IMF Executive Board Concludes 2023 Article IV Consultation with Tuvalu
IMF News, July 21, 2023
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- Published: July 21, 2023
Economic impact and near-term outlook
- Real GDP growth: -4.3 percent in 2020; 1.8 percent in 2021; 0.7 percent estimated for 2022.
- Growth projection: 3.9 percent in 2023; 3.5 percent in 2024; 2.4 percent in 2025; 2.2 percent in 2026; 2.1 percent in 2027; 2.0 percent in 2028.
- Inflation: Headline inflation rose to 11.5 percent in 2022. Projected: 5.9 percent in 2023; 3.7 percent in 2024; 3.4 percent in 2025; 3.2 percent in 2026; 2.9 percent in 2027; 2.8 percent in 2028.
- Drivers: A successful vaccination strategy allowed lifting of COVID containment measures at end-2022; pandemic caused significant economic costs including delays in infrastructure projects and elevated non-capital spending. Recovery expected as construction resumes, shipping bottlenecks ease, and trade and hospitality recover.
Fiscal position, grants, and financing
- Fiscal balance: Overall balance was 8.8 percent of GDP in 2022; projected 1.1 percent of GDP in 2023; -3.3 percent in 2024; -3.8 percent in 2025; -4.4 percent in 2026; -4.9 percent in 2027; (table shows negatives earlier: -1.1 in 2019; 8.2 in 2020; -13.8 in 2021).
- Revenue and grants (percent of GDP): 111.8 in 2019; 129.4 in 2020; 102.6 in 2021; 119.8 in 2022; 110.5 in 2023; 107.0 in 2024; 101.4 in 2025; 100.5 in 2026; 100.2 in 2027; 99.8 in 2028.
- Revenue (percent of GDP): 82.9 in 2019; 95.6 in 2020; 86.4 in 2021; 89.0 in 2022; 67.9 in 2023; 72.9 in 2024; 71.0 in 2025; 71.1 in 2026; 71.2 in 2027; 71.0 in 2028.
- Fishing license fees (percent of GDP): 49.0 in 2019; 58.8 in 2020; 49.2 in 2021; 45.6 in 2022; 38.6 in 2023; 43.6 in 2024; 41.7 in 2025; 41.8 in 2026; 41.9 in 2027; 42.0 in 2028.
- Grants (percent of GDP): 28.9 in 2019; 33.7 in 2020; 16.2 in 2021; 30.7 in 2022; 42.6 in 2023; 34.2 in 2024; 30.4 in 2025; 29.4 in 2026; 28.6 in 2027.
- Total expenditure (percent of GDP): 112.9 in 2019; 121.2 in 2020; 116.5 in 2021; 111.0 in 2022; 109.3 in 2023; 105.9 in 2024; 104.7 in 2025; 104.3 in 2026; 104.6 in 2027.
- Current expenditure (percent of GDP): 70.8 in 2019; 78.6 in 2020; 93.3 in 2021; 98.2 in 2022; 94.7 in 2023; 93.1 in 2024; 92.4 in 2025; 92.0 in 2026.
- Capital expenditure (percent of GDP): 42.1 in 2019; 46.1 in 2020; 30.1 in 2021; 20.9 in 2022; 24.0 in 2023; 26.1 in 2024; 26.0 in 2025; 25.9 in 2026; 25.7 in 2027.
- Fiscal support: Fiscal spending in 2023 is supported by strong grant flows, including additional one-off flows estimated at 40 percent of GDP in 2023.
- Financing components: Consolidated Investment Fund (net, -=increase) entries include -2.0 (2019), 7.0 (2020), -14.2 (2021), 8.4 (2022), 0.3 (2023), 0.0 (2024).
Balance of payments, reserves, and debt indicators
- Current account balance (percent of GDP): -22.2 in 2019; 16.3 in 2020; 24.1 in 2021; 4.6 in 2022; 2.3 in 2023; -1.3 in 2024; -4.8 in 2025; -5.3 in 2026.
- Goods and services balance (percent of GDP): -118.7 in 2019; -104.1 in 2020; -101.7 in 2021; -93.4 in 2022; -108.3 in 2023; -105.3 in 2024; -103.4 in 2025; -102.8 in 2026; -102.9 in 2027; -101.9 in 2028.
