ADB is helping Tuvalu strengthen its capacity to manage revenue and public spending. The project will help the government improve its policies and processes for setting multi-year budget targets, boosting revenues and strengthening budgeting, procurement, reporting, debt management, and spending controls. It will also support the government’s efforts to advance its public enterprise reform plans.
|Project Name||Strengthened Public Financial Management Program|
|Project Type / Modality of Assistance||Grant
|Source of Funding / Amount||
|Strategic Agendas||Inclusive economic growth
|Drivers of Change|
|Sector / Subsector||
Public sector management / Economic affairs management
|Gender Equity and Mainstreaming||No gender elements|
The focus of ADB's program the Strengthened Public Financial Management Program (SPFMP) is consistent with the objectives of Tuvalu's National Strategy for Sustainable Development 2005-2015, known as Te Kakeega II, and ADB's Pacific Approach 2010-2014, which aims to achieve sound macroeconomic and fiscal management, and strengthened and improved public enterprise management. The program will assist the government to address key issues affecting fiscal sustainability, specifically, weak budget credibility and poorly performing public enterprises. The SPFMP will continue ADB's support for strengthening public sector management and the environment for private sector development in Tuvalu areas of historical ADB involvement. Other development partners will focus their respective budget support programs on reforms in the health and education sectors. Appendix 1 provides basic program information.
The SPFMP will be supported by ADB technical assistance (TA) (funding of US$300,000), which is expected to be approved in June 2012. Advisors from the Pacific Economic Management (PEM) , and Private Sector Development Initiative (PSDI) regional TA projects, as well as from the IMF's Pacific Financial Technical Assistance Center (PFTAC) will also help the government to accomplish the policy actions contained in the program (and highlighted in Table 2, below).
The SPFMP builds on lessons and outcomes of the Improved Financial Management Program (IFMP), which was ADB's first budget support operation in Tuvalu (albeit a programmatic budget support operation with multiple tranches). This program was aimed at strengthening the governance framework for Tuvalu's public enterprises, improving the government's capacity for oversight, strengthening capacity to manage debt, and reducing the government's debt to the National Bank of Tuvalu (NBT). The IFMP was instrumental in helping the government to implement several substantive reform actions including:
-improved debt management capability via the approval of a debt risk management and mitigation policy and strategy;
-strengthened oversight of public enterprises via approval of a public enterprise governance reform strategic policy and the enactment of the Public Enterprise (Performance and Accountability) Act 2009; and
-strengthened management capacity in public enterprises via approval of an asset/liability management (liquidity) policy and a loan grading policy for NBT that allows timely collection of past due loans and advances of credit, and measuring, monitoring and maintaining adequate liquidity. The Banking Commission Act 2011, which provided the legal framework for the licensing and on-going supervision and regulation of banking institutions in Tuvalu based on the Basel core principles for effective banking supervision, was also approved by Parliament in 2011.
|Project Rationale and Linkage to Country/Regional Strategy||
Tuvalu is a Pacific micro-state small, geographically remote, with limited resource endowments. With a total population of only 11,000, the economy is dominated by the public sector and few opportunities exist for private sector development. The economy is extremely vulnerable to external shocks due to its heavy reliance on income earned from external sources, including from the Tuvalu Trust Fund (TTF), fish licensing fees, the '.tv' internet domain, workers remittances, and grants; all of which are largely outside the government's control. Consequently, future revenue streams are difficult to accurately predict and are often volatile. Expenditure has outpaced revenue in recent years largely due to overspending on the Tuvalu medical treatment and scholarship schemes leading to widening budget deficits. For example, the deficits for 2010 and 2011 are estimated at 38.0% and 22.0% of GDP respectively, compared to 3.2% of GDP in 2009 and 1.5% in 2008.
Returns from the TTF, which have in the past provided some financial certainty, have fallen below their targeted value in recent years. As a result, there have been no distributions from the TTF to the Consolidated Investment Fund (CIF) to finance the budget since 2008. The CIF was established to provide stability to the annual budget, and receives transfers from the TTF when the fund's market value exceeds its targeted value (which is linked to the Australian consumer price index). While there have been some injections into the CIF from donors, its value has declined to around $2.1 million and according to the Tuvalu Trust Fund Advisory Committee (TTFAC), the Fund, if not carefully managed, could be exhausted by the end of 2012. On current trends, and given the ongoing uncertainty in global financial markets, distributions are unlikely to begin again until 2014.
