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International Monetary Fund. Asia and Pacific Dept
The 2023 Article IV Consultation discusses that a successful vaccination strategy allowed Tuvalu to lift coronavirus disease (COVID) containment measures at the end of 2022, but the economic cost of the pandemic has been significant. Real gross domestic product growth was -4.3 percent in 2020, with at-the-border containment measures leading to delays in much-needed infrastructure projects. Growth is expected to accelerate as the lifting of COVID restrictions leads to the resumption of construction activity, shipping bottlenecks ease and the trade and hospitality sectors recover. Tuvalu is among the countries most vulnerable to the effects of climate change; its remote economy is dominated by the public sector; and its revenue base is narrow, with reliance on donor commitments further complicating fiscal planning. The economic setback due to the pandemic makes addressing these significant structural challenges more difficult. The report recommends promoting fiscal sustainability and building buffers by mobilizing revenues and rationalizing current expenditures.
International Monetary Fund. Asia and Pacific Dept

Tuvalu became the 187th member of the Fund in 2010 and this is the seventh Article IV consultation between Staff and the authorities since that time. The authorities found the frank, constructive discussions, as well as the strong commitment of the mission team very helpful and look forward to enduring engagements with the Fund.

International Monetary Fund. Asia and Pacific Dept

1. A successful vaccination strategy allowed Tuvalu to lift COVID containment measures with limited negative health consequences—but the economic fallout from the pandemic has been significant. The swift implementation of COVID containment measures at the onset of the pandemic helped Tuvalu maintain community transmission of the virus at zero for nearly three years.1 Thanks to a successful vaccination campaign that led to 98 percent of the eligible population being fully vaccinated, the first COVID outbreak that took place in November 2022 had only a limited impact. Consequently, the authorities lifted containment measures in December 2022. At the same time, the economic costs of the pandemic have been significant, including due to at-the-border containment measures that led to delays in much-needed infrastructure projects.

Mouhamadou Sy, Mr. Andrew Beaumont, Enakshi Das, Mr. Georg Eysselein, Mr. David Kloeden, and Katrina R Williams
Pacific Island Countries (PICs) face daunting spending needs related to achieving the UN Sustainable Development Goals (SDGs) and adapting to the effects of climate change. Boosting tax revenues will need to be an essential pillar in creating the fiscal space to meet SDG and climate-adaptation spending needs. This paper assesses the additional tax revenue that PICs could potentially collect and discusses policy options to achieve such gains. The main objectives of the paper are to (1) review the critical medium-term development spending requirements and available financing options, (2) document the main stylized facts about tax revenues in the PICs and estimate the additional tax revenue that countries could raise, (3) highlight the main bottlenecks preventing the PICs from further increasing their tax revenue collection with an emphasis on weaknesses in VAT systems, (4) draw lessons from successful emerging and developing countries that have managed to substantially and durably increased their tax revenues, and (5) propose tax policy and revenue administration reform priorities for Pacific Island Countries to boost tax revenues. The paper’s main findings are (1) The current revenue mix is skewed toward non-tax revenues, (2) PICs could collect an additional 3 percent of tax revenue in the short to medium term, (3) Many bottlenecks are preventing the PICs from boosting their tax revenue collection, and (4) The potential offered by efficient VAT systems is not fully exploited. To increase tax revenue in the Pacific Islands, the paper proposes the following reforms: (1) unwinding recent fiscal relief measures, (2) strengthening or introducing a VAT system; (3) rationalizing tax exemptions, (4) closing loopholes in the tax system, (5) reforming tax administration, and (6) introducing a medium-term revenue strategy.
International Monetary Fund. Asia and Pacific Dept

IMF Country Report No. 21/176