Expansionary fiscal measures in Tuvalu, such as a 14.9% increase in public sector wages and construction spending, are seen to spur domestic economic activity.
|Selected economic indicators (%)||2015||2016|
|ADO 2015||Update||ADO 2015||Update|
|Current Account Balance (share of GDP)||-37.2||-37.2||-21.4||-21.4|
Source: ADB estimates.
Higher wages and allocations for one-time development expenditures on new schools, government buildings, and outer island projects account for the 52% increase in planned government expenditures for 2015.
The reconstruction of infrastructure damaged by Cyclone Pam, the commencement of other large infrastructure projects, and continued fiscal expansion promise to offset the damage and economic losses caused by the cyclone in early 2015, which are estimated at the equivalent of 10% of GDP.
Fishery exports and fishing license fees continue to provide large inflows of foreign exchange, but prospects for earnings from these sources are uncertain over the medium term.
Higher fiscal spending in Tuvalu prompts a modest upward revision to its inflation outlook. While a larger fiscal budget encourages the domestic economy, concerns linger about the sustainability of the government’s recent fiscal policies. A slight increase in value-added and excise tax collections is expected, but there has been no consistent improvement in revenues from personal or corporate income taxes.
Like other small islands economies, Tuvalu’s economy is driven largely by government spending on infrastructure projects. Overall, the Asian Development Outlook 2015 projections for growth are unchanged.
Remittances look likely to remain significantly below inflows recorded in 2014 but are seen to pick up in 2016 as conditions in advanced economies improve.
Excerpted from the Asian Development Outlook 2015 Update.