Regions and Countries

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p. 5 of 5 BACK | NEXT I. Country Strategy II. Current Development Trends and Issues III. Implementation of the Country Strategy and Program IV. Portfolio Management Issues V. Country Performance and Assistance Levels

Country Strategy and Program Update 2003-2005: Tuvalu

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V. Country Performance and Assistance Levels

A. Lending Level Proposed

40. Consistent with ADB's policy on performance-based allocations for the Asian Development Fund (ADF), the level of ADF allocated to Tuvalu is linked to the country's performance with respect to policy, reforms, and portfolio management. The share of ADF allocation also depends on population and per capita income. Accordingly, the proposed base case three-year rolling allocation is fixed at US$1.9 million for 2003-2005. The final allocation of ADF resources will depend on performance against agreed upon triggers. These triggers relate to progress on (i) macroeconomic management, (ii) sector reform and governance, (iii) sector specific achievements, and (iv) portfolio management. The performance-based allocation triggers that were agreed upon with the Government are given in Appendix 2, Table A2.12.

41. Tuvalu's overall performance assessment score is well above the average for PDMCs. However, Tuvalu has experienced the largest drop in the rating for 2001 of all the PDMCs. The deterioration in the rating reflects primarily deterioration in macroeconomic management. Until recently, Tuvalu had developed a well-earned reputation for prudent fiscal policy. However, the recent windfall revenue prompted a spending spree and a drop in the CIF to well below target levels. Despite the deterioration in the rating for macroeconomic management, Tuvalu still achieved an above average score reflecting a relatively good score on virtually all other categories. However, it should be noted that there was also some deterioration in the civil service and public expenditure management categories.

42. The drawdown from the CIF has been substantial and the Government's contribution to the TTF A-account⁴ has been lower than what would normally have been expected. As a result, it is doubtful if any automatic distribution from the TTF is likely in either 2002 or 2003.

43. The absorptive capacity of Tuvalu is limited, and the lending levels based on evaluation of performance for 2003-2005 assume a "low case" lending program of $1.5 million, a "base case" lending program of $1.9 million, and a "high case" lending program of $2.3 million.

B. Nonlending Program

44. Tuvalu has ten 100% government-owned public sector enterprises, which have all been corporatized. Of these, only the National Bank of Tuvalu and the Tuvalu National Provident Fund were not previously government departments or divisions, and it is only the National Bank of Tuvalu that has consistently returned a dividend to the Government. However, its monopoly pricing disadvantages consumers and hinders private sector development.

45. Corporatization formally separates and clarifies the roles of owner and manager, but the granting of autonomy to the manager of a public corporation must be matched with effective control, monitoring, and reporting mechanisms that make enterprise management accountable. Additionally, public enterprise management itself must be improved through a transparent selection process, training, and a focus on performance.

46. The proposed AOTA for 2003 for Governance of Public Sector Enterprises will address the following issues: (i) clarity of objectives and the roles to be played by ministers, boards, and general managers; (ii) management autonomy and authority, with ministerial intervention in routine operations occurring only in exceptional circumstances; (iii) strict accountability for performance; and (iv) competitive neutrality, meaning that services are provided on the same terms as actual or potential private sector providers.

47. For 2004, a TA for Future Electricity Supply for Funafuti is proposed. With the completion of two major infrastructure projects in 2002, namely the new hospital and the new government building to house most of the administration, it has been estimated that these two buildings alone will have a power demand equal to or larger than what is currently being produced by the Tuvalu Electricity Corporation.

48. The new investment necessary for power generation offers an opportunity to analyze various options for more cost-efficient as well as environmentally friendly solutions. Tuvalu has approximately 2,000 hours of sun per year and in addition a waste management problem. Both issues warrant consideration for inclusion when future power generation investment will be considered.

C. Summary of Changes to the Lending and Nonlending Program

49. At the moment, there is no loan identified for 2005. The proposed AOTA for 2003, Interisland Shipping Commercialization and Privatization, has been changed to Governance of Public Sector Enterprises to more realistically reflect the need for better financial management priorities of the Government. A proposed AOTA for 2004, Future Electricity Supply for Funafuti, has been identified.

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