Tuvalu

Country Information

Location and People Historical Background

Socio- Economic Conditions Country Outlook

Location and People

The nine coral atoll islands of Tuvalu are located in the South Pacific Ocean about half way between Hawaii and Australia. They are scattered across an exclusive economic zone (EEZ) of 900,000 square kilometers. The atolls are narrow and low-lying. Tuvalu's highest point is just three meters above sea level.

With a total land area of only 26 square kilometers and a population of 9,600, Tuvalu is a densely populated. About half of the people live on the main island of Funafuti. Nearly all, 96%, of the population is Polynesian, while the remainder is Micronesian.

Historical Background

In 1974, ethnic differences within the British colony of the Gilbert and Ellice Islands caused the Polynesians of the Ellice Islands to vote for separation from the Micronesians of the Gilbert Islands. The following year, the Ellice Islands became the separate British colony of Tuvalu. Independence from the United Kingdom was obtained in 1978.

Socio-Economic Conditions

Tuvalu is an ultra-small atoll economy with a total population of 11,810 (July 2006 est.). The prosperity of the economy was hampered by limited natural resources, few industries, and little export. Subsistence farming and fishing are the main economic activities. Commercial license fee earnings, remittances from overseas workers, official transfers, and income from Tuvalu Trust Fund (TFT) and the Falekaupule Trust Fund (FTF) have provided the country with the main sources of income. However, most recently the windfall revenues from Internet domain name “.TV” and from telecommunication and fishing licensing fees all have declined, causing fiscal and subsequent macroeconomic contraction. Clearly, the public sector is dominant in the macroeconomy.

The economic growth rate has slowed down to 1-2% in 2005/2006 after the public sector expansion from 2000 to 2004 subsided; during which time the real GDP was estimated at about 4-5%. By 2002, windfall revenue funded most of the growth that supported the public sector expansion in public construction and public business activities (notably those in transport, communication and finance) which contribute to 39% of GDP, with the remaining growth from the expansion in government ministries which added to another 30% of GDP. Currently, the drop in windfall revenues and existing fiscal deficit has caused the economic growth to decline. 

In a small open economy, Tuvalu uses Australian dollar as its legal tender, and thus has limited monetary policy instrument. Inflation has been low in the past 5 years, at an average of 3.2% per annum, and is projected to remain within the 2-3% range in the near future. The banking system in Tuvalu is inefficient with a lack of competition and higher risk profile. Therefore, the lending cost is higher than what it is in Australia. The excessive lending in recent years could potentially cause rising debt problem, as reflected by the increasing lending ratio (by the main financial institutions to GDP) from 16% in 1996 to 58% by 2002 to estimated 75% in early 2006. Most of this debt, around 80%, is held by businesses or on a personal basis. Unless these funds are invested in productive areas, debt issue will emerge.

Key Social and Poverty Indicators
Indicators	‘01	‘02	‘03	‘04	‘05
Total population (‘000) a	9.8	9.6	9.5	9.6	—
Annual pop. growth rate (%)	-1.8	-2.5	-0.8	1.1	—
Pop. below poverty line (%)	—	—	—	—	—
Unemployment rate (%)	—	4.7	—	—	—
Maternal mortality rate (per 100,000 live births)	0.0	641.0	—	—	—
Infant mortality rate (per 1,000 live births)	15.2	19.2	21.6	—	—
Life expectancy at birth (years)	63.5	63.6	—	—	—
Adult literacy rate (%)	98.0	—	—	—	—
Human development index	—	—	—	—	—
– = not available; a = based on 1994 HIES data; b = 1991 census data; c = Pacific HDI calculations using 1998 data Source: ADB

The public sector in Tuvalu is disproportionably large, and it sways the economic growth as well as the income distribution. The fiscal management has not been overly prudent as the previous windfall revenue from 2000-2003 had been immediately spent on infrastructure and the current deficit has been covered by the A$12 million from the Tuvalu Trust Fund (TFT). The problem is that the adjustment from the expenditure side is difficult when the earnings from the revenue side are highly volatile, mainly the windfall revenues including the TFT and FTF payouts during the year of high returns. The government needs to control the public expenditure, including restraining supplementary expenditure and other social spending that lack cost recovery mechanism. The large overly large public sector also points to systematic inefficiency in staffing and in basic infrastructure. Public sector reform and rightsizing could provide a strong impetus to improve both the quality of services and the operating efficiencies, while maintaining healthy fiscal stance and giving room for private sector development. 

