Press Release: IMF Statement at the Conclusion of the 2014 Article IV Mission with Tuvalu

May 29, 2014

Press Release No. 14/250
May 29, 2014

An International Monetary Fund (IMF) mission, led by Mr. Jiangyan Yu, visited Funafuti during May 21-28 to conduct the 2014 Article IV consultation discussions. The mission met with Minister of Finance and Economic Development Maatia Toafa and other senior government officials as well as development partners and private sector representatives.

At the conclusion of the mission, Mr. Yu issued the following statement:

“Tuvalu’s economic growth appears to be picking up moderately, supported by favorable developments in the fisheries sector and vibrant retail activity. Several donor-financed projects may boost growth to 2½ percent in 2015-16. Meanwhile, increased public spending and investments in the pipeline could exert upward pressure on inflation and cause the external account balance to deteriorate over the medium term.

“Important reforms have been undertaken, including the progress made under the Policy Reform Matrix and build-up of fiscal buffers in the Consolidated Investment Fund. However, challenges remain. Although the near term fiscal outlook is stable, the substantial budget expansion in 2014 could pose threats to fiscal sustainability over the medium to long run if fishing revenue, which has been volatile, were to decline. Weaknesses in the public enterprises and banks could potentially result in large liabilities to the government.

“To put public finance on a sustainable path, efforts should be focused on strengthening tax administration, unwinding the recent budget expansion and further improving the cost effectiveness of social programs such as the Tuvalu Medical Treatment Scheme and Scholarship Programs. A new medium-term fiscal framework (MTFF) could be introduced to ensure sustainability, manage revenue volatility, and build fiscal reserves. In this context, the mission welcomes the initiative to further build up the Tuvalu Trust Fund, and suggests targeting a fiscal surplus that would bring down the risk of debt distress.

“Considerable progress has been made in enhancing public financial management, including prompt monthly budget reporting, and implementation of procurement regulations. Going forward, the recording and inter-agency reconciliation of fishing license fees should be improved; the budget process should be enhanced in line with the MTFF and development objectives; and a wage setting mechanism for government employees needs to be established in the context of public service reform to appropriately reflect living cost and productivity gains.

“A reform plan is needed to put public enterprises and banks on a sustainable footing. Public enterprises should operate on a commercial basis with their social responsibilities clearly defined and transparency and accountability further improved. A supervisory and regulatory framework for banks should be adopted as soon as feasible—in particular, the Bank Commission should be established.

“The mission welcomes the government’s commitment to continued reforms under the national development strategy. Building upon the achievements made in implementing the Policy Reform Matrix, future reforms should focus on strengthening the fiscal framework and addressing structural weaknesses in public enterprises and banks. Rebalancing resources towards basic and vocational education, and improving health service and infrastructure would help deliver better development outcomes and enhance competitiveness.”

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