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Tuvalu

Author(s):
International Monetary Fund
Published Date:
February 2011
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I. Introduction

1. Economic setting. Economic performance has been volatile in recent years and largely determined by offshore earnings and government expenditure (Figure 1). The former comes from the Tuvalu Trust Fund (TTF) established in 1987 by donor countries; fees from fishing licenses and the country’s “.tv” internet domain name lease; workers’ remittances; and grants. Tuvalu has no central bank and the Australian dollar is the country’s legal tender. Tuvalu has made commendable strides in meeting the basic needs of its population, with access to basic health services and formal education almost universal. Climate change looms as a major challenge in light of rising sea levels.

Figure 1.Tuvalu: Basic Economic and Institutional Features 1/

Sources: APDLISC, Tuvalu authorities and IMF staff estimates.

1/ Data for Tuvalu are for 2010.

Offshore income

(In millions of Australian dollars)

2. Politics. A new government was formed in late December after the previous government formed in late September 2010 was brought down through a motion of no confidence by eight votes to seven. There are no organized political parties in Tuvalu. The government is preparing the 2011 budget, which is expected to be discussed in Parliament in March.

II. Recent Developments

3. Growth and inflation. Despite its geographic remoteness, Tuvalu has not been immune to the global financial crisis. Even with higher government spending, staff estimates zero growth in GDP in 2010, after the economy contracted by about 2 percent in 2009 (Table 1 and Figure 2). Major construction projects to build a wharf and a power station have been completed, and seafarer employment—Tuvalu’s main foreign exchange earning source for the private sector—is weak. Moreover, the Tuvalu Cooperative Society (the main wholesaler and retailer in Tuvalu) is facing difficult financial conditions so the government extended debt guarantees equivalent to 1½ percent of GDP. Annual inflation has been negative since mid-2009 (-1¾ percent in November 2010) due to lower global food prices and the strong Australian dollar.

Table 1.Tuvalu: Selected Social and Economic Indicators, 2006–2011
I Social and demographic indicators
GDP (2009):Poverty rate (2010)24.8
U.S. dollars (millions)27.1Life expectancy at birth (years, 2008)64.0
Per capita2,447Total fertility rate (births per woman, 2008)3.2
Infant mortality rate (per 1,000 live births, 20030
Population:Births attended by skilled personnel (percent,98
Total (thousands, 2009)11.1Adult literacy rate (2002)99.0
Urban population (percent of total, 2008)49.0Unemployment rate (2004)16.3
Sources: Tuvalu authorities, PFTAC, Asian Development Bank, UNDP, CIA World Factbook, and IMF staff estimates.

Tuvalu uses the Australian dollar as its currency. It has no central bank operations.

Data for 2011 are IMF staff proposals.

Data for 2010 are as of September.

Rates for personal and business loans.

Defined as sum of foreign assets of the National Bank of Tuvalu, the Consolidated Investment Fund, and SDR holdings. Excludes the Tuvalu Trust Fund. Data for 2010 are as of October.

Data for 2010 are as of October.

II. Economic Indicators 1/
200620072008200920102011
Est.Proj.
(Percent change)
Real sector
Real GDP growth3.34.87.0-1.70.20.0
Consumer prices (period average)3.82.210.5-0.3-1.91.2
(In percent of total)
Structure of economy
Agriculture21.221.721.222.423.5...
Manufacturing and construction7.49.012.911.69.7...
Services71.469.365.966.066.8...
(In percent of GDP)
Government finance 2/
Revenue and grants68.166.777.489.869.071.9
Current Revenue51.749.458.259.449.354.2
Grants16.417.419.230.419.717.8
Expenditure and net lending85.280.182.793.597.782.8
Current expenditure77.067.774.778.084.379.6
Capital Expenditure and net lending8.112.48.015.513.53.2
Overall balance-17.1-13.4-5.3-3.7-28.7-10.9
(Percent change, unless otherwise indicated)
Money and credit
Deposits 3/21.2-10.521.7-9.57.4...
Credit to non-government 3/-2.14.014.0-9.6-2.0...
Lending interest rate 4/10.510.510.510.59.5...
(In millions of Australian dollars, unless otherwise indicated)
Balance of payments
Current account balance-0.5-0.6-3.7-1.8-8.42.2
(In percent of GDP)-1.5-1.9-10.2-5.2-24.16.3
Trade balance-12.3-13.9-16.7-16.0-17.3-14.5
Exports0.60.50.60.60.70.8
Imports-12.8-14.4-17.4-16.6-18.0-15.3
Services balance-19.3-16.2-22.0-19.6-16.1-14.8
Income balance21.020.022.019.715.517.3
Current transfers (net)10.19.513.014.19.514.2
Gross official reserves 5/17.420.330.730.325.623.5
(In months of imports of goods and services)7.77.810.310.08.28.5
Debt indicators
Total government debt (including guarantees)20.319.721.715.615.112.3
(In percent of GDP)64.959.060.244.943.635.1
Of which: External13.913.616.812.310.89.9
(In percent of GDP)44.740.746.735.331.028.1
NPV of external debt.........10.28.68.2
(In percent of GDP).........29.424.723.2
External debt service0.50.50.60.81.60.8
(In percent of exports of goods and services)14.116.117.222.839.417.9
Exchange rates
Australian dollars per U.S. dollar
Period average 6/1.31.21.21.31.1...
End-period 6/1.31.11.51.11.0...
Nominal effective exchange rate (2005=100) 6/99.8105.8101.595.4105.9...
Real effective exchange rate (2005=100) 6/101.1106.6107.4100.6108.4...
Nominal GDP31.233.536.034.834.835.2
Nominal GNI52.253.558.054.550.352.5
Sources: Tuvalu authorities, PFTAC, Asian Development Bank, UNDP, CIA World Factbook, and IMF staff estimates.

Tuvalu uses the Australian dollar as its currency. It has no central bank operations.

Data for 2011 are IMF staff proposals.

Data for 2010 are as of September.

Rates for personal and business loans.

Defined as sum of foreign assets of the National Bank of Tuvalu, the Consolidated Investment Fund, and SDR holdings. Excludes the Tuvalu Trust Fund. Data for 2010 are as of October.

Data for 2010 are as of October.

Sources: Tuvalu authorities, PFTAC, Asian Development Bank, UNDP, CIA World Factbook, and IMF staff estimates.

Tuvalu uses the Australian dollar as its currency. It has no central bank operations.

Data for 2011 are IMF staff proposals.

Data for 2010 are as of September.

Rates for personal and business loans.

