IMF Executive Board Concludes 2021 Article IV Consultation with Nauru
IMF News, February 7, 2022
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- Published: February 7, 2022
Overview
- Date: February 7, 2022.
- On February 2, 2022, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Nauru.
- Pandemic-related policy response included freight support to ensure food and fuel security, quarantine measures, securing vaccines, and scaling-up of intensive care facilities.
- As of December 2021, Nauru had not had any COVID-19 cases on the island; the adult population was nearly fully vaccinated, and vaccination for under-18-year-olds was expected to commence shortly.
Economic performance and outlook
- Recent growth:
- Real GDP growth: 0.7 percent in FY20 and 1.5 percent in FY21.
- The economy expanded despite delays in construction projects due to supply chain disruptions.
- FY22 projection:
- Real GDP growth expected to slow to 0.9 percent in FY22 (from 1.5 percent in FY21).
- Current account expected to narrow to a surplus of 1.2 percent of GDP in FY22.
- Drivers of moderation: expected slowdown in Regional Processing Center (RPC) activity, departure of RPC-associated expatriate workers, and a lower goods balance from the increase in fuel prices.
- Fiscal support:
- Near-term fiscal support should be calibrated to the state of the pandemic.
- Continued fiscal support recommended for food and fuel security.
- Importance of reducing subsidies for state-owned enterprise operations as they return to pre-pandemic levels.
- Recommendation to shift budget allocations away from non-transparent expenditures toward health, education, and further investments in climate resilience.
- Revenue and tax policy:
- Non-tax revenues rely on external sources.
- Encouraged formulation of a medium-term tax reform strategy that widens the tax base and generates more reliable forms of revenue to help achieve fiscal self-reliance.
- Structural policy:
- Need to identify new sources of growth to support long-term development, generate revenues, and create local employment.
- Recommended structural reforms to improve the business environment, address governance weaknesses, and attract private investment.
- To strengthen resilience to climate change, integrate adaptation plans into a medium-term fiscal framework and pursue donor support for green financing.
- Encourage sustained efforts to secure new donor commitments to address key infrastructure gaps.
- Governance and capacity:
- Supported ongoing efforts to strengthen the AML/CFT framework.
- Encouraged consideration of regional solutions to correspondent banking relationship challenges.
- Recommended leveraging the Fund’s and other development partners’ capacity development assistance, including to continue improving the quality and availability of macroeconomic statistics.
- Called for further strengthening public finance management and the debt management strategy.
Risks to the outlook
- Tilt: Risks to the outlook are tilted significantly to the downside.
- Health risks:
- Given limited medical facilities and a high incidence of risk factors such as diabetes, a local COVID-19 outbreak could have adverse health and growth implications.
- RPC uncertainty:
- Medium-term fiscal outlook remains exceptionally uncertain pending clarity about RPC-related revenues when the facility moves to a model of “enduring capability.”
- RPC employment is about 15 percent of the local labor force; a significant number of Nauruans could be at risk of long-term job loss under enduring capability if a labor reallocation strategy is inadequately implemented.
- External and disaster risks:
- External downside risks include a sharper-than-projected rise in commodity prices, natural disasters, and a more protracted global recovery that delays infrastructure projects on the island.
- Upside risks:
- An extension of RPC with no job losses.
- Successful commercialization of the port project.
Executive Board Assessment and recommendations
- Commendations:
- Directors commended Nauruan authorities for effective measures to prevent a domestic outbreak of COVID-19 and for supportive policies that helped the economy continue expanding in FY2020 and FY2021.
- Directors commended steps taken to restore debt sustainability.
- Policy recommendations (summary):
- Calibrate near-term fiscal support to the state of the pandemic.
- Formulate plans to absorb or upskill workers employed in the Regional Processing Center.
- Continue fiscal support for food and fuel security; reduce SOE subsidies as operations normalize.
- Shift budget allocations to health, education, and climate resilience.
- Formulate a medium-term tax reform strategy to widen the tax base and increase reliable revenues.
- Strengthen public finance management and debt management strategy.
- Identify new sources of growth; undertake structural reforms to improve business environment and governance to attract private investment.
- Integrate climate adaptation into medium-term fiscal planning and pursue donor support for green financing.
- Strengthen AML/CFT framework and explore regional solutions to correspondent banking challenges.
