domestic debt markets. requirements of member countries, should assistance be required. The absorptive capacity and practical Given that the DM program at PFTAC, receptivity to virtual missions versus has recently commenced, country In FY2022, a main objective of the traditional methods has been identified activities in FY2022 will be focused on FY2022 work program is to establish as a key constraint in delivering CD to strengthening institutional good relationships with country some PFTAC member countries. The arrangements and debt reporting. authorities and their debt management development of the FY2022 work Support in other areas including Debt units. Work has commenced to program and beyond will be cognizant Sustainability Analysis (DSA) and establish a dialogue with the of these constraints.

ANNUAL REPORT 2021 | PFTAC 104 At the Regional level, PFTAC plans to Reporting, and Monitoring, and held in conjunction with a High-Level organize two workshops in FY2022, Medium-Term Debt Management Dialogue of Pacific policy in February focusing on Debt Recording, Strategy. A training event will also be 2022.

TABLE 24. FY2022 WORK PROGRAM – PUBLIC DEBT MANAGEMENT

Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

STRATEGIC OBJECTIVE 1: DEVELOP AND STRENGTHEN PROCESSES FOR ACCURATE DEBT RECORDING, REPORTING, AND MONITORING

A functional operational framework Lack of efficient debt management for debt monitoring; Debt is being Political support; Building recording system; requirement for recorded with comprehensive management support LTX-STX capacity in enhanced reporting internally and coverage and on a timely basis; and technical staff 3 PFTAC [Remote/ debt recording, externally; development of staff Debt is reported regularly to the commitment; Members In-Country] reporting and capacity in using debt management public and relevant authority; resource adequacy; monitoring recording systems and production of Enhanced debt recording, reporting external climate and effective reports and monitoring; Improved back COVID-19 impact. office processes for debt recording.

Capacity development in use of debt recording and reporting tools; Management support Understanding of requirements for and technical staff Workshop on good debt management commitment; LTX-STX Regional Debt Regional capacity development transparency; Capacity development resource adequacy; [Remote] Transparency in the production of debt bulletins; external climate and Staff show competency in DRRM COVID-19 impact; through presentations, discussions, connectivity. or practical exercises.

STRATEGIC OBJECTIVE 2: ESTABLISH EFFICIENT INSTITUTIONAL FRAMEWORK FOR DEBT MANAGEMENT

Political support; Debt management legislation management support provides a framework for debt and technical staff management; Improved capacity on Strengthening Fragmentation of debt management commitment; debt management; Improved debt LTX-STX the institutional responsibilities; requirement for resource adequacy; 3 PFTAC management audit; Improved fiscal [Remote/ arrangements strengthening of policy, procedures external climate and Members policy coordination; Improved In-Country] for debt and legal frameworks in debt COVID-19 impact; institutional structure for debt management management cooperation of all management; Improved monetary agencies involved in policy coordination; Improved debt management operational risk management. activities.

STRATEGIC OBJECTIVE 3: FORMULATE AND IMPLEMENT A MEDIUM-TERM DEBT MANAGEMENT STRATEGY (MTDS)

Enhanced capacity in MTDS Absence of a Medium-Term Debt formulation and implementation; Management Strategy (MTDS) or MTDS developed, documented and capacity development of staff in the published; An Annual Borrowing Building use of the MTDS Framework and Plan (ABP) consistent with MTDS is capacity to Analytical Tool (AT), and Political support; published; An issuance calendar is formulate and understanding of risk; requirement management support produced and published regularly; LTX-STX implement debt for capacity development in the and technical staff 2 PFTAC Cash and debt management are [Remote/ and production of a MTDS; requirement commitment; Members integrated effectively; Staff can In-Country] management for an Annual Borrowing Plan (ABP) resource adequacy; assess, negotiate and record loan strategy and and capacity development of staff in external climate and contracts; Staff can use the MTDS manage debt the creation and implementation of COVID-19 impact. AT effectively; Authorities can portfolio risks ABP; requirement for capacity undertake liability management development in understanding operations (LMOs); The debt fundamental risk management in a management entity undertakes debt portfolio. effective investor relations.

Management support Enhanced capacity in MTDS AT and technical staff use; Staff can assess and negotiate commitment; LTX-STX Workshop on loan contracts; Enhanced capacity Regional Regional capacity development resource adequacy; [Remote] MTDS in MTDS formulation; Understanding external climate and of debt portfolio risk and analysis of COVID-19 impact; debt portfolios. connectivity.

ANNUAL REPORT 2021 | PFTAC 105 Beneficiary Mode Activities Current Position Expected Outcomes Comments/ Risk

STRATEGIC OBJECTIVE 4: DEVELOP MARKET INFRASTRUCTURE AND CAPACITY FOR COST EFFECTIVE FINANCING

An effective domestic money market; An effective primary market, Political support; Development of domestic debt with market-based issuance; An management support market is fundamental to country efficient secondary market for and technical staff development goals; sufficient wholesale market participants; commitment; LTX-STX Development 2 PFTAC capacity in debt management unit Derivative instruments in domestic resource adequacy; [Remote/ of domestic Members exists; macroeconomic and financial currency are available; Enhanced external climate and In-Country] debt markets sector are stable; effective legal, tax capacity on domestic or international COVID-19 impact; and regulatory infrastructure are in financing; Financing through market- international and place; liberalized financial system based instruments; The government domestic market securities market is supported by stability. primary dealers.