Defined as sum of foreign assets of the National Bank of Tuvalu, the Consolidated Investment Fund, and SDR holdings. Excludes the Tuvalu Trust Fund. Data for 2010 are as of October.

Data for 2010 are as of October.

Figure 2.Tuvalu: Recent Economic Developments in the Regional Context

Real GDP growth

(Year-on-year percentage change)

Inflation

(Year-on-year percentage change)

4. Fiscal performance. In response to the global crisis, the government continued to support the economy by increasing spending. Parliament passed three supplementary appropriation bills in 2010, totaling about 10 percent of GDP to pay government-guaranteed debt for an airline company and increase capital spending. The fiscal deficit is estimated to increase sharply from 4 percent of GDP in 2009 to almost 30 percent of GDP in 2010 owing to weak domestic revenue and offshore income and increased spending (Table 2). As a result, the fund available for budget financing has declined rapidly to about 20 percent of GDP from 45 percent in 2009.

Table 2.Tuvalu: Central Government Budget, 2006-11
200620072008200920102011
BudgetEst.1/
(In millions of Australian dollars)
Total revenue and grants21.222.327.831.324.924.025.3
Current revenue16.116.520.920.718.017.219.1
Taxes5.16.26.05.66.45.35.9
Nontax revenue11.010.314.915.111.511.813.2
Capital revenue and grants5.15.86.910.67.06.86.3
Total expenditure26.626.829.732.632.634.029.1
Current expenditure24.022.726.827.128.829.328.0
Wages and salaries10.09.910.510.911.911.111.5
Purchase of goods and services8.06.67.57.77.07.56.8
Subsidies and transfers 2/3.74.76.87.07.88.88.0
Capital expenditure and net lending2.54.22.95.43.84.71.1
Capital expenditure1.33.11.85.43.84.41.1
Net lending1.21.01.00.00.00.30.0
Overall balance-5.3-4.5-1.9-1.3-7.7-10.0-3.8
Statistical discrepancy-4.0-0.32.40.00.00.00.0
Financing1.44.24.31.37.710.03.8
Foreign (net) 3/0.00.0-0.4-0.3-0.3-1.5-0.4
Domestic (net)1.44.24.71.68.011.50.1
Donor support 4/..................4.1
(In percent of GDP)
Total revenue and grants68.166.777.489.871.769.071.9
Current revenue51.749.458.259.451.749.354.2
Taxes16.518.716.816.118.515.316.8
Direct7.99.67.67.97.48.79.1
Indirect8.69.09.28.211.16.67.7
Nontax revenue35.230.741.443.333.234.037.4
Property income26.225.133.836.324.127.028.3
Fishing license fees16.813.123.426.216.118.716.1
Interest and dividends0.25.14.22.91.82.44.2
.tv revenue9.36.86.27.16.35.98.1
Other income9.05.77.67.09.17.19.1
Capital revenue and grants16.417.419.230.420.019.717.8
Total expenditure85.280.182.793.593.897.782.8
Current expenditure77.067.774.778.082.984.379.6
Wages and salaries32.029.729.231.234.132.032.5
Purchase of goods and services25.619.720.922.120.221.519.2
Subsidies and transfers2/11.913.918.920.022.525.322.9
Capital expenditure and net lending8.112.48.015.510.913.53.2
Capital expenditure4.29.45.115.510.912.73.2
Net lending4.03.12.90.00.00.70.0
Overall balance-17.1-13.4-5.3-3.7-22.1-28.7-10.9
Financing4.412.611.93.722.128.710.9
Foreign (net)0.00.0-1.1-0.9-0.9-4.3-1.2
Domestic (net)4.412.613.14.723.033.00.4
NBT-9.11.1-6.4-1.111.07.1-5.7
Consolidated Investment Fund (CIF)13.511.519.55.712.125.917.7
Donor support4/..................11.7
Memorandum items:
Overall balance (authorities’ definition) 5/-4.8-1.56.89.2-8.4-15.03.1
Total government debt (incld. guarantees)64.959.060.244.9...43.635.1
Tuvalu Trust Fund (TTF) balance (market value) 6/
(In millions of A$)103.0108.294.596.3...107.3116.5
(In percent of GDP)330.0323.4262.8276.9...308.8330.9
CIF balance (millions of A$)6.210.016.115.7...7.25.1
(In percent of GDP)19.929.844.745.0...20.714.5
Nominal GDP (millions of A$)31.233.536.034.834.834.835.2
Sources: Tuvalu authorities and IMF staff estimates.

IMF staff proposal.

Includes medical treatment scheme and scholarships..

The 2010 outturn includes the payment of government-guaranteed debt of A$1.2 million for Air Fiji.

Possible grants from the ADB and EC.

Includes 4 percent of the maintained value of TTF as revenue.

As of end-September.

Sources: Tuvalu authorities and IMF staff estimates.

IMF staff proposal.

Includes medical treatment scheme and scholarships..

The 2010 outturn includes the payment of government-guaranteed debt of A$1.2 million for Air Fiji.

Possible grants from the ADB and EC.

Includes 4 percent of the maintained value of TTF as revenue.

As of end-September.

5. Public debt. Tuvalu’s public debt has declined in the last two years, but remains high by regional standards at about 44 percent of GDP. The Asian Development Bank (ADB) provided grants to clear part of domestic debt and part of the EIB loan was converted to a grant in 2009. External public debt is at over 30 percent of GDP, but mostly on concessional terms, resulting in low debt servicing obligations. The government might have an additional external debt of US$10 million (about 30 percent of GDP) relating to joint ventures with foreign fishing companies.

Financial Developments

6. Financial sector. The financial sector is underdeveloped and lending constrained, following rapid credit growth in the early 2000s (Table 3). Nonperforming loans are high at around 40 percent of total loans. The banking sector consists of the National Bank of Tuvalu (NBT) and one development bank, both of which are government owned.2 The Tuvalu National Provident Fund (TNPF) also provides its members with loans, for which each member’s account is used as collateral.3 Interest rates on lending have changed little in recent years, reflecting limited competition in the financial system.

