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IMF Country Report No. 20/31

REPUBLIC OF NAURU

2019 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE REPUBLIC OF NAURU

January 2020

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 2019 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 January 22, 2020 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 January 22, 2020, following discussions that ended on September 26, 2019, 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 January 6, 2020.

  • An Informational Annex prepared by the IMF staff.

  • A Staff Statement updating information on recent developments.

  • 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

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Price: $18.00 per printed copy

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Washington, D.C.

© 20[xx] International Monetary Fund

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REPUBLIC OF NAURU

STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION

January 6, 2020

Key Issues

Context. Nauru is at a point of transition, given the continued decline in both phosphate mining and activity associated with the Regional Processing Centre (RPC) for refugees and asylum seekers. Nauru 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 non-communicable diseases (NCDs). This is the second Article IV Consultation since Nauru became the 189th Fund member in April 2016.

Outlook and risks. 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 RPC activity and revenues, volatile fishing revenues, climate change, and delays in fiscal and structural reforms.

Key policy recommendations

  • Fiscal policy. Fiscal adjustment is required to avoid a breach of the fiscal anchor, contain debt, and maintain the Trust Fund contributions. Adjustment measures should involve reduced spending in non-priority areas, tax reform, and implementation of PFM reforms. A cash buffer target of at least 2 months of non-RPC current spending would help to manage liquidity and provide fiscal space.

  • Governance. Stronger monitoring and accountability on the use of public sector resources would ensure that resources are used to help reach development goals. Building on progress to date, improvements to the AML/CFT framework should be continued.

  • Structural reforms. 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, SOE reform, and land rehabilitation. The effectiveness of education and health spending needs to be improved to meet development goals.

Approved By Andreas Bauer and Kevin Fletcher

Discussions were held in Nauru during September 16–26, 2019. The staff team comprised Ms. Kaendera (head), Ms. Hunter (Resident Representative), Ms. Madhu Nair, Ms. Singh (all APD). Ms. Park (OED) participated in the discussions. Ms. Kanyabutembo assisted in preparing this report. The mission met with the President and members of the Cabinet, the Finance Minister, senior government officials and representatives from public enterprises, the private sector, and development partners.

Contents

  • CONTEXT

  • RECENT DEVELOPMENTS, OUTLOOK AND RISKS

  • ENSURING FISCAL SUSTAINABILITY

  • FINANCIAL SECTOR

  • ECONOMIC DIVERSIFICATION, INCLUSIVE GROWTH

  • GOVERNANCE

  • CLIMATE CHANGE RESILIENCE

  • STATISTICS AND CAPACITY DEVELOPMENT

  • STAFF APPRAISAL

  • BOXES

  • 1. Trust Fund

  • 2. Nauru’s Superannuation Fund

  • 3. Nauru’s Financial Sector

  • FIGURES

  • 1. Real and External Sector Developments

  • 2. Fiscal Sector Developments

  • 3. Medium-Term Fiscal Outlook

  • 4. Recent Economic Developments in the Regional Context

  • TABLES

  • 1. Selected Social and Economic Indicators, FY2015–21

  • 2. Illustrative Medium-Term Baseline Scenario, FY2015–24

  • 3. Balance of Payments, FY2015–24

  • 4. Central Government Operations, FY2015–24

  • ANNEXES

  • I. Authorities’ Response to Fund Policy Advice

  • II. External Sector Assessment

  • III. Risk Assessment Matrix

  • IV. Debt Sustainability Analysis

  • V. Secondary Phosphate Mining

  • VI. IMF Capacity Development in Nauru

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REPUBLIC OF NAURU

STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX

January 6, 2020

Prepared By

The Asia and Pacific Department

(In consultation with other departments).

Contents

  • FUND RELATIONS

  • RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS

  • STATISTICAL ISSUES

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Press Release No. 20/22

FOR IMMEDIATE RELEASE

January 29, 2020

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