Washington, DC: On September 17, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with the Republic of Nauru. [1]
The government of Nauru has made significant strides in restoring economic stability. In recent years, the government has worked closely with development partners to improve infrastructure, ensure access to banking services, and secure multi-year donor support. Nonetheless, Nauru remains highly vulnerable to external shocks, particularly in a global environment with growing policy uncertainty and potential cuts in development aid.
Growth has picked up to 2.1 percent in FY2025, mainly driven by sustained donor support and a revival of activity in the regional processing center. Inflation remains elevated at over 6 percent in FY2025 and is expected to moderate to 4.5 percent this fiscal year. Fiscal outlook has improved over the medium term, following the Nauru-Australia Treaty concluded in late 2024 and the anticipated pickup of activity in the regional processing center in coming years.
Risks to the growth outlook are tilted to the downside. External risks stem from the reduced foreign grants. Inflation could be higher than expected owing to volatile commodity prices, and a resurgence of food prices from delayed shipments and escalating trade tensions globally. Unexpected disruptions in banking services arising from the transition may delay payments and dampen economic activity.
Executive Board Assessment 2
Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities' efforts to restore macroeconomic stability over the last decade despite the significant structural challenges faced by Nauru owing to its remote location and small size. Directors welcomed the improved outlook supported by the anticipated pickup of the regional processing center, while noting that risks are tilted to the downside, including from a potential decline in donor support. Against this background, they underscored the importance of fiscal and structural reforms, supported by capacity development and strong donor partnership, to promote economic diversification and sustainable growth.
Directors welcomed the authorities' commitment to fiscal prudence and noted the importance of continued compliance with the fiscal responsibility ratios and sustained contributions to the Intergenerational Trust Fund. They concurred that fiscal policies should pivot towards restraint in the near term to build buffers and bolster resilience. Directors emphasized the need to avoid procyclical spending and noted that containing the rise in the government wage bill, while strengthening social safety nets, rationalizing expenditures, and mobilizing revenues, would help contain inflationary pressures and support sustainable growth. Improvements in public financial management, including in SOEs, will be crucial for managing fiscal risks.
Directors welcomed the progress in transitioning to a new commercial bank and stressed the importance of stronger coordination, oversight and contingency planning by government agencies to ensure uninterrupted banking services and safeguard financial stability. They agreed that banking sector stability could pave the way for enhanced access to credit; however, cultivating financial literacy is essential for promoting responsible borrowing. Directors also recognized the progress made in enhancing the AML/CFT regulatory framework, while calling for continued vigilance in managing correspondent banking relationships and monitoring emerging risks related to digital assets and the citizenship program.
Directors concurred that structural policies should be geared towards lifting potential growth and diversifying growth. They emphasized that enhancing human capital and infrastructure, strengthening governance, transparency and the business environment, advancing digitalization, and building resilience against natural disasters are imperative for achieving sustainable growth. Carefully assessing the risks and opportunities from deep sea mining would also be important. Enhancing data quality will also be critical to improve policy making.
Table 1. Nauru: Selected Economic Indicators, FY2023–27 1/ |
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[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 Chair 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: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
