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IMF Executive Board Concludes 2019 Article IV Consultation with Nauru

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Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2019 Article IV Consultation with Nauru







January 29, 2020















On January 22, 2020, the Executive Board of the International Monetary Fund (IMF) concluded the
Article IV consultation

[1]

with Nauru.


Nauru is at a point of transition with a decline in phosphate mining and
the activity associated with the Regional Processing Centre (RPC) for
asylum seekers. New sources of economic growth and income are needed to
support Nauru’s development agenda.

Growth picked up to 5.7 percent in FY2018 boosted by RPC related activity,
fisheries, and preparations for the Pacific Island Forum. However, growth
slowed in FY2019. Despite improved economic performance in recent years,
Nauru continues to face challenges in sustaining growth and ensuring fiscal
sustainability due to its limited sources of growth and income. The country
is also vulnerable to climate change, its antiquated infrastructure hampers
trade and growth, and its health indicators are below those of peers due to
high incidence of non-communicable diseases. The medium-term outlook
depends on the level of RPC activity in the future, fishing revenues, and
completion of infrastructure projects. A scaling down of phosphate mining
and activities associated with the RPC will reduce budget revenues. With
limited access to borrowing, fiscal spending would have to adjust
accordingly. Inflation is projected to remain low, in line with the
slowdown in the economy, inflation in Australia, and low commodity prices.

Executive Board Assessment

[2]

Executive Directors welcomed the improved economic performance in recent
years, but noted that significant challenges remain, including volatile
revenue sources, capacity and infrastructure constraints, and climate
change. To help address these challenges, Directors urged the authorities
to press ahead with reforms to preserve fiscal and debt sustainability,
foster economic diversification, and strengthen governance and
transparency.

Directors agreed that Nauru’s medium‑term fiscal outlook is vulnerable to
the scaling down of the operations of the Australian Regional Processing
Center (RPC) for asylum seekers, entailing a substantial decline in
government revenue. They stressed the importance of a timely adjustment of
fiscal plans to avoid breaching the fiscal anchor, meet the mandatory Trust
Fund contributions, and prevent further accumulation of debt. Directors
highlighted that maintaining adequate fiscal buffers would be critical to
ensure fiscal liquidity and sustainability, and to allow flexibility in
responding to shocks.

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Directors urged sustained fiscal reforms, including continued tax and
public financial reforms to support fiscal adjustment and help control
spending. They underscored the need for continued improvement in public
debt management to resolve legacy debt and contain debt accumulation,
including within state‑owned enterprises (SOEs). Directors urged the
authorities to limit the use of supplementary budgets and to set aside
windfall revenues for appropriation in the normal budget cycle to boost
resources for carefully planned investment spending. They welcomed the new
Public Enterprises Act, including establishment of the SOE monitoring unit.

Directors noted that Nauru faces long‑term climate change challenges and
emphasized the importance of a medium‑term fiscal framework that enhances
resilience to climate change. They welcomed recent measures in adaptation
and mitigation, including the new seaport that will reduce Nauru’s carbon
footprint. They encouraged the authorities to fully cost adaptation plans
and incorporate the projects into a multi‑year budget plan.

Directors agreed that prospects for inclusive growth and private sector
development can be lifted through improvements in the business environment.
They welcomed progress in financial inclusion and called for further
strengthening of the anti‑money laundering/combating the financing of
terrorism (AML/CFT) framework. Directors urged the authorities to seek to
improve the quality of health and educational outcomes, and continue to
combat non‑communicable diseases. Directors strongly encouraged the
authorities to improve the quality and timeliness of macroeconomic data for
surveillance.





Table 1. Nauru: Selected Social and Economic
Indicators, FY2015–21 1/

I. Social and Demographic Indicators 2/

GDP (FY2018 est.) (in millions of Australian dollars)

160.0

Poverty rate

24 percent (2013)

Per capita GDP (FY2018 est.) (in Australian dollars)

12,120

Life expectancy at birth

60.4 years (2011)

Population (FY2018 est.)