- Capital and financial account balance (percent of GDP): 44.7 in 2019; 20.3 in 2020; 32.5 in 2021; 32.7 in 2022; 29.2 in 2023; 19.4 in 2024; 15.5 in 2025; 25.5 in 2026; 24.8 in 2027; 31.9 in 2028.
- Gross reserves (In $A million): 88.2 in 2019; 98.0 in 2020; 126.3 in 2021; 114.2 in 2022; 119.3 in 2023; 129.5 in 2024; 123.3 in 2025; 122.5 in 2026; 124.4 in 2027.
- Reserves in months of prospective imports of goods and services: 13 (2019); 14 (2020); 18 (2021); 12 (2022); 11 (2023); 10 (2024); 9 (2025).
- Gross public debt (percent of GDP): 12.3 in 2019; 10.1 in 2020; 8.0 in 2021; 6.8 in 2022; 5.8 in 2023; 9.3 in 2024; 13.2 in 2025; 17.4 in 2026.
- External public debt (percent of GDP): 9.4 in 2019; 9.2 in 2020; 6.9 in 2021; 3.6 in 2022; 7.4 in 2023; 11.4 in 2024; 15.8 in 2025.
- Domestic SOE debt (percent of GDP): 2.7 (2019); 1.6 (2020).
- Tuvalu Trust Fund (percent of GDP): 237.3 in 2019; 243.7 in 2020; 258.7 in 2021; 224.5 in 2022; 214.8 in 2023; 206.1 in 2024; 199.5 in 2025; 193.7 in 2026; 188.8 in 2027; 184.3 in 2028.
- Consolidated Investment Fund (percent of GDP): 47.4 in 2019; 51.4 in 2020; 46.3 in 2021; 43.5 in 2022; 39.8 in 2023; 37.6 in 2024; 31.5 in 2025; 29.8 in 2026; 28.3 in 2027; 26.9 in 2028.
- Tuvalu Survival Fund (percent of GDP): 6.4 in 2019; 6.6 in 2020; 5.6 in 2021; 5.3 in 2022; 5.0 in 2023; 4.8 in 2024.
- Credit growth (percent change): -6.8 in 2019; 4.5 in 2020; 8.7 in 2021; 14.2 in 2022; 3.1 in 2023.
- Nominal GDP (In $A million): 77.9 in 2019; 75.2 in 2020; 80.1 in 2021; 85.2 in 2022; 93.8 in 2023; 100.9 in 2024; 107.4 in 2025; 113.5 in 2026; 119.6 in 2027; 125.6 in 2028.
Downside risks and vulnerabilities
- Key downside risks identified:
- Delays in donor grants pose large risks to the fiscal outlook and the economy.
- Loss of correspondent banking relationships would create severe balance of payments problems.
- Lack of effective financial supervision creates contingent risks for the government via the financial sector.
- Higher global commodity prices could raise inflation and fiscal expenditure pressures.
- Natural disasters and climate change threaten fishing license revenues, human and physical capital, and food and water security.
Executive Board assessment and policy recommendations
- Executive Directors broadly agreed with staff appraisal, commending effective containment policy and successful vaccine rollout that supported reopening.
- Directors noted high economic cost of the pandemic, compounded by inflationary pressures, and high dependency on grants, weak financial supervision, fragile correspondent banking relationships, and vulnerability to climate change.
- Fiscal policy guidance:
- Gradual fiscal consolidation necessary to ensure sustainability and build buffers against downside risks.
- Consolidation can be achieved through rationalizing expenditures and mobilizing domestic revenues.
- Continued Public Financial Management reforms would support easier access to climate finance.
- Financial sector and payments guidance:
- Strengthen financial regulation and supervision.
- Support Tuvalu’s connectivity to the global payments system.
- Encourage authorities’ plan to join the Asia-Pacific Group on Money Laundering and implement AML/CFT reforms, including through technical assistance.
- Pursue digitalization plans mindful not to exacerbate correspondent banking relationship pressures.
- Structural and resilience measures:
- Promote structural reforms to diversify the economy, increase trade integration, and expand exports.
- Commendation for ratification of the PACER Plus agreement.
- Revamp the Disaster Risk Management Act and enforce building codes to enhance disaster resilience.
- Align overseas scholarship strategy with domestic needs to promote human capital development.
- Capacity building:
- Strengthen capacity through technical assistance and training from the Fund and other partners.
- Improve data collection and statistical capabilities.
IMF Press Release No. 23/272 — July 21, 2023; IMF Executive Board summary as presented in the Article IV consultation with Tuvalu.