Table 3.Tuvalu: Assets and Liabilities of the Banking Sector, 2006-10(In millions of Australian dollars)
20062007200820092010
MarchJuneSept
National Bank of Tuvalu
Assets34.732.736.836.636.537.438.4
Bank reserves9.810.613.214.313.415.415.6
Cash1.11.00.90.91.41.11.4
Deposits8.69.712.313.412.014.314.2
Securities0.00.00.00.00.00.00.0
Claims on government5.04.93.61.71.72.01.4
Loans and advances 1/14.714.015.114.313.513.013.9
Of which: nonperforming loans.........6.26.16.16.0
Claims on other banks2.50.62.11.12.61.91.7
Fixed assets0.50.40.40.50.30.30.4
Other assets2.12.12.34.75.14.85.3
Liabilities34.732.736.936.636.537.438.4
Government deposits 2/4.44.33.42.62.01.72.0
Other deposits18.816.219.818.719.320.020.1
Demand deposits4.92.76.45.35.65.55.9
Time and savings deposits12.412.112.213.213.614.414.1
Other deposits1.41.51.30.20.10.10.1
Securities0.00.00.00.00.00.00.0
Liabilities to other banks0.00.00.00.00.00.00.0
Other liabilities0.50.40.80.10.20.20.2
Capital10.911.713.015.215.015.516.1
Paid-up capital0.50.50.50.50.50.50.5
Retained earnings3.44.15.15.46.76.76.7
Provision for credit impairment6.76.97.47.57.67.67.6
Other0.30.20.01.80.20.71.3
Development Bank of Tuvalu
Assets
Bank reserves
Cash0.10.20.30.60.70.50.4
Deposits1.10.60.40.40.40.40.4
Securities0.00.00.00.00.00.00.0
Claims on government0.00.00.00.00.00.00.0
Loans and advances 1/1.42.84.13.03.03.13.1
Claims on other banks0.00.00.00.00.00.00.0
Fixed assets0.10.10.00.00.00.00.0
Other assets0.00.00.00.00.00.00.0
Liabilities
Government deposits0.00.00.00.00.00.00.0
Other deposits
Demand deposits0.00.00.00.00.00.00.0
Time and savings deposits0.20.80.91.01.01.00.7
Other deposits0.00.00.00.00.00.00.0
Securities0.00.00.00.00.00.00.0
Liabilities to other banks 3/1.41.42.31.01.00.90.9
Other liabilities0.00.00.00.00.00.00.0
Capital
Paid-up capital2.62.93.23.53.53.53.7
Retained earnings-1.7-1.8-2.6-1.4-1.4-1.4-1.4
Provision for credit impairment0.10.41.01.11.11.11.1
Other0.00.00.00.00.00.00.0
Sources: National Bank of Tuvalu and Development Bank of Tuvalu.

Gross loans and advances, mostly to the private sector.

Includes deposits of public enterprises.

Loans from the European Investment Bank.

Sources: National Bank of Tuvalu and Development Bank of Tuvalu.

Gross loans and advances, mostly to the private sector.

Includes deposits of public enterprises.

Loans from the European Investment Bank.

7. External position. Staff estimates a current account deficit of almost 25 percent of GDP in 2010 due to low income and grants (Table 4). Tuvalu exports little and depends heavily on imports. Gross official reserves, including the SDR allocation, have declined substantially in 2010, but still remain high at about eight months of imports of goods and services.

Table 4.Tuvalu: Balance of Payments, 2006-15(In millions of Australian dollars, unless otherwise indicated)
2006200720082009201020112012201320142015
Projections
Trade balance-12.3-13.9-16.7-16.0-17.3-14.5-14.6-14.7-14.9-15.0
Exports, f.o.b.0.60.50.60.60.70.80.80.80.80.8
Imports, f.o.b.-12.8-14.4-17.4-16.6-18.0-15.3-15.4-15.5-15.7-15.9
Services (net)-19.3-16.2-22.0-19.6-16.1-14.8-14.8-14.9-15.0-15.2
Receipts2.72.43.03.03.43.53.74.04.24.5
Payments-22.0-18.6-24.9-22.6-19.5-18.3-18.5-18.8-19.3-19.7
Transportation-4.1-4.4-5.6-5.3-6.2-5.6-5.7-5.7-5.8-5.9
Travel-6.1-7.1-8.7-8.8-8.9-8.3-8.3-8.4-8.7-8.9
Other 1/-11.8-7.0-10.6-8.3-4.3-4.4-4.5-4.6-4.8-5.0
Income (net)21.020.022.019.715.517.318.620.321.522.5
Receipts22.021.022.920.616.518.219.621.322.523.5
Compensation of employees3.13.64.23.62.23.23.33.63.94.1
Investment income10.210.27.14.65.46.37.18.18.68.9
Other property income8.77.211.612.48.88.89.29.610.010.5
Payments-1.0-1.0-0.9-0.9-0.9-1.0-1.0-1.0-1.0-1.0
Compensation of employees-0.3-0.2-0.2-0.1-0.2-0.2-0.2-0.2-0.2-0.2
Investment income-0.7-0.8-0.7-0.8-0.8-0.8-0.8-0.8-0.8-0.8
Current transfers10.19.513.014.19.514.29.69.69.79.8
Private-0.6-0.7-0.7-0.7-0.7-0.7-0.7-0.6-0.6-0.6
Inflows1.01.11.01.01.01.11.11.11.21.2
Outflows-1.6-1.7-1.8-1.7-1.8-1.8-1.8-1.8-1.8-1.8
Official10.710.113.714.810.214.910.210.310.310.3
Inflows11.110.814.615.310.715.410.710.810.810.8
Outflows 2/-0.4-0.7-0.8-0.5-0.5-0.5-0.5-0.5-0.5-0.5
Current account balance
including official grants-0.5-0.6-3.7-1.8-8.42.2-1.20.41.32.0
excluding official grants-11.6-11.4-18.2-17.1-19.1-13.2-12.0-10.4-9.5-8.8
Capital and financial accounts10.82.010.1-0.70.5-4.3-4.01.50.90.3
Credits10.86.48.94.43.63.63.63.63.63.6
Debits0.0-4.41.2-5.1-3.1-7.9-7.6-2.1-2.7-3.3
Errors and omissions1.21.53.91.13.20.00.00.00.00.0
Overall balance11.52.810.3-1.4-4.7-2.1-5.21.82.22.3
Financing-11.5-2.8-10.31.44.72.15.2-1.8-2.2-2.3
Change in official reserves (increase -)-11.5-2.8-10.30.44.72.15.2-1.8-2.2-2.3
Exceptional financing 3/0.00.00.01.00.00.00.00.00.00.0
Memorandum items:
Current account balance (percent of GDP)
including official grants-1.5-1.9-10.2-5.2-24.16.3-3.41.03.35.1
excluding official grants-37.0-34.2-50.6-49.3-54.9-37.6-33.2-28.0-24.7-22.0
Gross official reserves17.420.330.730.325.623.518.320.222.324.7
(in months of imports of goods and services)7.77.810.310.08.28.56.57.17.78.4
External public debt 4/13.913.616.812.310.89.99.38.68.07.3
(in percent of GDP)44.740.746.735.331.028.125.923.120.618.3
External debt service0.50.50.60.81.60.80.80.90.90.8
(in percent of exports of goods and services)14.116.117.222.839.417.918.318.216.915.6
NPV of external debt (percent of GDP) 4/.........29.424.723.221.519.317.415.5
Sources: Tuvalu authorities, PFTAC, and IMF staff estimates.