13,201

Total fertility rate

4.3 births per woman (2011)

Infant mortality rate

29.9 per 1,000 live births (2013)

Adult literacy rate

96.5 (2011)

II. Economic Indicators

FY2015

FY2016

FY2017

FY2018

FY2019

FY2020

FY2021

Preliminary

Proj.

Real sector

Real GDP growth (percent change)

3.4

3.0

-5.5

5.7

1.0

0.6

1.1

Consumer price index (period average, percent change)

9.8

8.2

5.1

0.5

3.9

2.8

2.3

Population (thousand)

12.5

13.0

13.4

13.2

12.7

12.9

13.2

(In percent of total)

Structure of the economy

Agriculture

2.7

2.9

4.4

3.8

4.7

4.7

4.8

Manufacturing

12.9

22.2

17.2

10.1

7.9

7.7

7.6

Services

72.9

65.8

71.8

77.0

73.7

73.2

72.7

(In percent of GDP)

Government finance

Total revenue and grants

93.5

114.9

121.8

129.3

141.7

135.9

103.2

Revenue

74.5

91.6

100.6

108.5

126.6

114.8

87.9

Grants

19.1

23.3

21.3

20.8

15.1

21.1

15.3

Total expenditure

83.1

93.4

100.5

96.8

125.6

120.5

98.8

Net lending (+) / borrowing (-)

10.5

21.4

21.4

32.5

16.1

15.5

4.4

Including Trust Fund contribution

10.5

6.6

13.2

23.2

7.3

2.8

-7.9

Stock of government deposits

24.8

10.1

5.6

24.2

35.7

34.0

22.2

Stock of Trust Fund

24.6

39.1

52.8

63.6

80.2

96.1


(In millions of Australian dollars, unless otherwise
indicated)

Balance of payments

Current account balance

-22.2

2.8

18.4

-7.3

8.3

-7.1

-8.3

(In percent of GDP)

-21.3

2.0

12.7

-4.6

5.0

-4.1

-4.7

Exports (goods)

24.9

47.8

25.3

15.9

6.0

6.0

6.0

Imports (goods)

82.3

76.7

70.0

81.1

83.8

84.6

84.7

RPC-related inflows

35.8

32.6

42.3

36.5

32.6

22.4

23.4

Capital account balance

4.6

17.0

12.4

8.4

5.0

7.2

6.8

Financial accounts balance and other flows

-17.7

19.8

30.8

1.1

13.3

0.1

-1.4

Government debt indicators

External debt 3/

47.8

46.8

48.8

49.0

47.4

48.6

49.7

(In percent of GDP)

45.8

34.0

33.6

30.6

28.7

28.5

28.3

Domestic debt 4/

62.6

62.6

62.6

69.9

55.3

53.3

52.3

(In percent of GDP)

60.0

45.5

43.1

43.7

33.5

31.3

29.8

External debt service

2.3

2.2

0.0

2.3

9.8

0.0

0.0

(In percent of exports of goods and services)

4.2

3.1

0.0

5.6

29.9

0.1

0.1

Exchange rates

Australian dollar per U.S. dollar (period average)

1.2

1.37

1.33

1.29

1.40

Real Effective Exchange Rate (period average)

98.2

101.7

113.5

111.1

Nominal GDP (in millions of Australian dollars)

104.3

137.5

145.3

160.0

165.3

170.2

175.4

Nominal GNI (in millions of Australian dollars)

142.4

187.0

203.4

214.6

243.5

236.8

241.6

Nominal GNI per capita (in US dollars)

9,551

10,439

11,409

12,605

13,764

Sources: Nauru authorities and IMF staff estimates and
projections.

1/ Nauru uses the Australian dollar as the legal tender,
and the fiscal year ends in June.

2/ The social indicators are taken from United Nations
Development Program and Secretariat of the Pacific
Community.

3/ Including the defaulted Yen bonds.

4/ Including the estimated government liability related to
Bank of Nauru’s liquidation.




[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.imf.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Brian Walker

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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