Tuvalu: Improved Financial Management Program

Sovereign Project | 41180-022

Summary

The intended impact of the program, as set out in the policy matrix and to be supported by the program grant and supporting technical assistance (TA), is to support the achievement of sustained economic growth and fiscal stability as prioritized in Tuvalu's national plan objectives, through facilitating achievement of the PBIs. The expected outcome is improved government fiscal planning and management capacity.

The achievement of the expected outcome will be reflected in: (i) an annual budget which is in alignment with medium term fiscal objectives, (ii) Government transparently monitoring its financial support to public enterprises and presenting such information in the budget papers; (iii) public enterprises acting in compliance with all aspects of the Public Corporations Act; and (iv) improvements in key financial indicators for public enterprises.

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Project Name Improved Financial Management Program
Project Number 41180-022
Country Tuvalu
Project Status Closed
Project Type / Modality of Assistance Grant
Source of Funding / Amount
Grant 0139-TUV: Improved Financial Management Program
Asian Development Fund US$ 3.24 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Private sector development
Sector / Subsector

Public sector management - Public expenditure and fiscal management

Gender Equity and Mainstreaming No gender elements
Description

The intended impact of the program, as set out in the policy matrix and to be supported by the program grant and supporting technical assistance (TA), is to support the achievement of sustained economic growth and fiscal stability as prioritized in Tuvalu's national plan objectives, through facilitating achievement of the PBIs. The expected outcome is improved government fiscal planning and management capacity.

The achievement of the expected outcome will be reflected in: (i) an annual budget which is in alignment with medium term fiscal objectives, (ii) Government transparently monitoring its financial support to public enterprises and presenting such information in the budget papers; (iii) public enterprises acting in compliance with all aspects of the Public Corporations Act; and (iv) improvements in key financial indicators for public enterprises.

Project Rationale and Linkage to Country/Regional Strategy

Widely scattered in a 900,000 km2 exclusive economic zone of ocean almost 1,000 km north of the Fiji Islands, Tuvalu consists of 9 low-lying coral atolls with a total area of only 26 km2, and a population of 9,652 people. Few opportunities exist for economic development and ecologically sustained growth. The annual gross domestic product (GDP) is around US$20 million, with the capital island, Fongafale on the Funafuti atoll hosting more than half of the population and accounting for two-thirds of the GDP. Real GDP per capita is estimated to have grown at an average annual rate of 2% between 1995 and 2005. The growth was supported by public expenditure, particularly through one-off construction projects and increases in the wage and salary budget.

The fragile nature of the Tuvalu economy stems from the heavy reliance on income earned from Tuvalu Trust Fund (TTF), fish licensing fees, 'tv' internet domain revenue sources that are largely outside the Government's control. The total revenue fluctuates for example annual revenue ranged from A$13 million to A$47 million annually over the period 2000-2005 and in addition to being volatile, the future revenue stream is difficult to accurately forecast. Expenditure decisions are, thus, made in the face of considerable uncertainty as to how they will be funded. The government has exhibited a tendency in the face of fluctuating revenues to increase expenditure in the windfall years. Budget credibility has suffered, together with reduced service delivery, as the planning and management of key public services is undermined by the general absence of a multi-year perspective and poor in-year reporting capability.

The fiscal budget revenue amounted to A$35.9 million and expenditure to A$39.7 million in 2007. The trend level of expenditure and net lending is found to be above the trend level of revenue and grants, giving rise to an underlying budget deficit. If recent trends continue, it is estimated that the budget will be in deficit by approximately A$2.5 million in a typical year, which is on the order of 10% of GDP. This would be an unsustainable fiscal position. The weak fiscal position has arisen because expenditure was allowed to grow in years when revenue was high, and it has been difficult to cut expenditure back to fit into the lower level of revenue and grants.

The principal structural weaknesses impeding public finance management are (i) a large and continuous trade imbalance; (ii) a large public sector with a low productivity rate and a lack of focus on customer service; (iii) a pervasive government ownership of enterprise activities, most of which require fiscal concessions and/or subsidies; (iv) an often weak fiscal situation; (v) a small under-developed private sector, which accounts for only one-quarter of GDP; (vi) high tax rates and import duties; (vii) an investment approval process that is non-transparent and burdensome for investors; (viii) an underdeveloped financial system typified by low domestic resource mobilization; (ix) a growing labor force experiencing high levels of under-employment; and, (x) a land tenure system which makes it difficult to obtain land for commercial development.