Includes construction services related to donor-funded projects.

Includes government’s overseas contributions.

In 2009, part of the EIB loan to the Development Bank of Tuvalu (500,000 Euro) was converted to a grant.

Projections for 2011-15 are based on outstanding debt as of 2010, assuming no new borrowings.

Sources: Tuvalu authorities, PFTAC, and IMF staff estimates.

Includes construction services related to donor-funded projects.

Includes government’s overseas contributions.

In 2009, part of the EIB loan to the Development Bank of Tuvalu (500,000 Euro) was converted to a grant.

Projections for 2011-15 are based on outstanding debt as of 2010, assuming no new borrowings.

8. Public enterprises. Most public enterprises are financially weak.4 Only the NBT remains profitable, while three public enterprises have not been profitable in the last several years. The total debt of the sector, excluding the two banks, rose from 19 percent of GDP in 2004 to 42 percent in 2007, part of which is guaranteed by the government. Very low tariff structures, government arrears, and structural inefficiencies are the major impediments to sound balance sheets. Furthermore, limited availability of experienced managers and Board structures chaired by civil servants have reduced the prospects for public enterprises to operate on a sound commercial footing.

III. Outlook and Risks

9. Outlook. The growth outlook remains clouded. The weak global recovery would not increase remittances and investment income substantially. Given the difficult fiscal situation, government spending needs to be cut and no big construction projects are in the pipeline. Moreover, private sector credit is constrained due to high nonperforming loans. Thus, growth is projected to be zero or even turn negative in 2011 and remain low at below 2 percent over the medium term (Table 5). Given projected global food and fuel prices, inflation is expected to remain low over the medium term. The current account is projected to improve in line with fiscal tightening and higher investment income.

Table 5.Tuvalu: Medium-Term Scenario, 2007–2015 1/
Average

2001-2009 2/
200720082009201020112012201320142015
Projections
(Annual percent change)
Output and prices
Real GDP1.64.87.0-1.70.20.00.61.11.61.7
Consumer prices (period average)3.62.210.5-0.3-1.91.21.62.02.22.2
(In percent of GDP)
Central government finance
Total revenue and grants 3/73.566.777.489.869.071.969.269.469.669.7
Total revenue53.049.458.259.449.354.255.355.956.657.2
Grants20.517.419.230.419.717.813.913.513.012.5
Total expenditure and net lending81.680.182.793.597.782.881.781.080.880.6
Current expenditure72.567.774.778.084.379.678.677.476.375.3
Capital expenditure and net lending9.112.48.015.513.53.23.13.64.55.3
Overall balance-8.1-13.4-5.3-3.7-28.7-10.9-12.6-11.6-11.2-10.9
TTF Market Value 4/304.5323.4262.8276.9308.8330.9351.0369.4367.0363.7
(Annual percent change)9.212.7-5.22.011.48.58.58.58.58.5
CIF Market Value25.929.844.745.020.714.50.04.18.814.1
(In millions of Australian dollars, unless otherwise indicated)
Balance of payments
Exports, f.o.b.0.50.50.60.60.70.80.80.80.80.8
Imports, f.o.b.-16.0-14.4-17.4-16.6-18.0-15.3-15.4-15.5-15.7-15.9
Services and investment income (net)2.03.80.10.1-0.62.53.95.56.57.3
Current transfers (net)9.69.513.014.19.514.29.69.69.79.8
Current account balance (including official transfers)-4.0-0.6-3.7-1.8-8.42.2-1.20.41.32.0
(in percent of GDP)-14.4-1.9-10.2-5.2-24.16.3-3.41.03.35.1
Current account balance (excl. offficial transfers)-14.1-11.4-18.2-17.1-19.1-13.2-12.0-10.4-9.5-8.8
(in percent of GDP)-46.8-34.2-50.6-49.3-54.9-37.6-33.2-28.0-24.7-22.0
Gross international reserves
In millions of Australian dollars18.520.330.730.325.623.518.320.222.324.7
In months of imports of goods and services6.87.810.310.08.28.56.57.17.78.4
External public debt
In millions of Aus $14.213.616.812.310.89.99.38.68.07.3
In percent of GDP41.840.746.735.331.028.125.923.120.618.3
Debt service ratio
In millions of Aus $0.80.50.60.81.60.80.80.90.90.8
In percent of exports of goods and services19.116.117.222.839.417.918.318.216.915.6
Memorandum items:
Commodity price indexes (2005 = 100)
Food 5/132.9155.0191.2163.2174.3172.0168.2166.9165.6164.9
Fuel5/181.0245.3343.6216.9264.4272.6283.5290.7294.3298.2
Nominal GDP (millions of Aus $)30.733.536.034.834.835.236.037.138.540.0
Sources: Tuvalu authorities, PFTAC, Asian Development Bank, and IMF staff estimates.

Tuvalu uses the Australian dollar as its currency. It has no central bank operations.

Data for government finances are averages of 2004-2009.

Excludes extra-budgetary grants and matching capital expenditure.

As of end-September. Assumed an annual real growth rate of 5½ percent for 2011-15.

IMF GAS assumptions.

Sources: Tuvalu authorities, PFTAC, Asian Development Bank, and IMF staff estimates.

Tuvalu uses the Australian dollar as its currency. It has no central bank operations.

Data for government finances are averages of 2004-2009.

Excludes extra-budgetary grants and matching capital expenditure.

As of end-September. Assumed an annual real growth rate of 5½ percent for 2011-15.

IMF GAS assumptions.

