2017 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE REPUBLIC OF NAURU
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2017 Article IV consultation with the Republic of Nauru, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its March 24, 2017 consideration of the staff report that concluded the Article IV consultation with the Republic of Nauru.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on March 24, 2017, following discussions that ended on January 27, 2017, with the officials of the Republic of Nauru on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on March 7, 2017.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for the Republic of Nauru.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
Context. This is the first Article IV Consultation since Nauru became the 189th Fund member in April 2016. Nauru’s growth and government revenue have improved substantially in recent years owing to the Australian Regional Processing Center (RPC) to process asylum seekers, fishing license fees, and residual phosphate mining. However, Nauru faces daunting challenges in sustaining growth and ensuring fiscal sustainability due to its limited sources of growth and income. The country is also vulnerable to climate change, its antiquated infrastructure hampers trade and growth, and its health indicators are below those of peers due to high incidence of non-communicable diseases.
Outlook and risks. Economic activity is moderating in FY2017, while the medium-term outlook remains challenging due to the RPC scaling down which entails a substantial decline in government revenue. With limited access to borrowing, fiscal spending will have to adjust accordingly. The downside risks to the outlook include a more rapid process of RPC scaling down, weaker-than-expected global growth, climate change, and delays in implementing fiscal and structural reforms.
Key policy recommendations:
Fiscal policy. Ensure fiscal liquidity and sustainability by maintaining adequate cash buffers and contributing to the trust fund, which was recently established to provide long-term fiscal financing. The build-up in savings should start from FY2017 while RPC revenue remains high. Implement tax and public financial management reforms to control spending and support the fiscal adjustment. Strengthen public debt management to ensure fiscal and debt sustainability, and improve access to credit markets.
Climate change. Develop a fiscal policy framework that would enhance economic resilience by integrating climate change strategies in budget planning. Practical approaches should be adopted in the near term to match capital projects already in the pipeline with Nauru’s climate change strategies, meet the climate proofing standards, and incorporate the projects in a multi-year budget plan.
Structural reforms. Successful implementation of structural reforms would promote inclusive growth, economic diversification, and private sector development. The priorities include rebuilding the seaport and energy infrastructure, reforming the state owned enterprises, developing the financial sector, and addressing health-related challenges.
Alison Stuart (APD) and Peter Allum (SPR)
Discussions were held in Nauru during January 16–27, 2017. The staff team included Tubagus Feridhanusetyawan (Resident Representative for Pacific Island Countries (RR-PIC, head), Reshika Singh (RR-PIC), Alexander Massara (STA), and Antoinette Kanyabutembo (APD), assisted in the preparation of this report. Heenam Choi and Gemma Preston (OED) participated in the discussions. The mission met with the President, the Cabinet, members of parliament, senior government officials, and representatives from public enterprises, the private sector, and development partners.
BACKGROUND: DEVELOPMENT CHALLENGES
RECENT DEVELOPMENTS AND OUTLOOK
ENSURING FISCAL SUSTAINABILITY
IMPROVING RESILIENCE TO CLIMATE CHANGE
PROMOTING INCLUSIVE GROWTH
1. The Australian Regional Processing Center (RPC)
2. The New Trust Fund
3. Public Financial Management (PFM) Reforms
4. State Owned Enterprises (SOEs)
5. Bendigo Bank Agency
6. Public Health Developments and Policies
1. Real and External Sector Developments
2. Fiscal Sector Developments
3. Medium-term Fiscal Outlook
4. Recent Economic Developments in the Regional Context
1. Selected Social and Economic Indicators, FY2012–17