Young Woman, 18 Years Old (taken from Priorities of the People:  Hardship in Tuvalu I was born in Nukulaelae and live with my parents, two sisters, and two brothers. Our eldest sister got married and moved with her husband to another island. My two younger sisters are in primary school. I went to our secondary school here, however I failed my Form 4 exams, so I did not continue my schooling. My parents, two brothers, and me are not working. One of my brothers was a seafarer; however, he only went overseas once.  The only source of income we have is from my mother selling bread. Her profit is only $50 a week, which is not enough to meet our basic needs considering the high cost of goods, e.g., rice is A$1.00, sugar $1.30 and flour $1.05. To supplement our income, we also harvest local food from some of our lands. There are some land disputes between my family and our extended family so we only have limited use of our lands. I have a cousin sister in the Marshall Islands, who is trying to get me to the Marshall Islands so I can find a job. However, she still hasn’t confirmed that plan yet and in the meantime I stay home and do the laundry, clean the house, and help my mum. In the future, I want my family to have a proper modern house so we can live happily. I also want to get a job so I can help my family financially, especially for my sisters to have a good education, so they can assist our family too. It is very important to establish a vocational school not only for our community, but also for the whole of Tuvalu. In this way, jobless youth like me can be trained and expand our skills and help improve the well-being of families and the community.

Read and understand the needs and views of those facing hardship in Tuvalu in Priorities of the People: Hardship in Tuvalu

Few visitors have come to Tuvalu and the few flights to Funafuti are mainly occupied by aid workers and returnees. Subsistence farming and fishing are the primary economic activities. Tuvalu Maritime Training Institute (TMTI) is an important entity that has contributed as much as A$5 million a year in seafarers’ remittance earning. The Tuvaluan worker in the Nauru phosphate mine have been gradually repatriated back to Tuvalu.  

Most outer islands have seen their populations decrease as people have migrated to the main island of Funafuti. The increasing population density there over the last decade has raised major public health concerns. The income and the development gap between Funafuti and the outer islands has widened over the same period.

In 1994 less than one-third of all households were estimated to have incomes below the basic needs poverty line. A decade later, the 2004 Household Income and Expenditure Survey on Funafuti indicated that the extent of poverty had increased substantially. Almost 40% of households were estimated as having incomes below the basic needs poverty line. Many of the newly poor are migrants to Funifuti from the outer islands. Poverty is associated with inadequate access to essential public services and job opportunities, particularly on the outer islands.

Country Outlook

Tuvalu’s small size, its isolation from markets, and its harsh environment are significant constraints to the country’s development. In addition, there is concern about global increases in greenhouse gas emissions and their effect on rising sea levels. Higher sea levels already threaten the country's underground water table.   In 2000, the Government  appealed  to  Australia   and   New   Zealand   to  take  in Tuvaluans if   rising  sea   levels  should  make   evacuation   of   the country necessary.
 
Other, more manageable challenges to Tuvalu development are its inadequate infrastructure, and instability in both politics and the civil service. The latter problem has had unfavorable consequences on national administration, including the formulation and implementation of national policies, priorities, and strategies.

The country is faced with a number of environmental challenges, particularly on Funafuti. Beachhead erosion is occurring because of the use of sand for building materials. Sanitation, solid waste, and land management problems are also impacting Funifuti’s fragile coastal environment. These problems as well as water shortages and lagoon pollution will soon become even more prominent if migration to Funafuti continues at the current rate.

Previous interventions in waste management have made an impact, but further work is needed. The Government also needs to embark on measures to improve the quality of life of the outer islands in order to reduce Funifuti-outer island disparities in the level of development and slow  outer island population declines. Such measures should emphasize improvements in the education system and creating economic opportunities.