Tuvalu: Medium-term Scenario, 2008-2015
20082009201020112012201320142015
(Annual percent change)
Output and prices
Real GDP7.0-1.70.20.00.61.11.61.7
Consumer prices (period average)10.5-0.3-1.91.21.62.02.22.2
(In percent of GDP)
Public finance
Total revenue and grants77.489.869.071.969.269.469.669.7
Total expenditure82.793.597.782.881.781.080.880.6
Overall balance-5.3-3.7-28.7-10.9-12.6-11.6-11.2-10.9
Balance of payments
Current account balance (incl. grants)-10.2-5.2-24.16.3-3.41.03.35.1
Current account balance (excl. grants)-50.6-49.3-54.9-37.6-33.2-28.0-24.7-22.0

10. Risks. On the domestic front, the fund available for budget financing could be depleted in 2011 without fiscal adjustment, which may force a big, sudden cut in government spending and a sharp decline in growth. On the external front, the main risk is that a weaker external environment would spill into Tuvalu through investment income and remittances channels. Moreover, Tuvalu is vulnerable to natural disasters and climate change will be a major challenge in light of rising sea levels. 5

11. Authorities’ views. The authorities shared the mission’s assessment of the economy and growth prospects. They indicated that they are aware of the difficult fiscal situation, which was presented to community leaders at a conference on the Millennium Development Goals in November 2010.

IV. Policy Discussions

A. Fiscal Policy

12. Developments. The large spending increases in the last few years have resulted in a sharp increase in the fiscal deficit in 2010, as offshore revenue and grants fell to earlier levels. The large deficit has led to a rapid decline in the fund (CIF) available for budget financing. Total spending relative to GDP has increased by 20 percentage points since 2005, mainly due to sharp increases in subsidies, transfers and capital spending. Subsidies and transfers to households and public enterprises have risen to 25 percent of GDP in 2010, an increase of more than 10 percentage points of GDP over the last three years.

Fiscal Balance

(In percent of GDP)

Government Spending

(as percent of GDP)

13. 2011 Budget. Staff advised the government to take immediate action to cut the Medium-Term Fiscal Outlook: No Adjustment Scenario In percent of GDP) current high level of spending, which is unsustainable. At the current pace of spending and assuming delays in receiving grants from the ADB and European Commission (EC), the CIF will be depleted in mid-2011 and a cumulative financing gap of about 40 percent of GDP will arise in 2011-12 since no distributions from the TTF to the CIF are likely in the next few years (text table).6 Thus, the mission proposed that the 2011 budget deficit be contained to about 11 percent of GDP, mainly through a cut in capital spending, which jumped sharply in recent years because of fiscal stimulus in response to the global downturn. Moreover, the government should aim to bring down other spending by freezing wages, reducing travel costs, and cutting transfers and subsidies, in particular to the medical treatment scheme on which the government has failed to control spending. As the recent PFTAC TA mission recommended, the government also needs to take immediate action to increase tax compliance, particularly for the consumption tax, which was introduced in mid-2009 as part of the tax reforms. Many taxpayers did not submit returns for the consumption tax since they are unfamiliar with this tax.

Medium-Term Fiscal Outlook: No Adjustment Scenario(In percent of GDP)
2009201020112012
Total revenue and grants89.869.070.567.6
Current revenue59.449.352.753.7
Taxes16.115.315.315.3
Nontax43.334.037.438.4
Grants30.419.717.813.9
Total expenditure93.597.797.797.7
Current expenditure78.084.384.384.3
Capital expenditure and net lending15.513.513.513.5
Overall balance-3.7-28.7-27.3-30.1
TTF distribution to CIF0.00.00.00.0
CIF balance45.020.70.00.0
SDR holdings0.05.50.00.0
Financing gap8.232.0

Tuvalu Trust Fund and Consolidated Investment Fund

(as of 30 September, AUS $ million)

14. Longer-term adjustments. Staff stressed that further adjustments would be required over the medium term to ensure fiscal sustainability. The government has not tapped the TTF since its inception in 1987, which is key to fiscal discipline and maintaining the real value of the TTF over the long term to provide an ongoing source of financing. Tax administration needs to be strengthened to increase domestic revenue to earlier levels. The government also should aim to bring down total spending further to more sustainable levels (about the 2005-08 level) and come up with a longer-term plan to rebuild the CIF to its targeted balance (16 percent of the TTF’s maintained value). Implementing sound fiscal policy would also be necessary to build fiscal space to respond to natural disasters and the impact of climate change.

Medium-Term Fiscal Outlook: Adjustment Scenario(In percent of GDP)
2005-08

average
2009201020112012201320142015
Total revenue and grants70.189.869.071.969.269.469.669.7
Current revenue51.559.449.354.255.355.956.657.2
Taxes17.916.115.316.816.917.017.317.4
Nontax33.643.334.037.438.438.939.339.8
Grants18.630.419.717.813.913.513.012.5
Total expenditure81.393.597.782.881.781.080.880.6
Current expenditure73.078.084.379.678.677.476.375.3
Wages31.331.232.032.532.532.532.532.5
Goods and services22.122.121.519.219.219.219.219.2
Subsidies and transfers14.620.025.322.921.920.919.918.9
Capital expenditure and net lending5.815.513.53.23.13.64.55.3
Overall balance-11.2-3.7-28.7-10.9-12.6-11.6-11.2-10.9
Total available funds (end of period)24.545.026.219.95.19.815.220.6
CIF balance24.545.020.714.50.04.18.814.1
SDR allocation005.55.55.15.86.36.4
TTF distribution to CIF21.9000018.318.618.4
EC grant3.1006.10000
ADB grant04.305.70000

15. Risks. Staff noted that a weaker global recovery would require additional fiscal adjustments. The proposed medium-term adjustment scenario assumes that the TTF’s market value would increase by an annual real growth rate of 5% percent, which is somewhat below the average real rate of return of 6Vi percent over the last decade. About 60 percent of the TTF are invested in growth assets, including equities, and the remainder in fixed income instruments and others.7 A weaker global recovery would increase risks that return could be lower than the assumed 5% percent. For example, at an annual real rate of return of 3% percent, the assumed adjustment scenario would result in a financing gap of about 11 percent of GDP ($A4% million) during 2013-15, which would require additional adjustments without donor assistance. Thus staff urged the authorities to save windfall revenue and grants to be prepared for these risks.

Risks to the Assumed Adjustment Scenario
TTF real rate of

return
Financing gap in

2013-15
(In percent)(In percent of GDP)
4.250.0
4.03.4
3.511.4
3.019.5

16. Public financial management. Staff advised that fiscal management be strengthened urgently. In the absence of its own currency and monetary policy, sound fiscal policy is key to maintaining macroeconomic stability. However, fiscal management has not been prudent in recent years, as windfall revenue from the TTF and fishing licenses has tended to be immediately spent on major public construction projects and subsidies and transfers. The mission recommended saving windfall revenue, given the volatility of key revenue items, and using a medium-term budget framework to highlight the longer-term impact of the current fiscal stance and new spending initiatives. Moreover, the authorities need to improve budget reporting and monitoring and strengthen economic and policy analysis capacity. Staff also advised that the US$10 million debt (about 30 percent of GDP) relating to joint ventures with foreign fishing companies be clarified soon and that the process of providing government guarantees be strengthened.