Given the extent of the government's fiscal challenges, it is crucial that budget management is of a sufficiently high quality to ensure limited public funds are effectively spent. However, weaknesses in budget credibility and strategic allocation of resources continue to undermine the fiscal position. This is evidenced by the findings of the 2010 assessment of Tuvalu's public financial management systems based on the World Bank's public expenditure and financial accountability (PEFA) methodology. Poor budget management is further compounded by weakly performing public enterprises that are a drag on economic growth only two of Tuvalu's eleven public enterprises, the National Bank of Tuvalu and Tuvalu Electricity Corporation, are financially profitable (the latter following technical assistance provided by ADB in 2010). An assessment of the public enterprise sector undertaken by the International Monetary Fund in 2010 as part of its biennial Article IV consultations concluded that the total debt of the sector, excluding the two banks, had risen from 19% of GDP in 2004 to 42% in 2007. This poses considerable fiscal risks as the debt is partly guaranteed by the government.
|Impact||Fiscal sustainability is achieved|
|Description of Outcome||Improved fiscal management capacity|
|Progress Toward Outcome|
|Description of Project Outputs||
1. Improved fiscal management policy
2. Improved fiscal management capability
3. Improved public enterprise rationalization
|Status of Implementation Progress (Outputs, Activities, and Issues)|
|Summary of Environmental and Social Aspects|
|Stakeholder Communication, Participation, and Consultation|
|During Project Design||
Implementation of actions achieved under the IFMP has either been completed, or is close to completion. The two actions that remain outstanding are the operationalization of Tuvalu's Debt Risk and Mitigation Policy, and the appointment of a Banking Commissioner under the 2011 Banking Commission Act. Work on the former is on-track for completion by late 2012 with AusAID TA. The appointment of a Banking Commissioner has been delayed due to the tight fiscal situation faced by the government but is expected to be addressed in the 2013 budget via a levy on NBT, the Development Bank of Tuvalu and Tuvalu Provident Fund, which will be announced in late November 2012.
Lessons from the IFMP include: the need to build stronger political consensus to undertake reforms through support for a government-led dialogue on budget support and concerted outreach to Cabinet, Parliamentarians, and the community; to improve development partner coordination through joint dialogue and joint missions, as well as improved coordination of technical assistance; and to adopt a medium term perspective to restoring fiscal sustainability in recognition of the size of the challenges that micro-states like Tuvalu face.
|During Project Implementation||The Ministry of Finance and Economic Development (MFED) will be the executing agency (EA) and will oversee and coordinate the timely implementation of agreed policy, legal, and regulatory actions. The implementing agencies will be MFED, the Office of the Prime Minister, and the Ministry of Foreign Affairs (which oversees the Vaiaku Lagi Hotel). Resources from new and ongoing TA will support the government to fulfill program conditionalities. MFED will also be responsible for program administration, disbursements, and maintenance of all program records. ADB and other development partners through the joint policy matrix process, will work with the government to set up a high-level coordination and monitoring mechanism to monitor progress, oversee the implementation of the program, and guide and direct the activities of the EA.|
|Consulting Services||Ministry of Finance and Economic Development|
|Procurement||Ministry of Finance and Economic Development|
|Responsible ADB Officer||Tora, Laisiasa Natakubu|
|Responsible ADB Department||Pacific Department|
|Responsible ADB Division||Pacific Subregional Office in Suva, Fiji|
Ministry of Finance and Economic Development
|Concept Clearance||16 May 2012|
|Fact Finding||29 May 2012 to 07 Jun 2012|
|MRM||10 Jul 2012|
|Approval||22 Nov 2012|
|Last Review Mission||-|
|Last PDS Update||10 Jan 2013|
|Approval||Signing Date||Effectivity Date||Closing|
|22 Nov 2012||17 Dec 2012||11 Feb 2013||31 Dec 2013||-||24 Jan 2014|
|Financing Plan||Grant Utilization|
|Total (Amount in US$ million)||Date||ADB||Others||Net Percentage|
|Project Cost||2.35||Cumulative Contract Awards|
|ADB||2.35||22 Nov 2012||2.35||0.00||100%|
|Cofinancing||0.00||22 Nov 2012||2.35||0.00||100%|
|Status of Covenants|
Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.
The Public Communications Policy (PCP) recognizes that transparency and accountability are essential to development effectiveness. It establishes the disclosure requirements for documents and information ADB produces or requires to be produced.
The Accountability Mechanism provides a forum where people adversely affected by ADB-assisted projects can voice and seek solutions to their problems and report alleged noncompliance of ADB's operational policies and procedures.
In preparing any country program or strategy, financing any project, or by making any designation of, or reference to, a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
|Title||Document Type||Document Date|
|Strengthened Public Financial Management Program||Project/Program Completion Reports||Aug 2014|
|Grant Agreement (Special Operations) for Strengthened Public Financial Management Program||Grant Agreement||Dec 2012|
|Strengthened Public Financial Management Program: Report and Recommendation of the President||Reports and Recommendations of the President||Oct 2012|
Safeguard Documents See also: Safeguards
Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.
None currently available.
Evaluation Documents See also: Independent Evaluation
|Title||Document Type||Document Date|
|Tuvalu: Strengthened Public Financial Management Program||Validations of Project Completion Reports||Oct 2015|
None currently available.
The Public Communications Policy (PCP) establishes the disclosure requirements for documents and information ADB produces or requires to be produced in its operations to facilitate stakeholder participation in ADB's decision-making. For more information, refer to the Safeguard Policy Statement, Operations Manual F1, and Operations Manual L3.
Requests for information may also be directed to the InfoUnit.
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