ANNUAL REPORT 2021 | PFTAC 106

PFTAC Director, Resident Advisors and Administrative Staff

ANNUAL REPORT 2021 | PFTAC 107

SECTION IV

PFTAC STAFF

ANNUAL REPORT 2021 | PFTAC 108 Director

Iulai Lavea David Kloeden (Since August 2020) (Since February 2017)

Iulai joined PFTAC in August 2020. Iulai is a Samoan

national and brings a wealth of Pacific and Public David joined PFTAC in February 2017. David is an Financial Management experience to PFTAC. He was the Australian national, and prior to coming to PFTAC served Chief Executive Officer for the Ministry of Finance of the as Coordinator of CARTAC – the IMF’s Caribbean Government of Samoa for nine years until December Regional Technical Assistance Center based in Barbados. 2018. Prior to that, he was the Deputy Chief Executive With 20+ years as an IMF tax administration specialist, he Officer (Policy Management) for many years. He joined has extensive Domestic Revenue Mobilization experience. the World Bank Constituency Office representing the He is a CPA, has an undergraduate degree in information Pacific and was based in Washington DC as the Adviser technology and post graduate degrees respectively in to the Executive Director during 2006 to 2009. He also had financial management, tax law, and economics. a brief stint as the Planning Adviser to the Government of Nauru in 2005/06, and earlier in his career worked at the Resident Advisors Pacific Islands Forum Secretariat in Suva during the period 1991 – 96. FISCAL AFFAIRS DEPARTMENT

REVENUE ADMINISTRATION

Paul Seeds Georg Eysselein (Since October 2020) (Since November 2018)

Paul joined PFTAC on October 1, 2020 from East

AFRITAC, IMF’s technical assistance center for East Georg joined PFTAC in November 2018 and is a South Africa, where he has worked for the past five years. African National. Georg worked for the South African Starting his overseas career in Kiribati, he has worked Revenue Service for more than 30 years in various senior extensively with many development partners covering 20 positions. His international career started by working for countries, in a career spanning nearly 40 years. Paul has the IMF and the European Delegation in Macedonia, a wealth of experience designing and implementing broad followed by DFID, USAid and World Bank funded projects ranging PFM reforms, including the implementation of in Afghanistan and Somalia. Georg was closely involved financial management information systems in several with the implementation of the post-graduate Tax countries. Paul is a fellow of the Chartered Institute of Professional Qualification in South Africa for tax Management Accountants and holds an MBA from the practitioners in the private sector and taxation auditors CASS Business School, City University of London. working for the Revenue Service.

PUBLIC FINANCIAL MANAGEMENT ASIA PACIFIC DEPARTMENT

MACROECONOMIC PROGRAMMING AND ANALYSIS

Richard Neves (October 2016 – January Andrew Beaumont 2021) (Since February 2020)

Richard joined PFTAC in October 2016. Richard is an

Australian who has worked in the budget areas of the Andrew joined PFTAC in February 2020 and has 20 years Australian Department of Finance and the ACT Treasury. of experience in macro-fiscal and broader macroeconomic Richard has also worked in Timor Leste for five years as analysis and forecasting including at the Australian the lead budget advisor and was the Cook Islands Treasury where he worked on monetary and fiscal policy, Financial Secretary from 2011 to 2015.

ANNUAL REPORT 2021 | PFTAC 109 macroprudential regulation and the labor market. MONETARY AND CAPITAL MARKETS Additionally, Andrew has five years of experience in the DEPARTMENT Pacific region, having worked as an Australian Treasury embedded technical adviser in both PNG (macro-fiscal) FINANCIAL SECTOR SUPERVISION

and Solomon Islands (economic reform). Andrew was also previously the Senior Adviser G20 and International economy at the Australian Department of Prime Minister Rajinder Kumar and Cabinet working on global debt sustainability and (Since August 2020) macroeconomic policy responses to the Global Financial Crisis. Most recently, he was the Executive Branch Manager responsible for economic and revenue forecasting, macroeconomic reporting, demographic projections, long term fiscal modelling and tax expenditure Rajinder joined PFTAC on August 1, 2020 as the Financial analysis for the ACT Treasury. Sector Supervision (FSS) resident advisor. Before PFTAC, Rajinder completed a multi-topic three-year assignment as an IMF advisor on banking regulation, STATISTICS DEPARTMENT supervision, and financial stability with the Bank of Albania. He has extensive experience in financial sector REAL SECTOR STATISTICS regulation, banking supervision, and macro prudential

