Trust Fund to Provide Nauru with a Second Chance for Sustainability — ADB

Trust Fund to Provide Nauru with a Second Chance for Sustainability — ADB

Trust Fund to Provide Nauru with a Second Chance for Sustainability — ADB

The FINANCIAL -- The Nauru Intergenerational Trust Fund will help ensure the country has a sustainable source of financing for the future, says a new Asian Development Bank (ADB) publication.

“Nauru has experienced an economic boom in recent years due to its regional processing center program for asylum seekers and refugees, as well as strong revenues from fishing licenses,” said Roland Rajah, an ADB economist and the report’s author. “However, the good times are unlikely to last forever and this has exposed the country to stark fiscal sustainability concerns. The establishment of the trust fund is a critical first step to help address this situation.”

As a remote and isolated microstate, Nauru has few opportunities to drive sustainable economic development, says the ADB report titled Securing Sustainability: Nauru’s New Intergenerational Trust Fund. However, through a careful strategy of saving, investing, and spending wisely, Nauru can use its current economic boom to secure a more sustainable economic future.

With technical assistance from ADB, the Government of Nauru and its key bilateral donors have established a new sovereign wealth fund. Known as the Nauru Intergenerational Trust Fund, or simply Nauru Trust Fund, it began operation in May 2016.

The ADB policy brief introduces the Nauru Trust Fund, outlines its design, and provides recommendations on future reforms to build on this achievement. The Nauru Trust Fund will promote fiscal sustainability by saving a portion of government revenue in a long term investment vehicle that will be used to finance future investments in health, education, environment, and public infrastructure. This way, future generations could benefit from today’s temporarily high income. Strict rules have been established to promote fiscal sustainability and ensure good governance and professional management of the fund.

To secure a more sustainable future for the country, the policy brief recommends that the Nauru Trust Fund be embedded within a more comprehensive and sustainable fiscal strategy which increases government saving, and support this with complimentary reforms particularly to improve fiscal transparency and the quality of public spending.

Nauru, located in the central Pacific, is one of the world’s smallest countries with a population of about 10,000 people and a total land area of only 21 square kilometers. It faces many development challenges including limited arable land and fresh water, a very small private sector, and high levels of public debt. Education levels are improving, but still below international standards. Nauru also has some of the highest rates of non-communicable diseases in the world.