IMF Executive Board Concludes 2023 Article IV Consultation with Nauru

IMF News, November 28, 2023

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Published: November 28, 2023

Overview: recent developments and FY2023 outcomes

On November 17, the Executive Board of the International Monetary Fund (IMF) concluded the 2023 Article IV consultation with Republic of Nauru.
Real GDP growth is estimated at 0.6 percent in FY2023, reflecting weaker demand and service-related trade due to a scale down of the Regional Processing Center (RPC).
Inflation reached 6.3 percent in FY2023 amid external shocks and escalating transportation costs.
The fiscal surplus declined due to a reduction in RPC-related activities but remained sizable.
Fiscal balance excluding the government’s contribution to the Nauru Trust Fund (NTF) was at 8.3 percent of GDP in FY2023.
Debt was assessed to be sustainable under current policies.
The external position is assessed to be moderately weaker than the level implied by fundamentals and desirable policies in FY2022.

Medium-term outlook and drivers

Growth and inflation are expected to moderate over the medium term.
Planned scale down of the RPC is expected to adversely affect economic activity and fiscal and external positions over the medium term.
Diversification opportunities from the climate-resilient port and the construction of the fiber-optic cable are expected to provide some offset.
Inflation is expected to slow as a result of lower global inflation and a tightening of monetary policy in Australia.
The fiscal surplus is expected to decline this year and narrow significantly over the medium term.

Risks to the outlook

Downside risks:
- Deepening geo-economic fragmentation and an abrupt global slowdown could affect Nauru’s trading partners and donors.
- Higher commodity prices could put upward pressure on inflation and fiscal spending.
- Continued pressure on financial services could disrupt national and international payments, affecting essential economic activities.
- Delayed fiscal and structural reforms could lead to overdependence on volatile revenue sources, jeopardizing fiscal sustainability.
- Uncertainties related to activities of the RPC pose risks to the medium-term economic and fiscal outlook.
- Vulnerability to extreme climate events, similar to other pacific island countries (PICs).
Upside risks:
- Unexpected extension of RPC activities.
- Increased demand for fishing licenses.

Executive Board Assessment and recommendations

Directors noted that growth is expected to moderate over the medium term and risks are tilted to the downside.
Emphasis on the importance of structural and fiscal reforms, supported by capacity development, to promote diversification, sustainable growth, and climate resilience, particularly given the planned scale-down of the RPC.

Fiscal policy

Fiscal policy should be anchored by fiscal discipline, revenue mobilization, and expenditure prioritization.
Maintaining sufficient fiscal surplus to meet the target value of the Nauru Trust Fund is key to supporting long-term growth and resilience.
Tax reforms anchored in strong policy commitment and public support are needed to generate more sustainable sources of revenue.
Expenditure policies should prioritize spending that promotes growth, resilience, and inclusion.

Financial sector and payments

Authorities should further strengthen the AML/CFT framework, in line with recommendations from the FATF and the ongoing APG Mutual Evaluation.
Given the planned exit from the country of the only institution providing financial services and access to cross-border payments, close cooperation with foreign counterparts is important to facilitate the participation of new regional financial services providers in Nauru.
Both market and non-market solutions are needed to improve access to formal financial services.
Addressing infrastructure gaps that constrain the use of digital payments is important.

Structural reforms and data

Structural reforms to improve human capital, climate resilience, diversification, and governance are essential for long-term growth.
Education spending should prioritize improving participation and outcomes.
A detailed costing of priority projects would be critical for allowing a more strategic pursuit of climate finance.
Completion of the new climate‑resilient port and the undersea cable are expected to bring new sources of growth and employment opportunities.
Data shortcomings remain prevalent; continued efforts to enhance statistics, with adequate support from development partners, are needed.

Key statistics and selected indicators (FY2021-25 and related data)

Nominal GDP (AU$ million, FY2023): 154.0
Human capital index (scale 0-1, 2020): 0.51
Per capita GDP (AU$, FY2023): 12,040
Infant mortality rate (per 1000 live births, 2021): 23.2
Population (FY2023): 12787
Poverty rate at $6.85 a day (2017 PPP, 2012): 61.7

Real sector (percent change)

Real GDP growth: FY2021 = 7.2; FY2022 = 2.8; FY2023 = 0.6; FY2024 (Proj.) = 1.4; FY2025 (Proj.) = 1.2
Consumer price index (period average, percent change): FY2021 = 1.1; FY2022 = 3.6; FY2023 = 6.3; FY2024 (Proj.) = 5.3; FY2025 (Proj.) = 4.1
Population (thousand): FY2021 = 12.3; FY2022 = 12.5; FY2023 = 12.8; FY2024 (Proj.) = 13.0; FY2025 (Proj.) = 13.3

Structure of the economy (percent of GDP)

