Opinion: Steering Through the Storm — A Critical Look at Market Volatility and Today’s Fiscal Challenges
In the wake of global economic instability, fiscal policy has become the compass by which nations hope to navigate the uncharted waters of market volatility. Yet in many countries, including our own here in the Pacific, one cannot help but question whether that compass is broken — or worse, if no one is actually steering the ship.
Today’s economic turbulence, marked by erratic stock markets, currency fluctuations, inflation spikes, and rising debt levels, is not merely a result of natural economic cycles. It is deeply intertwined with political indecision, inconsistent fiscal discipline, and global uncertainty, particularly from leading economies whose policies ripple across even the most remote corners of the world.
Take the United States, for example. Its recent flirtation with an $11 trillion trade war under the Trump administration, coupled with protectionist policies, has led to serious consequences. Not only has the stock market been battered, but the cost of living for ordinary citizens across the globe — especially in import-reliant island economies — has surged. The Federal Reserve’s aggressive rate hikes, designed to curb inflation, have strengthened the US dollar, making it more expensive for developing nations to repay their debts. Meanwhile, America’s political gridlock and ballooning budget deficits project uncertainty that unsettles international markets.
In this context, market volatility is more than a statistic. It affects everything from our ability to import medicine and fuel to the prices families pay for rice and flour. For the Kingdom of Tonga and other Pacific nations, which rely heavily on imported goods, tourism, remittances, and donor funding, market instability is not a distant threat. It is an economic tsunami that tests the resilience of our economies and the integrity of our leaders’ policies.
Where Are Our Fiscal Anchors?
Most of our Pacific economies operate on fragile fiscal foundations, where one natural disaster or price shock can tip the balance. COVID-19 exposed many of these vulnerabilities, and yet, several governments returned to business-as-usual spending models without reimagining more resilient, diversified fiscal strategies.
The problem is not just about how much we spend, but what we spend it on. Too often, public budgets are used as political tools rather than development frameworks. Funds are funneled into short-term, vote-winning projects rather than long-term investments in renewable energy, digital infrastructure, or sustainable agriculture. These are the very investments that could shield our economies from external shocks.
Moreover, transparency and accountability remain sorely lacking. A public largely in the dark about debt levels, budget priorities, and the real cost of government borrowing is a public ill-equipped to demand better. Fiscal literacy is not just a tool for technocrats — it is a shield for citizens.
Leadership and Planning in a Time of Uncertainty
We must not confuse passivity with prudence. In times of global market volatility, waiting for stability to return is not a strategy. It is a surrender. Strong leadership demands proactive planning — policies that anticipate change, not just react to it.
For example, Tonga and its Pacific neighbors should be exploring options like sovereign wealth funds, local currency bond markets, or regional pooled investment platforms that could provide buffers against fiscal shocks. We should also diversify trade partners and reduce dependence on a narrow set of export or donor markets.
Crucially, we must support the private sector with access to finance, regulatory reform, and digitization. Governments cannot carry the burden of economic growth alone, and the more we empower local enterprise, the better prepared we will be to withstand external headwinds.
International Responsibility Matters
While Pacific countries must take responsibility for their own fiscal governance, we must also call out the disproportionate role that superpowers play in causing global economic instability. Unilateral decisions like tariffs, sanctions, and monetary tightening by large economies have devastating effects on small, trade-exposed nations.
Global institutions such as the IMF, World Bank, and regional development banks need to be more than lenders. They should be partners in building fiscal resilience — helping countries improve debt management, diversify economies, and protect critical sectors during downturns.
Similarly, the donor community must shift from a project-based, short-term approach to a systems-building strategy. Aid that funds capacity development in public finance management, taxation systems, and data infrastructure is more impactful than one-off construction projects that leave little behind once the ribbon is cut.
A Call for Boldness, Not Fear
The economic storm we are sailing through will not pass quickly. The markets will continue to fluctuate, interest rates may rise further, and the geopolitical tensions that fuel uncertainty are unlikely to ease in the near term. But we do have agency.
It is time for our leaders — in Tonga, in the region, and beyond — to govern with foresight, not fear. Fiscal policy must become a tool for resilience and justice, not just balance sheets and deficit numbers. It must be designed with the people in mind — the farmers, the fishermen, the teachers, and the small shopkeepers whose lives are disrupted every time the world economy catches a cold.
As we confront the challenges ahead, let us remember that market volatility is not destiny. It is a test — of leadership, of planning, and of courage. And it is one we cannot afford to fail.
By Melino Maka
