Saturday, 23 February 2008 12:46 AM

Economic Report Indicates Some Optimism for Medium-Term Growth in Nauru

MANILA, PHILIPPINES - While Nauru will continue to rely on its relationship with donor nations, the medium-term outlook for the country's economic health is optimistic as Government reforms begin to take hold, according to the latest ADB Country Economic Report on the small Pacific island nation.

"The Nauru Government is addressing some of the structural problems the economy faces and is making changes to establish a base for future economic growth," says Eugene Zhukov, a Director of ADB's Pacific Department. "The strong likelihood that Australia's Refugee Processing Center based in Nauru will be closed soon adds to the urgency of reform as that source of income for the Government is expected to end."

Nauru, located in the central Pacific just south of the equator, is one of the world's smallest countries with a population of approximately 9,000 people. It is one of the three great rock phosphate islands in the Pacific Ocean, but has a total land area of only 21 square kilometers. While Nauru's per capita gross domestic product was one of the highest in the world just a few decades ago, a decline in phosphate mining in the 1980s combined with poor management of the country's offshore assets and public expenditure have led to the dramatic decline of its economic position.

However, the Government's reform efforts are yielding signs of success, with state-owned enterprises and utilities being reformed. Additionally, Nauru has been removed from the Financial Action Task Force on Money laundering blacklist, an essential requirement for the re-establishment of a finance industry. Government wages have been cut to more affordable levels and the level of over-staffing in Government departments has been reduced.

The Country Economic Report says the absence of accountability and transparency was central to Nauru's severe economic deterioration, and much more needs to be done in these areas to improve Nauru's economic prospects.

Phosphate mining has recommenced on a limited scale and has an encouraging potential. But at present, mining is unable to generate the level of revenue needed to fund Nauru's public services. Funding for public services, which in turn keeps the economy afloat, is dependent on the continuation of high levels of aid.

"The medium-term economic outlook for Nauru rests on prospects for phosphate mining and the relationships with aid donors," says Craig Sugden, an Economist with ADB's Pacific Department.

Other industries that offer economic growth potential include offshore fishing, which provides a significant and sustainable source of revenue for the medium-term. There is some economic potential in long-line fishing, small-scale local agriculture and services such as construction, finance and insurance, and tourism. A turnaround in the performance of public utilities and the airline would also help lift economic performance.