IMF Executive Board Concludes 2021 Article IV Consultation with Tuvalu

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Tuvalu.

The containment measures swiftly implemented by the Tuvaluan authorities at the onset of the pandemic helped keep Tuvalu COVID-free, though they have taken a toll on economic activity, impacting construction and tourism-related activities. However, inflow of COVID-related grants from international donors and buoyant domestic revenues from fishing license fees allowed the authorities to maintain current spending as planned and to extend additional support to the population and businesses through the COVID-19 relief package. As a result, the economy is estimated to have grown 1 percent in 2020, compared to 13.9 percent in 2019, with 1.6 percent inflation.

The Tuvaluan economy is expected to recover in 2021. The vaccine rollout that started in April will support domestic activity and eventually allow border reopening, even though securing enough vaccines to inoculate the entire population will take time. With higher current spending and a gradual resumption of infrastructure projects, GDP growth is projected at 2.5 percent in 2021. Full resumption of travel in 2022, continued high public spending, and further implementation of infrastructure projects is forecast to increase growth to 3.5 percent by 2022. Inflation is expected to gradually increase to 2.2 percent in 2021 and 2.4 percent in 2022.

Risks surrounding the outlook are high and tilted to the downside. Prolonged containment measures would delay resumption of infrastructure projects and hamper the recovery of private sector activity. Government revenues could fall short of projections. Continued lack of effective financial supervision of banks and weak balance sheets of State Owned Enterprises create contingent risks to the government and impede credit intermediation. A loss of the correspondent banking relationship would endanger Tuvalu’s ability to process international payments. Tuvalu is also heavily exposed to the effects of climate change and natural disasters. Strong implementation of fiscal, financial, and structural reforms, aided by capacity building provided by international community, would help support growth going forward.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They commended the Tuvaluan authorities on their swift implementation of containment measures that successfully prevented a local outbreak of the pandemic. They noted that the economy avoided a recession in 2020 thanks to the flow of COVID-related support and a favorable revenue position, and is expected to grow further in 2021. Nevertheless, Directors observed that risks to the outlook are high and tilted to the downside, mainly due to the pandemic and prolonged containment measures, uncertainty about grant availability, and vulnerability to climate change.

Directors noted that COVID-related spending should depend on the path of the pandemic and any additional support should be focused on the most vulnerable. They encouraged reforms to achieve a gradual fiscal consolidation once the economy fully recovers, to preserve fiscal buffers and reduce fiscal risks, and to fund climate adaptation and infrastructure maintenance needs. Directors considered that this should be achieved through a combination of measures to mobilize domestic revenues and raise the efficiency of public spending through improved public financial management.

Directors encouraged measures to strengthen the financial sector. They stressed the importance of developing an effective prudential regulation and supervision framework to promote the health of the financial sector and improve access to credit. Given the importance of cross-border payments for Tuvalu, Directors highlighted the importance of maintaining correspondent banking relationships and enhancing the AML/CFT framework. They were also encouraged by the authorities’ plans to devise a comprehensive fintech development strategy to enhance financial depth, inclusion, and efficiency.

Directors welcomed the authorities’ push for structural reforms and stressed the importance of building resilience to natural disasters. They encouraged the authorities to focus their reform agenda on promoting private sector development and diversifying the growth base. This would improve employment prospects and raise potential growth. In addition, Directors encouraged the authorities to continue reforms of state-owned enterprises to improve performance.

Directors noted that the implementation of the needed policy reforms would be facilitated by strengthening capacity, including through technical assistance and training provided by the Fund and other international partners. In this regard, efforts to enhance data collection and statistical capacity were encouraged.

It is expected that the next Article IV consultation with Tuvalu will be held on the current 24‑month cycle.

Table 1. Tuvalu: Selected Social and Economic Indicators, 2017-2022

Population (2021 est.): 11,093

Poverty rate (2017): 26 percent

Per capita GDP (2021 est.): AU$6537

Life expectancy (2021): 68 years

Main export: Fish

Primary school enrollment (2019, gross): 109 percent

Key export markets: Fiji, China, Australia, Japan, New Zealand

Secondary school enrollment (2018, net): 67 percent

2017

2018

2019

2020

2021

2022

Est.

Proj.

Real sector

(Percent change)

Real GDP growth

3.4

1.6

13.9

1.0

2.5

3.5

Consumer price inflation (period average)

4.1

2.2

3.5

1.6

2.2

2.4

Government finance

(In percent of GDP)

Revenue and grants

108.6

156.1

111.7

121.5

122.3

107.3

Revenue

86.6

118.1

82.9

89.6

86.7

74.7

of which: Fishing license fees

44.1

79.8

48.9

55.6

43.5

41.5

Grants

21.9

38.0

28.9

31.9

35.7

32.6

Total expenditure

106.5

125.8

112.8

116.5

129.4

110.1

Current expenditure

84.0

81.8

70.8

75.0

88.0

89.0

Capital expenditure 1/

22.4

43.9

42.0

41.5

41.4

21.1

Overall balance

2.1

30.3

-1.1

5.0

-7.0

-2.9

Overall balance (excl. grants)

-19.8

-7.7

-29.9

-26.9

-42.7

-35.4

Domestic Current balance 2/

-41.5

-43.6

-36.8

-41.0

-55.7

-55.9

Financing

-2.1

-30.3

1.1

-5.0

7.0

2.9

Foreign (net)

-0.2

-1.0

-0.9

-1.1

-0.6

-0.6

Consolidated Investment Fund (net, -=increase)

-1.9

-29.3

2.0

-3.9

7.7

3.4

Tuvalu Trust Fund (in percent of GDP)

292.8

279.9

237.0

241.4

232.8

217.8

Consolidated Investment Fund (in percent of GDP)

47.2

55.6

47.3

54.4

52.2

48.3

Tuvalu Survival Fund (in percent of GDP)

8.5

7.8

6.4

6.3

7.2

6.8

Monetary Sector

Credit growth (percent change) 3/

2.1

2.0

0.4

-0.5

1.1

2.9

Balance of payments (in percent of GDP)

(In percent of GDP, unless otherwise indicated)

Current account balance

11.5

53.9

-16.9

3.8

-4.1

-4.1

Goods and services balance

-107.5

-106.0

-118.8

-115.3

-105.8

-101.5

Capital and financial account balance

-9.4

-49.1

35.4

-8.9

4.4

12.7

Overall balance

4.6

9.3

37.1

2.0

0.2

8.7

Gross reserves 4/

In $A million

78.2

86.4

89.4

90.9

91.1

98.9

In months of prospective imports of goods and services

12

10

11

11

11

11

Debt indicators

(In percent of GDP, unless otherwise indicated)

Gross public debt

12.0

11.8

11.5

7.3

6.1

5.0

External

9.8

8.4

9.4

5.5

4.5

3.6

Domestic SOE debt

2.3

3.5

2.2

1.8

1.5

1.3

Nominal GDP (In $A million)

59.1

64.4

77.9

79.6

83.4

88.7

Sources: Tuvalu authorities; PFTAC; SPC; ADB; World Bank; 2018 IMF’s BOP TA; and IMF staff estimates and projections.

1/ Includes Special Development Expenditures (SDEs) and infrastructure investment

2/ Domestic current balance excludes fishing revenue, grants, and capital expenditure.

3/ Banks’ and pension fund lending to non-government domestic sector.

4/ The sum of liquid assets of the National Bank of Tuvalu, Consolidated Investment Fund, and SDR holdings.


[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: https://www.IMF.org/external/np/sec/misc/qualifiers.htm .

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