Agriculture: FY2021 = 3.2; FY2022 = 3.3
Manufacturing: FY2021 = 14.3; FY2022 = 15.6; FY2023 = 16.6; FY2024 (Proj.) = 15.0; FY2025 (Proj.) = 14.7
Services: FY2021 = 74.6; FY2022 = 71.4; FY2023 = 72.1; FY2024 (Proj.) = 74.0; FY2025 (Proj.) = 74.0

Government finance (in percent of GDP)

Total revenue and grants: FY2021 = 137.4; FY2022 = 158.3; FY2023 = 135.3; FY2024 (Proj.) = 128.9; FY2025 (Proj.) = 95.6
Revenue: FY2021 = 103.9; FY2022 = 138.5; FY2023 = 119.5; FY2024 (Proj.) = 100.0; FY2025 (Proj.) = 77.3
Grants 2/: FY2021 = 33.6; FY2022 = 19.8; FY2023 = 15.9; FY2024 (Proj.) = 28.9; FY2025 (Proj.) = 18.3
Total expenditure: FY2021 = 93.0; FY2022 = 133.5; FY2023 = 116.2; FY2024 (Proj.) = 115.2; FY2025 (Proj.) = 88.8
Net lending (+) / borrowing (-): FY2021 = 44.5; FY2022 = 24.8; FY2023 = 19.1; FY2024 (Proj.) = 13.6; FY2025 (Proj.) = 6.8
Excluding Trust Fund contribution: FY2021 = 30.2; FY2022 = 12.6; FY2023 = 8.3; FY2024 (Proj.) = 6.0
Stock of government deposits 3/: FY2021 = 32.2; FY2022 = 46.2; FY2023 = 49.4; FY2024 (Proj.) = 47.6; FY2025 (Proj.) = 43.5
Stock of Trust Fund: FY2021 = 81.3; FY2022 = 111.5; FY2023 = 122.4; FY2024 (Proj.) = 131.0; FY2025 (Proj.) = 144.2

Balance of payments

Current account balance (in percent of GDP): FY2021 = 8.9; FY2022 = -1.1; FY2023 = 7.9; FY2024 (Proj.) = -2.5
Current account balance (other listing): FY2021 = 3.8; FY2022 = -0.5; FY2023 = 3.4; FY2024 (Proj.) = 5.2; FY2025 (Proj.) = -0.9
Capital account balance: FY2021 = 85.1; FY2022 = 53.6; FY2023 = 38.1; FY2024 (Proj.) = 69.2; FY2025 (Proj.) = 44.8
Financial accounts balance and other flows: FY2021 = 111.8; FY2022 = 60.7; FY2023 = 46.0; FY2024 (Proj.) = 82.2; FY2025 (Proj.) = 42.3

Government debt indicators

External debt 4/: FY2021 = 9.3; FY2022 = 25.8; FY2023 = 26.2; FY2024 (Proj.) = 38.7; FY2025 (Proj.) = 35.1
Domestic debt 5/: FY2021 = 3.9; FY2022 = 12.2; FY2023 = 11.5; FY2024 (Proj.) = 13.5; FY2025 (Proj.) = 10.0
Domestic debt (alternate listing): FY2021 = 39.0; FY2022 = 21.1; FY2023 = 19.9; FY2024 (Proj.) = 18.9; FY2025 (Proj.) = 17.9
External debt service 6/: FY2021 = 0.8; FY2022 = 5.7; FY2023 = 6.4 (In percent of exports of goods and services: FY2021 = 0.7; FY2022 = 5.6; FY2023 = 6.6)

Exchange rates and aggregates

Australian dollar per U.S. dollar (period average): FY2021 = 1.34; FY2022 = 1.38; FY2023 = 1.48
Nominal GDP (in millions of Australian dollars): FY2021 = 235.5; FY2022 = 212.0; FY2023 = 228.6; FY2024 (Proj.) = 248.6; FY2025 (Proj.) = 259.8
Nominal GNI (in millions of Australian dollars): FY2021 = 353.8; FY2022 = 346.5; FY2023 = 389.4; FY2024 (Proj.) = 449.7; FY2025 (Proj.) = 410.4
Nominal GDP per capita (in US dollars): FY2021 = 14,303; FY2022 = 12,269

Notes and footnotes (as presented)

Nauru uses the Australian dollar as the legal tender, and the fiscal year ends in June. The revised growth statistics is scheduled to be published in January 2024.
In FY2021 grants include debt forgiveness for Yen Bonds.
Stock of government deposits is under review by authorities and may be updated.
External debt includes the defaulted Yen bonds (until 2021 when the debt was settled), and use of Special Drawing Rights (SDR).
Domestic debt includes the estimated government liability related to Bank of Nauru's liquidation.
External debt service over the projection period is through bilateral grants.

IMF Communications Department, Press Release No. 23/410 (November 28, 2023).