- Use IMF and development partners’ capacity development to improve macroeconomic statistics.
Key statistics (selected)
- Nominal GDP (US$ million): 114.4
- Per capita GDP (US$): 8,867
- Population: 12,906
- Real GDP growth (percent change), FY2017–FY2022:
- FY2017: -5.5
- FY2018: 5.7
- FY2019: 1.0
- FY2020: 0.7
- FY2021 (Est.): 1.5
- FY2022 (Proj.): 0.9
- Consumer price index (period average, percent change), FY2017–FY2022:
- FY2017: 5.1
- FY2018: 0.5
- FY2019: 4.3
- FY2020: 1.2
- FY2021 (Est.): 1.4
- Population (thousand), FY2017–FY2021:
- FY2017: 13.4
- FY2018: 13.2
- FY2019: 12.7
- FY2020: 12.9
- Structure of the economy (percent of total):
- Agriculture: FY2018 4.4; FY2019 3.8; FY2020 4.7; FY2021 4.8
- Manufacturing: FY2018 17.2; FY2019 10.1; FY2020 7.9; FY2021 7.5; FY2022 7.4
- Services: FY2018 71.8; FY2019 77.0; FY2020 73.7; FY2021 73.3; FY2022 74.4
- Government finance (In percent of GDP), FY2017–FY2022:
- Total revenue and grants: FY2017 121.8; FY2018 129.3; FY2019 148.7; FY2020 170.2; FY2021 179.2; FY2022 169.2
- Revenue: FY2017 100.6; FY2018 108.5; FY2019 136.0; FY2020 151.4; FY2021 137.0; FY2022 151.5
- Grants 2/: FY2017 21.3; FY2018 20.8; FY2019 18.8; FY2020 42.2; FY2021 17.7
- Total expenditure: FY2017 101.7; FY2018 95.6; FY2019 118.9; FY2020 134.5; FY2021 135.5; FY2022 139.9
- Net lending (+) / borrowing (-): FY2017 20.1; FY2018 33.6; FY2019 29.9; FY2020 35.7; FY2021 43.8; FY2022 29.3
- Including Trust Fund contribution: FY2017 11.9; FY2018 24.4; FY2019 21.1; FY2020 21.7; FY2021 24.9
- Stock of government deposits 3/: FY2017 7.0; FY2018 24.2; FY2019 35.5; FY2020 52.0; FY2021 44.1; FY2022 57.6
- Stock of Trust Fund: FY2017 39.1; FY2018 52.8; FY2019 66.9; FY2020 81.3; FY2021 122.0; FY2022 132.5
- Balance of payments (In percent of GDP), selected:
- Current account balance: FY2017 17.9; FY2018 12.8; FY2019 8.0; FY2020 6.5; FY2021 12.3; FY2022 4.9
- Capital account balance: FY2017 2.8; FY2018 4.1; FY2019 3.5
- Financial accounts balance and other flows: FY2017 12.4; FY2018 44.2; FY2019 40.5; FY2020 45.1; FY2021 85.1; FY2022 52.6
- Government debt indicators (In percent of GDP), selected:
- External debt 4/: FY2017 50.1; FY2018 50.3; FY2019 48.8; FY2020 51.4; FY2021 9.3; FY2022 25.8
- Domestic debt 5/: FY2017 34.4; FY2018 31.4; FY2019 29.5; FY2020 30.1; FY2021 5.2; FY2022 14.0
- External debt service 6/ (In percent of exports of goods and services): FY2017 2.5; FY2018 9.2; FY2019 1.3; FY2020 1.1
- Exchange rates:
- Australian dollar per U.S. dollar (period average): FY2017 1.33; FY2018 1.29; FY2019 1.40; FY2020 1.49; FY2021 1.34
- Nominal GDP (in millions of Australian dollars): FY2017 145.3; FY2018 160.0; FY2019 165.7; FY2020 170.5; FY2021 178.5; FY2022 184.5
- Nominal GNI (in millions of Australian dollars): FY2017 202.9; FY2018 217.7; FY2019 238.1; FY2020 264.0; FY2021 296.9; FY2022 320.8
- Nominal GDP per capita (in US dollars), FY2017–FY2021:
- FY2017 8,152; FY2018 9,399; FY2019 9,365; FY2020 10,138
Source: IMF staff estimates and projections, and Nauru authorities.