17. Relations with public enterprises. Staff noted that the government needs to regularize its financial relations with public enterprises. The government has substantial amounts of arrears to public enterprises, including utility bills amounting to almost 1 percent of GDP, and public enterprises have not paid their taxes on time. The mission urged the government and public enterprises to resolve these problems soon and honor their financial obligations to each other.

18. Authorities’ views. The authorities agreed on the need for fiscal consolidation and stated that the new government will soon establish a Revenue and Expenditure Review Committee to be chaired by the Minister of Finance to consider possible avenues to widen the revenue base and to cut high levels of spending, including on the medical treatment scheme. They indicated that they would consider the mission’s proposed fiscal adjustment scenario and that the 2011 budget would be only the first step in the required adjustments. However, they emphasized the importance of donor assistance to help them steer through the difficult path ahead and asked for technical assistance on tax audit. On climate change, the authorities felt that donors have made many pledges of financial and technical support, but have not delivered them. On the US$10 million debt related to joint ventures with foreign fishing companies, the authorities believe that no government guarantee was extended to this debt, but they will check all the related documents and inform staff accordingly.

B. Financial Sector

19. Lending standards. Banks have taken measures to address high nonperforming loans. The NBT remains profitable, mainly due to high foreign exchange income, but the Development Bank continues to incur losses. Starting in early 2010, the two banks and the Provident Fund started sharing borrowers’ information and tightening their lending standards, including lowering the maximum debt service to income ratio from 50 to 40 percent for all personal loans, which the mission supported. Staff also encouraged the banks to make further efforts to recover nonperforming loans. Banks’ interest rates should be market determined so the mission urged the government to withdraw the direction to lower NBT lending rates by 1 percentage point.

20. Bank supervision. The mission welcomed passage of a Banking Act in August 2010. Amendments to the Act have been submitted to Parliament in December to be fully in line with the Basel Core Principles, including enhancement of the Bank Commissioner’s independence.8 However, no progress has been made yet in putting in place supervisory and prudential requirements such as minimum capital and loan loss provisioning. Continued progress in strengthening the banking sector and credit culture is critical for sustained growth in the private sector.

21. Authorities’ views. The authorities noted that, given their lack of experience in bank supervision and regulation, it would take time to implement the new Act and they need technical assistance. Moreover, they need to develop a proper framework for appointing the Bank Commissioner, whose job would be only part time given the size of the banking sector in Tuvalu. They would check whether the previous government indeed directed the NBT to lower lending rates as claimed and rescind the direction if it was in fact given.

C. Structural Reform

22. Public enterprise reform. The mission supported the comprehensive public enterprise reform program underway with ADB assistance to improve the performance and profitability of public enterprises. A Public Enterprise (Performance and Accountability) Act was passed in 2010, and a Public Enterprise Reform Monitoring Unit (PERMU) responsible for public enterprise compliance with the Act was established. Moreover, the government is now required to compensate public enterprises for non-profitable services—community service obligations (CSOs)—which they are directed by the government to provide. Several public enterprises as well as business activities undertaken by line ministries are being considered for mergers, private sector participation, and possible corporatization. The ongoing reforms could reduce burdens on the budget down the road and help attract foreign direct investment.

23. Job creation. Staff noted that education and vocational training need to be strengthened to enable Tuvaluans to take advantage of overseas job opportunities. Given Tuvalu’s limited land area, poor soil, and geographic isolation, it is difficult to create large private-sector employment opportunities domestically. Thus the mission encouraged the authorities to help Tuvaluans to better utilize the temporary labor migration scheme available in New Zealand and to explore opportunities to participate in a similar Australian scheme. Moreover, demand for Tuvaluan seafarers on the international maritime employment market is declining, due to more competition from other countries.9 According to studies by the World Bank and other donors, adequate training needs to be provided for seafarers and temporary seasonal workers to maintain these job opportunities for Tuvaluans.

24. Poverty has risen in the last few years. Although extreme poverty is rare in Tuvalu because of traditional social support networks and subsistence agriculture and fishing, the 2010 household income and expenditure survey indicates that the population living in poverty, particularly in outer islands, has increased sharply to about 20 percent of households from 14 percent in 2004. Given limited job opportunities, people in outer islands are facing greater hardship than in the capital city, as a result of the declining number of seafarers employed. This development indicates the importance of improving the quality of education and vocational training to reduce poverty in Tuvalu.

Poverty Rate 1/

(In percent of households)

Source: Tuvalu Trust Fund Advisory Committee.

1/ Poverty line based on basic needs.

25. Authorities’ views. The authorities stated that the new government is committed to enforcing and implementing the on going public enterprise reform. They noted that to address poverty issues and enhance the competitiveness of Tuvaluans for job opportunities internationally, the government is focusing more on strengthening vocational training. The project to upgrade the Tuvalu Maritime Training Institute (TMTI) had been badly managed. Repairs to the TMTI facilities are underway, but the authorities stated that they need donors’ financial and technical support.

D. Other

26. External stability. Staff noted that the use of the Australian dollar as its currency is appropriate given the size of the economy and limited capacity for independent monetary and exchange rate policies. The real effective exchange rate has appreciated by 8 percent over the last year. However, exports are minimal at about 1-2 percent of GDP and the country depends highly on imports given almost no domestic production base except subsistence farming and fishing. The country’s geographic remoteness and limited air services also constrain tourism with just over 300 visitors each year.10 The current account deficit (excluding grants) is very high but is projected to decline with fiscal adjustment, which is key to maintaining external stability.

27. Article XIV/VIII. At the time of joining the Fund, Tuvalu availed itself of the transitory provisions of Article XIV, Section 2. While the exchange control regulations are quite restrictive and prescribe approval requirements from the NBT or the Finance Minister for most payments or transfers, in practice, no approval is required and payments and transfers for current international transactions are administered liberally.11 Staff recommended that the regulations be updated in line with current practice so that Tuvalu can accept the obligations of Article VIII, Sections 2, 3 and 4.

28. statistics. Staff stressed that data shortcomings, particularly in the national accounts and balance of payments, hamper surveillance. The mission urged the authorities to provide more staff to the Statistics Division to start compiling the data necessary for surveillance and their own policy analysis and formulation. Moreover, attention needs to be paid to improving source data for macroeconomic statistics. Many of the underlying data have inconsistencies and errors, resulting in poor quality of the national accounts and balance of payments statistics.

