Nauru is the world’s smallest island nation with a population of around 12,500, on an island of 21 square km, located 40 km south of the equator, in the Pacific Ocean. The nearest neighbor is 300 km away. As a result, lack of scale and remoteness pose challenges for economic growth and development. Nauru’s sources of revenue are narrow and uncertain. Phosphate mining activity has underpinned incomes since the early 1900s but is reaching the end of its economic life, while fees from fishing licenses can be volatile. The island’s central plateau has been heavily mined, and the population is concentrated around the narrow coastal fringe, increasing vulnerability to climate change. Limited land availability contributes to a reliance on imported food and high incidence of non-communicable diseases.
Despite these challenges, progress is being made with the support of development partners. The establishment of a new Nauru Trust Fund is supporting fiscal sustainability by saving windfall income and investing it in a trust that will generate revenue to support future generations. Reforms at the Nauru Utility Corporation have improved the reliability of water and electricity provision. Important infrastructure projects, like the construction of a new port and undersea cable project, will encourage increased trade and economic activity. Banking services were re-established in 2015 (after almost 15 years without a functioning bank), and almost all adults now have access to a bank account. Improving school attendance and education and health outcomes is a priority for the government.
The authorities agree with staff’s analysis and near-term outlook, and with the broad thrust of the advice. Nauru joined the IMF in 2016 and this is its second Article IV consultation. The authorities value the advice and technical assistance received from the Fund and look forward to further constructive engagement in future. They also welcome the coordination between IMF staff and the Asian Development Bank, who were invited to join relevant meetings, facilitating knowledge sharing and making best use of the authorities’ time.