IMF Staff Completes 2019 Article IV Mission to Nauru

IMF News, September 25, 2019

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IMF team led by Stella Kaendera visited Nauru during September 16-26 to hold discussions with the Nauruan authorities and other stakeholders on the 2019 Article IV Consultation.
This is the second consultation since Nauru became the 189th member of the IMF in April 2016.
End-of-Mission press releases convey preliminary findings; staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

Growth picked up to 5.7 percent in FY2018, boosted by RPC related activity, fisheries and preparations for the Pacific Island Forum.
Growth slowed in FY2019; the medium-term outlook depends on:
- the level of RPC activity in the future,
- fishing revenues,
- completion of infrastructure projects.
The outlook is subject to downside risks, including volatility in commodity prices growth and climate change.
The reduction in RPC activity will reduce revenue available to the government to finance its programs.

Fiscal spending would have to adjust to maintain sufficient cash buffers and continue contributing to the Trust Fund.
The FY2021 budget offers an opportunity to:
- begin reorienting spending priorities,
- reduce spending in non-priority areas,
- better manage subsidies and social programs.
Implementing public finance management reforms would improve the efficiency of spending.
Resolving and reconciling old debts should be expedited to bring down the level of debt.

Continued focus on tax reform is welcome and would help in generating revenue to partially cover the loss in the RPC revenue.
Tax reform offers an opportunity to make the tax system more efficient, fair and equitable.
The focus on introducing a consumption tax in the near term is appropriate.
For the reform to yield expected results, clear policy guidance is needed on:
- goals of policy change,
- sequencing and timing for implementation,
- tax administration modernization including tax payer services.

Costs of adapting to climate change will weigh on the budget.
Developing a medium-term fiscal framework that can enhance economic resilience to climate change is important.
Transparent budget management would help secure climate change financing from donors.

Private sector development is needed to:
- promote inclusive growth,
- broaden the base of the economy,
- create jobs,
- develop skills.
Steps should be taken to improve the ease of doing business in Nauru, based on regularized dialogue with the private sector.
Improving SOE performance through more effective management and monitoring would create efficient enterprises and reduce the burden on the budget.
Financial sector reforms should continue.
The undersea cable is expected to improve Nauru’s connectivity and offer new growth opportunities.

The IMF stands ready to support the government’s reform efforts through policy advice and the development of better capacity for economic analysis and policy formulation.

Press Release No. 19/353 — IMF Communications Department, September 25, 2019.