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IMF Country Report No. 18/209
TUVALU
2018 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR TUVALU
July 2018
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 2018 Article IV consultation with Tuvalu, 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 June 22, 2018 consideration of the staff report that concluded the Article IV consultation with Tuvalu.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on June 22, 2018, following discussions that ended on April 19, 2018, with the officials of Tuvalu on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 8, 2018.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the International Development Association.
A Statement by the Executive Director for Tuvalu.
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
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© 2018 International Monetary Fund
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TUVALU
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION
June 7, 2018
Key Issues
Context. Tuvalu is a fragile micro state. The country’s remoteness, narrow production base, and weak banking sector constrain private sector activity, leaving public expenditure as the main source of growth. The DSA finds that Tuvalu remains at high risk of debt distress.
Outlook. The macroeconomic outlook is broadly positive in the near term. Growth is accelerating on capital expenditure and infrastructure projects funded by development partners. Inflation is expected to remain elevated, reflecting the growth outlook and public wage increases. Risks are to the downside, reflecting climate change and natural disasters, volatile fishing revenues, reliance on external grants, weak state-owned enterprises, and limited financial supervision.
Main Policy Recommendations.
Promote resilience to external shocks. Policy priorities include continuing to improve climate change risk management and undertaking gradual fiscal consolidation to maintain buffers against shocks. Fiscal consolidation requires strengthening the medium-term fiscal framework, containing current spending, prioritizing capital spending, mobilizing tax revenue, and accelerating SOE reform.
Broaden the private-sector growth base. Macro-structural policies that increase potential output and diversify the growth base are crucial. These include the development of human capital and promotion of tourism. It is also critical to enhance bank credit intermediation by putting in place a financial supervisory framework (covering the banks and the pension fund), improving enforcement of existing financial regulations, and developing bankruptcy legislation. Continued efforts to strengthen macroeconomic statistics will also assist policy formulation.
Approved By
James Daniel and Kevin Fletcher
Discussions for the 2018 Article IV Consultation were held in Funafuti during April 9-19, 2018. The mission comprised Jongsoon Shin (head, SPR), Sonja Davidovic (KMU), and Chau Nguyen (APD). The team was supported by Hunter Leni and Pule Sukanaivalu (all APD, Fiji Office). Mr. Michael Kikiolo (OED) joined the mission. Ms. Alizeh Amer (APD) assisted in preparation of this report.
Contents
RECENT DEVELOPMENTS, OUTLOOK, AND RISKS
BUILDING RESILIENCE AGAINST CLIMATE CHANGE AND OTHER EXTERNAL SHOCKS
A. Enhance the Policy Framework to Mitigate Climate Change Effects
B. Strengthen the Medium-Term Fiscal Policy Framework and Fiscal Buffers
BROADENING THE PRIVATE SECTOR GROWTH BASE
A. Improve Financial Supervision and Financial Inclusion
B. Increase Potential Growth and Employment Opportunities
C. Other Issues
STAFF APPRAISAL
BOXES
1. Tuvalu Coastal Adaptation Project (TCAP)
2. Drivers for Fishing License Revenue
FIGURES
1. Setting in a Cross-Country Context
2. Economic Developments
3. Fiscal Developments
TABLES
1. Selected Economic Indicators, 2015–19
2. Medium-Term Baseline Scenario, 2015–23
3. Summary of General Government Operations, 2013–23
4. Balance of Payments, 2013–23
5. Assets and Liabilities of Financial Institutions, 2012–17
APPENDICES
I. Risk Assessment Matrix
II. External Sector Assessment
III. Tuvalu Trust Fund and Tuvalu Survival Fund
IV. Macrostructural Challenges
V. Authorities’ Responses to Policy Advice in the 2016 Article IV Consultation
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TUVALU
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS
June 7, 2018
Approved By
James Daniel, Kevin Fletcher (IMF), and John Panzer (IDA)
Prepared jointly by the staffs of the International Monetary Fund and the International Development Association
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TUVALU
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
June 7, 2018
Prepared By
Staff Representatives for the 2018 Consultation with Tuvalu
CONTENTS
FUND RELATIONS
WORLD BANK-IMF COLLABORATION
RELATIONS WITH THE ASIAN DEVELOPMENT BANK
RELATIONS WITH PACIFIC FINANCIAL TECHNICAL ASSISTANCE CENTRE (PFTAC)
STATISTICAL ISSUES
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Press Release No. 18/277
FOR IMMEDIATE RELEASE
July 5, 2018
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