Surveillance Brings Tuvalu Closer to International Fold

  • IMF’s smallest country member receives its first regular economic assessment
  • Tuvalu faces major government spending cuts in short run to manage its affairs
  • Country can now better tap IMF technical assistance, plans to do so
  • And, like many small Pacific island nations, the country faces a perennial set of challenges defined by its geographical remoteness, small size, and limited resources.

    However, over the last three years Tuvalu’s tiny economy has faced an additional issue—the global financial crisis.

    According to a macroeconomic assessment by IMF economists, known as the Article IV consultations, even this far-flung corner of the South Pacific has not been spared exposure to the crisis. For example, the Tuvalu Trust Fund, established by donors to provide long-term stable financing, shed value when global stock markets dived, while the demand from Europe for its seafarers—Tuvalu’s main foreign exchange earning source for the private sector—has dwindled.

    IMF economists estimate almost no economic growth for Tuvalu in 2010 as major construction projects have been completed. Growth is projected to be zero or even turn negative in 2011, led by lower government spending, and remain low in the medium term.

    First surveillance

    The Article IV process, completed earlier this year and to be conducted on a two-year cycle, marked the country’s first since it joined the IMF (along with the World Bank) as its 187th—and smallest—member in June 2010.

    Led by IMF Senior Economist Byung Kyoon Jang, a six-person delegation, two of which were World Bank staff, visited the islands for 12 days, where they met with government officials, representatives of the private sector, and donors based in Fiji, and worked with the authorities almost from scratch to collect the required data.

    “Building the frameworks for putting data together for the first Article IV was a daunting task for not only ourselves but the authorities—our counterparts,” Jang said. “The macroeconomic data we were asking for are much more extensive than those required by any other development partners.”

    Core data needs are essentially the same, whether you are dealing with an economy the size of the United States or Tuvalu, he explained. “Even if there’s just 12,000 people, they are importing and exporting, the government is collecting tax, and so on. You need data on national accounts, the balance of payments, government budgets, and banks in order to make a proper assessment of the...

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