Tuvalu’s macroeconomic performance has improved with stronger fiscal buffers and a better policy framework, International Monetary Fund’s report says.
An International Monetary Fund (IMF) team, led by Jongsoon Shin, visited Tuvalu from April 12–April 19, 2018 to conduct the 2018 Article IV Consultation. The team exchanged views with senior officials of the Tuvalu government, public enterprises and private sector representatives, and development partners.
At the conclusion of the mission, Shin issued the following statement: “Real GDP growth in 2017 is estimated at 3.2 percent and is projected to rise to 4.3 percent in 2018 due to increased capital expenditure. Inflation accelerated to 4.4 percent in 2017 and is expected to slow to 3.8 percent in 2018 on moderating food prices.
“International reserves are broadly sufficient at about 9 months of imports. The value of the Tuvalu Trust Fund (TTF) reached AUD$175 million (US$132 million) (333 percent of GDP) at end-2017.
“Fiscal accounts turned into a deficit of around 4 percent of GDP in 2017 on higher capital expenditure and a shortfall of grants. Capital expenditure has accelerated in preparation for the Polynesian Leaders’ Summit in 2018 and the Pacific Forum Secretariat Summit in 2019. For 2018, the fiscal accounts are expected to record a surplus of 6 percent of GDP due to strong fishing license fees.
“The authorities have made progress in strengthening climate change resilience and improving public financial management (PFM). The assessment phase of coastal adaptation projects under the Green Climate Fund is on track to be completed this year. Implementation of the PFM Roadmap 2017-21 has helped improve treasury reporting, tax audit, and cash management.
“Nonetheless, the economy is susceptible to the effects of climate change and natural disasters. The fiscal revenue base is also facing uncertainties from volatile fishing revenues and reliance on external grants. Weak balance sheets of public enterprises and limited financial supervision create risks to fiscal accounts and impede banks’ credit intermediation.
“Looking ahead, it will be essential to promote resilience to external shocks, including climate change, natural disasters, and volatile fishing revenue and grants. This calls for a stronger fiscal framework to maintain buffers and a further improvement in climate change risk management. Macro-structural policies that increase potential output and diversify the growth base are needed, including the development of human capital, promotion of tourism, and improvement in financial intermediation and supervision.
“The IMF continues to support Tuvalu’s reform agenda through various forms of technical assistance in pertinent macroeconomic areas,” IMF said in a statement.