29. Authorities’ views. The authorities indicated that they will request TA from PFTAC to update or repeal the exchange control regulations and improve statistics. They are looking for additional staff for the Statistics Division but it is not easy to find good candidates. Continued training of their staff by PFTAC would also be critical.

V. Staff Appraisal

30. Despite its geographic remoteness, Tuvalu has not been immune to the global financial crisis. Even with higher government spending, the economy is expected to have almost no growth in 2010 owing to lower offshore earnings. Growth is projected to be zero or even turn negative in 2011, led by lower government spending, and remain low over the medium term. Given projected global food and fuel prices, inflation is expected to remain low. The outlook is subject to risks related to a delay in fiscal adjustment and the pace of the global recovery.

31. The government needs to take immediate action to cut spending. In response to the global crisis, the government continued to increase spending to support the economy, resulting in a large increase in the fiscal deficit and a rapid decline in the fund (CIF) available for budget financing in 2010. At the current pace of spending, the CIF will be depleted in mid-2011. A front-loaded adjustment would be needed and the 2011 budget deficit should be contained to about 11 percent of GDP, mainly through a cut in capital spending, which jumped sharply in recent years. The government also should bring down other spending by freezing wages, reducing travel costs, and cutting social transfers and subsidies, particularly the unsustainable medical treatment scheme.

32. Further adjustments would be required over the medium term to ensure fiscal sustainability. Tax administration needs to be strengthened to increase domestic revenue to earlier levels, and government spending needs to be contained further. A weaker global recovery would require additional fiscal adjustments without donor assistance. The government should come up with a longer-term plan to rebuild the CIF to its targeted balance. Implementing sound fiscal policy would also be necessary to build fiscal space to respond to natural disasters and the impact of climate change.

33. Fiscal management should be strengthened urgently. In the absence of its own currency and monetary policy, sound fiscal policy is key to maintaining macroeconomic stability. However, fiscal management has not been prudent in recent years, as windfall revenue has tended to be immediately spent. Windfall revenue needs to be saved, given the volatility of key revenue items, and a medium-term budget framework should be used to highlight the longer-term impact of the current fiscal stance and new spending initiatives. Moreover, budget reporting and monitoring need to be improved and economic and policy analysis capacity should be strengthened. The process of providing government guarantees also should be strengthened.

34. Public enterprise reform should press ahead. Very low tariff structures, government arrears, and structural inefficiencies are the major impediments to sound balance sheets. Passage of a Public Enterprise Act and related reforms underway with ADB assistance are welcome. Several public enterprises are being considered for mergers, private sector participation, and possible corporatization. The government and public enterprises also need to regularize their relations by honoring their financial obligations to each other.

35. Continued progress in strengthening the banking sector and credit culture is critical for sustained growth in the private sector. Banks have started addressing high nonperforming loans by sharing borrowers’ information and tightening lending standards. But further efforts would be needed to recover bad loans. Passage of a Banking Act is welcome, but no progress has been made yet in putting in place supervisory and prudential requirements.

36. The use of the Australian dollar as its currency is appropriate given the size of the economy and limited capacity for independent monetary and exchange rate policies. Exports are minimal and the country depends highly on imports given almost no domestic production base except subsistence farming and fishing. Fiscal adjustment will be key to maintaining external stability.

37. Education and vocational training need to be strengthened. Given Tuvalu’s limited land area, poor soil, and geographic isolation, it is difficult to create large private-sector employment opportunities domestically. Thus, Tuvaluans need to better utilize overseas job opportunities, including seafarer employment and the temporary labor migration scheme in New Zealand. Education and vocational training need to be strengthened to enhance the competitiveness of Tuvaluans for these important sources of foreign exchange earnings and to reduce poverty, which has risen in the last few years.

38. Data shortcomings, particularly in the national accounts and balance of payments, hamper surveillance. More staff needs to be provided to start compiling the data necessary for surveillance and the authorities’ own policy analysis and formulation.

39. Staff recommends that the next Article IV consultation take place on a 24-month cycle.

Table 6.Tuvalu: Social Indicators
Millennium Development GoalsBaselineLatest data
1Eradicate extreme poverty and hunger 1/(2015 target = halve 1990 $1/day poverty and malnutrition)
Population below $1 per day (in percent)17.0(1994)...
Population below national poverty line (in percent)17.2(1994)26.3(2010)
Poverty gap at $1 per day (in percent)13.0(1994)...
Percentage share of income or consumption held by poorest 20 percent7.0(1994)6.2(2010)
Prevalence of child malnutrition (in percent of children under 5)0.0(1997)...
Population below minimum level of dietary energy consumption (in percent)4.1(2010)
2Achieve universal primary education 2/(2015 target = net enrollment to 100)
Net primary enrollment ratio (in percent of relevant age group)98.0(1992)98.1(2007)
Percentage of cohort reaching grade 5 (in percent)72.7(2000)91.2(2004)
Youth literacy rate (in percent of ages 15-24)95.0(1991)98.6(2007)
3Promote gender equality 3/(2015 target = education rate to 100)
Ratio of girls to boys in primary education (in percent)1.02(1999)0.96(2009)
Ratio of young literate females to males (in percent of ages 15-24)0.96(1991)1.0(2007)
Share of women employed in the nonagricultural sector (in percent)38.0(1991)36.0(2007)
Proportion of seats held by women in national parliament (in percent)7.7(1990)0.0(2010)
4Reduce child mortality 4/(2015 target = reduce 1990 under 5 motality by two thirds)
Under 5 mortality rate (per 1,000 live births)53.0(1990)24.6(2009)
Infant mortality rate (per 1,000 live births)42.0(1990)14.8(2009)
Immunization, measles (in percent of children under 12 months)95.0(1990)90.0(2008)
5Improved maternal health 5/(2015 target = reduce 1990 maternal mortality by three fourths)
Maternal mortality ratio (modeled estimate, per 100,000 live births)434.8(1990)418.4(2003)
Births attended by skilled health staff (in percent of total)95.0(1990)97.9(2007)
6Combat HIV/AIDS, malaria, and other diseases 6/(2015 target = halt, and begin to reverse, AIDS, etc.)
Prevalence of HIV, female (in percent of ages 15-24)0.0(1990)...
Contraceptive prevalence rate (in percent of women ages 15-49)39.0(1990)30.5(2007)
Number of children orphaned by HIV/AIDS0.0(1990)...
Incidence of tuberculosis (per 100,000 people)297.0(1990)162.0(2009)
Tuberculosis cases detected and successfully treated under DOTS (in percent)...100.0(2007)
7Ensure environmental sustainability 7/(2015 target = various, see notes)
Forest area (in percent of total land area)33.3(1990)33.3(2005)
Nationally protected areas (in percent of total land area)0.0(1990)0.2(2009)
GDP per unit of energy use (PPP$ per kg. oil equivalent)0.2(1993)0.2(1999)
CO2 emissions (metric tons per capita)0.2(1993)0.2(1999)
Use of solid fuels (in percent of households)70.0(1991)25.0(2007)
Access to an improved water source (in percent of population)90.0(1990)97.0(2008)
Access to improved sanitation (in percent of population)80.0(1990)84.0(2008)
Access to secure tenure (in percent of population)......
8Develop a global partnership for development 8/(2015 target = various, see notes)
Youth unemployment rate (in percent of total labor force ages 15-24)3.0(1991)24.0(2002)
Telephone lines (per 100 people)1.4(1990)17.2(2009)
Cellular subscriptions (per 100 people)4.8(2000)20.1(2009)
Internet user (per 100 people)4.9(1995)43.3(2009)
Same Region / Income group
TuvaluEast Asia and PacificLower-Middle Income
Other indicators
Population (millions)0.01111,9313,702
Urban (percent of toal)49.044.141.3
GNI per capita (in U.S. dollars)4,3862,5152,015
Adult literacy rate (in percent of people ages 15 and over)99.092.882.6
Life expectancy at birth (in years)64.072.068.0
Total fertility rate (births per woman)3.21.92.5
Sources: Tuvalu authorities, Asian Development Bank, UNDP, and World Bank.