policies, which he gained through his 28-year long career with Reserve Bank of India. Rajinder also worked for three Marcus Scheiblecker years with the Bank for International Settlements at Basel (Since October 2018) where he supported Basel Committee’s Regulatory Consistency Assessment Program and a few of Basel Committee’s technical policy making groups. In Albania, Rajinder has helped Bank of Albania introduce Basel III

reforms in the country and complete implementation of Marcus joined PFTAC in October 2018. He is an Austrian Pillar 2 of Basel capital adequacy framework. Rajinder national with extensive knowledge and expertise in Real holds an MBA in Financial Management and FRM Sector Statistics and experience in compilation of national certification from GARP. accounts. Prior to coming to the Pacific, Mr. Scheiblecker

held various positions including as deputy director at the Austrian Institute of Economic Research where he acted PUBLIC DEBT MANAGEMENT as an advisor to Eurostat for seasonal adjustment and on financial statistics and national accounts for Statistics Austria. Briar Ferguson (Since March 2021) GOVERNMENT FINANCE STATISTICS

Luis Temes Castrillon Briar joins PFTAC from the United Kingdom where she spent (Since April 2019) five years delivering technical assistance and capacity development to Commonwealth members as a Public Debt Management Advisor at the Commonwealth Secretariat.

Prior to this she spent a decade at the New Zealand Debt Luis joined PFTAC in April 2019. He is a Spanish national Management Office in market facing and risk management with expertise in GFS and National Accounts. Before roles. Briar holds a Masters in Applied Finance and brings joining PFTAC he held various positions at the National with her a breadth of experience from both practitioner and Statistics Institute in Spain and worked as a seconded advisory perspectives. national expert on GFS quality management and Government accounting at EUROSTAT. He also worked as an advisor for the Minister of Employment and Social Security and as a senior analyst at the Independent Authority for Fiscal Responsibility (AIReF). He has under- graduate and postgraduate degrees in mathematics and statistics awarded from universities in Spain and the United Kingdom.

ANNUAL REPORT 2021 | PFTAC 110

Administrative Staff

OFFICE MANAGER

Maria Nina Samuela

SENIOR ADMINISTRATIVE

ASSISTANT Elenoa Bogiwalu

ADMINISTRATIVE ASSISTANT Kalara Raidruta

ADMINISTRATIVE ASSISTANT Pretti Lata

ECONOMIC ANALYST Shane Prasad

ANNUAL REPORT 2021 | PFTAC 111

ANNEX

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ANNEX 1. MACROECONOMIC DEVELOPMENTS OF PFTAC MEMBER COUNTRIES

The COVID-19 pandemic led to severe up relatively well. As expected, fiscal Weak fiscal positions are projected to economic contractions in many Pacific balances generally deteriorated, while lead to further increase in the average Island Countries (PICs) in 2020. Even current account balances improved for level of public debt. though most PICs have managed to some PICs due to import contraction avoid a local outbreak, economic and substantial donor support. Economic recovery will come in time, activity has been significantly disrupted but the pandemic may leave an by the pandemic. Unweighted average The prospects for a rebound in 2021 enduring impact. There is the risk that real GDP for the group contracted by vary among the islands. The PICs as a persistent scarring may lead to higher an estimated 4.5 percent in 2020. The group are now projected to grow by an poverty, lower levels of employment in largest impact has been felt by average of -0.6 percent in 2021 the formal sector, and higher levels of tourism-dependent PICs such as Fiji, compared to a 1.4 percent expansion inequality. The reallocation of health Palau, and Vanuatu. However, forecast in the October 2020 World resources for the pandemic could subdued commodity demand and Economic Outlook (WEO). The mean less resources available for non- lower commodity prices have also downward revision reflects, among communicable diseases, which have negatively impacted those islands other factors, slower-than expected high incidence in some PICs. The full dependent on commodity exports, vaccine availability, delays in border extent of the losses on bank loan such as Papua New Guinea and reopening, and slow resumption of portfolios is likely to be only exposed Solomon Islands. Nevertheless, for tourism activity. Current account after the phaseout of debt service most Pacific Islands, the contraction in balances are projected to deteriorate moratoriums and other forms of 2020 has turned out to be less severe for many PICs in 2021, as borders forbearance introduced by some than previously expected. Most may remain closed for a substantial countries to ease the burden on governments enacted measures to part of 2021 and the gradual recovery borrowers during the crisis. Closure of mitigate the worst effects of the of commodity prices such as fuels will correspondent banking relationships pandemic. The economic contraction contribute to higher import bills for for some banks in the region could in some of PICs’ main trading partners many PICs. Fiscal positions are also affect foreign exchange inflows (such as Australia and New Zealand) expected to remain weak in 2021 (such as remittances) and bank turned out to be less severe than through lower revenues and elevated profitability. expected. And remittances have held COVID-related government spending.

PICs have taken a major hit from the COVID-19 pandemic

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Tourist arrivals came to a virtual halt, hitting those relying on tourism

Current account balances are expected to weaken Energy prices have recovered somewhat for many PICs in 2021

The growth shock and fiscal response have Fiscal positions are expected to remain weak resulted in an increase in the level of public debt

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PFTAC

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