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International Monetary Fund. Asia and Pacific Dept

IMF Country Report No. 22/28

International Monetary Fund. Asia and Pacific Dept
Early and decisive measures successfully prevented an outbreak of COVID-19 in Nauru, and as of January 2022 there have been no COVID-19 cases on the island. Strong pandemic policy measures supported the economy, which continued to expand in FY20 and FY21. Nauru’s remoteness and size constrain potential growth and it is severely exposed to the negative effects of climate change on sea levels and the ocean stock of tuna. Development challenges are exacerbated by limited capacity and a high incidence of non-communicable diseases (NCDs).
International Monetary Fund. Asia and Pacific Dept

1. Nauru’s size and location pose challenges for economic growth and development. Nauru is a remote island nation in the Pacific, with a land area of about 21 square kilometers and a population of approximately 12,000 people in 2021. Its size and remoteness constrain potential growth and raise its reliance on food and fuel imports. The revenue base—comprising sales of fishing licenses, residual phosphate mining and, since FY2012, revenues associated with the Australian Regional Processing Center (RPC) for asylum seekers—is narrow and volatile. Due to land degradation from phosphate mining in the 1980s, the population mainly resides along the narrow coastal land, raising vulnerability to climate change. Nauru’s population also has a high incidence of non-communicable disease (NCDs).

International Monetary Fund. Asia and Pacific Dept

Our authorities in Nauru appreciate the open and constructive engagement with the mission team during the virtual 2021 Article IV consultations. Nauru is one of the Fund’s newest, smallest, and most vulnerable members, with severely limited capacity for economic diversification. The authorities attach significant value to the policy advice and assistance received through their Fund membership. The authorities also broadly concur with staff’s assessment, analysis, and most policy recommendations.

Vybhavi Balasundharam, Ms. Leni Hunter, Iulai Lavea, and Mr. Paul G Seeds
Pacific island countries (PICs) rely on national airlines for connectivity, trade, and tourism. These airlines are being struck hard by COVID-19. Losses will weigh on public sector balance sheets and pose risks to economic recovery. With a backdrop of tight fiscal space and increasing government debt, losses in airlines are adding to fiscal risks in some PICs. This paper discusses tools to evaluate and manage the fiscal risks from national airlines in the Pacific. We present a snapshot of the current state of Public Financial Management (PFM) practices in PICs and detail the best practices. This exercise would illustrate the areas in which PICs have scope to improve their risk management with regard to national airlines. We then discuss the use of diagnostic tools and capacity development to enhance monitoring and risk management. Greater transparency and accountability in the airlines, combined with rigorous oversight, would be the first step towards improved financial management of national airlines.
International Monetary Fund. Asia and Pacific Dept
This 2019 Article IV Consultation with Republic of Nauru highlights that it remains vulnerable to climate change and has a narrow economic base and limited capacity. Development challenges are increased by unavailability of land and high incidence of noncommunicable diseases. Growth was stronger than expected in FY2018 but slowed in FY2019. The outlook is subdued, with growth expected to reach 2 percent in the medium term. Revenues are projected to decline, necessitating a fiscal adjustment. Risks are skewed to the downside and include the scaling down of Regional Processing Centre activity and revenues, volatile fishing revenues, climate change, and delays in fiscal and structural reforms. Fiscal adjustment is required to avoid a breach of the fiscal anchor, contain debt, and maintain the Trust Fund contributions. New sources of economic growth and income are needed to support Nauru’s development agenda. Policies should be implemented in the near term to support private sector activity, including through financial sector development, state-owned enterprises reform, and land rehabilitation. The effectiveness of education and health spending needs to be improved to meet development goals.