Goal 1 targets: Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day. Halve, between 1990 and 2015, the proportion of people who suffer from hunger.

Goal 2 targets: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling.

Goal 3 targets: Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education no later than 2015.

Goal 4 targets: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate.

Goal 5 targets: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio.

Goal 6 targets: Halt by 2015, and begin to reverse, the spread of HIV/AIDS. Halt by 2015, and begin to reverse, the incidence of malaria and other major diseases.

Goal 7 targets: Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources. Reduce biodiversity loss, achieving, by 2010, a significant reduction in the rate of loss. Halve, by 2015, the proportion of people without sustainable access to safe drinking water. By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers.

Goal 8 targets: Develop further an open, rule-based, predictable, non-discriminatory trading and financial system. Address the Special Needs of the Least Developed Countries. Address the Special Needs of landlocked countries and small island developing states. Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term. In cooperation with developing countries, develop and implement strategies for decent and productive work for youth. In cooperation with pharmaceutical companies, provide access to affordable, essential drugs in developing countries. In cooperation with the private sector, make available the benefits of new technologies, especially information and communications.

Sources: Tuvalu authorities, Asian Development Bank, UNDP, and World Bank.

Goal 1 targets: Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day. Halve, between 1990 and 2015, the proportion of people who suffer from hunger.

Goal 2 targets: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling.

Goal 3 targets: Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education no later than 2015.

Goal 4 targets: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate.

Goal 5 targets: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio.

Goal 6 targets: Halt by 2015, and begin to reverse, the spread of HIV/AIDS. Halt by 2015, and begin to reverse, the incidence of malaria and other major diseases.

Goal 7 targets: Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources. Reduce biodiversity loss, achieving, by 2010, a significant reduction in the rate of loss. Halve, by 2015, the proportion of people without sustainable access to safe drinking water. By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers.

Goal 8 targets: Develop further an open, rule-based, predictable, non-discriminatory trading and financial system. Address the Special Needs of the Least Developed Countries. Address the Special Needs of landlocked countries and small island developing states. Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term. In cooperation with developing countries, develop and implement strategies for decent and productive work for youth. In cooperation with pharmaceutical companies, provide access to affordable, essential drugs in developing countries. In cooperation with the private sector, make available the benefits of new technologies, especially information and communications.

Discussions took place in Funafuti and Suva during November 11–23, 2010, with Prime Minister Maatia Toafa, Finance Minister Monise Laafai, Permanent Secretary of Finance Minute Taupo, other senior officials, representatives of the private sector, and donors. The team also contacted new Finance Minister Lotoala Metia to discuss fiscal policy after the new government was formed on December 24, 2010. The team comprised Mr. Jang (head), Ms. Bouza, Mr. Mohommad (all APD), Mr. Merrick, Ms. Pan (both World Bank), and Mr. Lototele (Asian Development Bank). Ms. Tira (OED) also participated in the meetings.

The NBT performs some monetary functions, including the holding of government accounts and foreign assets.

The TNPF has about 6,800 members, more than half of the total population, and its total assets amounted to 97 percent of GDP ($A34 million) at end-2009. The TNPF’s total loans to its members were about 20 percent of its total assets at end-2009 and the remaining assets were invested abroad. Starting September 2009, all employees are required to contribute 13 percent of their salaries, including for the new medical and educational saving scheme, and employers contribute 10 percent of employees’ salaries.

These are the Development Bank of Tuvalu, Tuvalu Electricity Corporation, Tuvalu Telecommunications Corporation, National Fishing Company of Tuvalu, Vaiaku Lagi Hotel, Philatelic Bureau, and Tuvalu Marine Training Institute.

Tuvalu is rated as extremely vulnerable on the region’s Environmental Vulnerability Index (EVI), developed by the South Pacific Applied GeoScience Commission and the United Nations Environment Program.

In years when the market value of the TTF exceeds its targeted value (which is linked to the Australian CPI), the surplus is distributed into the Consolidated Investment Fund (CIF) and is available for budgetary spending. As of September 2010, the TTF’s market value was $A107 million compared with the targeted value of $A119 million. Since 2008, the TTF’s market value has been below its targeted value.

The International Agreement on the TTF has provided a system of governance that includes a Board, an investment committee, and an advisory committee in which donor representatives are participating. Moreover, the fund is managed by professional fund managers currently based in Australia, and monitoring of fund performance is carried out by another consulting firm.

This measure is one of the conditions for the ADB’s second tranche grant disbursement to which EC grants are linked.

Remittances from the seafarers are now only 6 percent of GDP, a sharp decline from about 10 percent of GDP in recent years.

There is presently air service only from Suva, Fiji to Funafuti with a 40-seat plane twice a week

Staff is currently conducting a comprehensive review of the exchange system to assess jurisdictional implications.

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