Tuvalu's national plan (Te Kakeega II) denotes paramount goals of sustainable budgets and the effective use of resources to achieve public policy priorities, attainment of education and health objectives. The Government of Tuvalu (GOT) recognizes the need for correction in fiscal management and has adopted, in close coordination and consultation with the Board of the Tuvalu Trust Fund (TTF) and the development partners more broadly, a road map for greater fiscal control based on a set of performance benchmark indicators. The Performance Benchmark Indicators adopted by the Government and agreed with the Asian Development Bank (ADB), AusAID, and NZAID are aimed at ensuring (i) prudent recurrent fiscal expenditures; (ii) maintenance of fiscal reserves; (iii) prudent debt management; (iv) prioritized education; and, (iv) health spending. Each Indicator has specific and measurable targets, which are updated annually as required and are linked to the objectives of the Te Kakeega II. The AusAID and NZAID assistance are largely linked with facilitating the gradual achievement of the Benchmarks, as outlined in the draft Country Partnership Strategy (CPS). In accordance with the CPS ADB has aligned its commitment to Te Kakeega II through a focus on improved public expenditure and financial management. The proposed program grant directly supports this focus. It is proposed that this is achieved by a program grant which will support improved fiscal stability, including through efforts to improve public enterprise performance.

Impact The intended impact of the program will be sustained economic growth and fiscal stability as prioritized in Tuvalu's national plan objectives.
Project Outcome
Description of Outcome The outcome of the Program will be to improve the governments capacity for fiscal planning and management.
Progress Toward Outcome The intended impact of the program will be sustained economic growth and fiscal stability as prioritized in Tuvalu's national plan objectives. Indicators of success will be the government's performance benchmark indicators.
Implementation Progress
Description of Project Outputs The outputs are designed to directly address the core of ADB's country partnership strategy which focuses on effective fiscal management. The policy matrix is structured around three outputs: (i) improved public debt management capacity, (ii) strengthened oversight of public enterprises, and (iii) strengthened management capacity in public enterprises.
Status of Implementation Progress (Outputs, Activities, and Issues)

28/03/2011: Awaiting Government's response on

28/03/2011: Awaiting Government's response on the RRP (Conclusion of the 2nd tranche condition requirement).

Geographical Location Tuvalu
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects There is no environmental impact of this Program Grant. Category C.
Involuntary Resettlement n/a.
Indigenous Peoples n/a.
Stakeholder Communication, Participation, and Consultation
During Project Design

The program grant and associated TA have the potential to harmonize several activities toward the meeting of the PBIs and the intent of the CPS through complementary focus on fiscal stability and economic growth through: improved fiscal management; enhanced enterprise performance; enhanced private sector potential through increased lending potential by the NBT; and, the identification of business opportunities in activities currently undertaken by Government.

The Program will provide for the development of a strengthened governance framework for the oversight of public enterprises in Tuvalu, improved capacity for oversight on the part of the Government, the capacity to respond positively to such oversight on the part of public corporations, strengthened capacity to manage debt, and a reduction in government debt to the National Bank of Tuvalu (NBT).

During Project Implementation

MFEP will coordinate policy, legal, and regulatory actions and ensure that the reforms as agreed to by the Government and ADB are duly carried out on time. A program steering committee, chaired by the secretary of MFEP and including representatives of the Office of the Attorney General and MFEP's budget and public enterprise oversight areas, will be established to monitor and coordinate the Program and support technical assistance from ADB and other agencies.

The private sector and civil society were consulted during the conceptualization of the Program Grant and indicated support for the broad policy changes to be initiated through the proposed assistance package. As changes occur: in Enterprise performance; in access to lending opportunities and in identification and possibility tendering of Government business opportunities, the private and civil sectors will be continuously involved. The Grant and associated TA lend themselves to further harmonization of Development Partner activities.

Business Opportunities
Consulting Services Not required.
Procurement The proceeds of the Program Grant will be disbursed against a broad range of imports, subject to a negative list. Eligible imports incurred up to 180 days prior to grant effectiveness may be reimbursed from the proceeds of the grant.
Responsible ADB Officer Malie Lototele
Responsible ADB Department Pacific Department
Responsible ADB Division Pacific Subregional Office in Suva, Fiji
Executing Agencies
Ministry of Finance and Economic PlanningMr. Minute Taupomtaupo@gov.tvPrivate Mail Bag, Funafuti, Tuvalu
Timetable
Concept Clearance 23 Mar 2008
Fact Finding 01 Jul 2008 to 08 Jul 2008
MRM 28 Mar 2011
Approval 16 Dec 2008
Last Review Mission -
PDS Creation Date 05 May 2008
Last PDS Update 28 Mar 2011

Grant 0139-TUV

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
16 Dec 2008 03 Feb 2009 14 May 2009 30 Sep 2010 30 Sep 2011 18 Aug 2011
Financing Plan Grant Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 3.24 Cumulative Contract Awards
ADB 3.24 16 Dec 2008 3.24 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 16 Dec 2008 3.24 0.00 100%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating Satisfactory - - - - Satisfactory
Title Document Type Document Date
Improved Financial Management Program Project/Program Completion Reports Oct 2012
Improved Financial Management Program Progress Reports on Tranche Releases Jul 2011
Grant Agreement for Improved Financial Management Program between Tuvalu and Asian Development Bank dated 3 February 2009 Grant Agreement Feb 2009
Improved Financial Management Program Reports and Recommendations of the President Nov 2008

Safeguard Documents

See also: Safeguards

No documents found.

Evaluation Documents

See also: Independent Evaluation
Title Document Type Document Date
Tuvalu: Improved Financial Management Program Validations of Project Completion Reports Nov 2014

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