2015

THIRTY-SECOND REPORT OF THE TUVALU TRUST FUND ADVISORY COMMITTEE

12 – 23 October 2015

PART 2

TTFAC Secretariat 9 November 2015 TTFAC Report 32 PART 2

Contents Part 2 Acronyms Used ...... 4

1. Introduction 6 1.1 Preamble ...... 6 1.2 Mission Focus ...... 6 1.3 Exclusions from this Report ...... 6

2. TTF Distribution Prospects & CIF Balances 7 2.1 Summary ...... 7 2.2 Introduction ...... 7 2.3 TTF Maintained Value at 30 September 2014 ...... 7 2.4 TTF Market Value at 30 September 2015 ...... 8 2.5 CIF and Government’s Drawdown ...... 8 2.6 Recommendations ...... 8

3. 2015 Fiscal Developments & Prospects 10 3.1 Overview ...... 10 3.2 Fiscal Sustainability ...... 12 Underlying Fiscal Position ...... 16 Medium-Term Fiscal Strategy ...... 16 Medium-Term Fiscal Framework (MTFF) ...... 17 3.3 Summary Findings ...... 17 3.4 Conclusions...... 18 Fiscal Caution to Manage High Uncertainty & Fiscal Risks ...... 18 Need for Up-to-Date, Robust Medium-Term Fiscal Strategy ..... 19 Further Boosting CIF Reserves Would Help Cover Fiscal Risks 19 Action Needed to Assess & Mitigate Fiscal Risks Better ...... 19 Action Needed to Facilitate Fiscal Sustainability ...... 20 Further Boosting CIF Reserves Would Be Beneficial ...... 20 3.5 Recommendations ...... 21 3.6 Summary Tables (Appendix) ...... 22

4. Public Sector Management: Progress & Prospects 26 4.1 Overview ...... 26 4.2 Recently Completed Reforms ...... 26

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4.3 Unfinished Reforms ...... 26 Adding Payroll System to FMIS ...... 26 Assets Register ...... 27 4.4 Extending Existing Reforms ...... 27 Performance Measurement & Reporting ...... 27 Performance Auditing ...... 28 Leveraging Value from Core Govt. Good Practice Procedures .. 28 Sector Budgeting ...... 29 4.5 Desirable Future Public Sector Reforms ...... 29 Sustainable Capacity of Core Staff and Systems...... 29 Quality of Government’s Commercial Agreements ...... 30 A Centralised Contract Management Support Unit ...... 30 4.6 Private Sector Development Initiatives ...... 31 Overview ...... 31 Commercial Banking Services ...... 31 Reform of NAFICOT ...... 31 Privatisation of Vaiaku Lagi Hotel ...... 32 Promoting Private Sector Provision of Services...... 33 4.7 Recommendations ...... 34

5. Integrated Policy Matrix (IPM) Stocktake and “TK3” 36 5.1 Status of Policy Actions at end of Matrix Timeframe ...... 36 TKII Strategic Area: Good Governance Macroeconomic Growth and Stability ...... 36 TKII Strategic Area: Good Governance and Outer Island Development ...... 38 TKII Strategic Area: Education and Human Resources ...... 39 5.2 Integrated Policy Matrix Stocktake ...... 40 Summary ...... 40 Health Sector Reform Challenges...... 40 Reform Strategy ...... 40 TMTS ...... 40 Education Sector Reform Issues...... 41 Broadening the scope of TMTI ...... 41 Student Education Loan Fund (SELF) – ‘Sky’s the limit’ Scholarship...... 41 SDE – Primary School Construction ...... 42 The Fiji Volunteers Teachers (FVT) scheme ...... 42

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5.3 Lessons for “TK3” ...... 42 5.4. Maintaining & Improving Social Infrastructure & Services ...... 43 Governance...... 43 Gender ...... 44 5.5 Recommendations...... 45 Annex: List of People Met by TTFAC ...... 46

Acronyms Used

Acronym Description ACCPAC Accounting Package ADB Asian Development Bank AUD Australian Dollar CIF Consolidated Investment Fund (Tuvalu Government) CPI Consumer Price Index CPU Central Procurement Unit CSO Community Service Obligation DBT Development Bank of Tuvalu FMIS Financial Management Information System FTF Falekaupule Trust Fund GM General Manager JV Joint Venture MFED Ministry of Finance & Economic Development MOEYS Ministry of Education, Youths & Sports NAFICOT National Fishing Corporation of Tuvalu NBT National Bank of Tuvalu OPM Office of Prime Minister PBD Planning & Budget Department, Ministry of Finance & Economic Planning PE Public Enterprise PEFA Public Expenditure & Financial Accountability framework PERMU Public Enterprise Reform Management Unit

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Acronym Description PMH Princess Margaret Hospital PRM Policy Reform Matrix PTE Public Trading Enterprise PWD Public Works Department ROC Republic of China (Taiwan) SDE Special Development Expenditure TA Technical Adviser TCT Tuvalu Consumption Tax TMTI Tuvalu Maritime Training Institute TMTS Tuvalu Medical Treatment Scheme TTF Tuvalu Trust Fund TTFAC Tuvalu Trust Fund Advisory Committee TUFMAN Tuna Fisheries Management USD United States Dollar VLH Vaiaku Lagi Hotel VDS Vessel Day Scheme

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1. Introduction

1.1 Preamble The advice in this Part 2 is addressed primarily to the Government of Tuvalu. 1. The Tuvalu Trust Fund Advisory Committee (TTFAC) convened in Funafuti from 13-22 October 2015. The team comprised Michael Hyndman, Malcolm Ponton, Pete Rodger and Ms Salai Sualo (TTF Secretariat). Collaboration with Ms Aliimau Pugameau (FTF Secretariat) was limited due to her illness, but she ensured this did not prevent her from contributing. That supportive spirit was true of the whole visit despite the timing clash with a mini-Budget, two supplementary estimates, finalisation of the draft new National Development Plan (“TK3”) and the day-to-day demands on Ministers and officials. The team is grateful for the goodwill and support that is so important for the success of the TTFAC role. Other members also give special thanks to Michael Hyndman, who had retired, for returning and delivering the fiscal calculations and analysis on which much of our work is based. 1.2 Mission Focus 2. As promised in our April 2015 report, TTFAC followed up on a number of key recommendations to check on progress. As usual, we also received guidance from the Tuvalu Minister of Finance and his senior officials and representatives of the other two members of the Tuvalu Trust Fund (TTF) Board. This guidance covered requests that TTFAC investigate particular subjects, and suggestions on presentation. 3. The requests included subjects like: (i) sustainability of fishing revenues; (ii) longer-term fiscal impacts of tropical cyclone Pam; (iii) service delivery; (iv) gender- related policies; (v) lessons from the Integrated Policy Reform Matrix, etc. 4. Presentational suggestions included (i) keeping the Summary short; (ii) focusing on the integration of planning and budgeting processes rather than the specific contents of “TK3” (which was an incomplete and unofficial draft at the time); and (iii) clearly separating TTFAC advice to the Government on the progress of the economy of Tuvalu and the effect of the Fund socially and economically on Tuvalu; from TTFAC reporting to the TTF Board on these matters. 1.3 Exclusions from this Report 5. Unfortunately the Committee was unable to obtain any up-to-date economic statistics during or immediately after the Mission. As a result, we could not perform one of the primary TTFAC tasks – to advise the government on the progress of the economy. This is a time of major developments in the Tuvaluan economy – especially in terms of increased income from the natural resource of migrating tuna and increased expenditure for present and possible future climate-driven damage. But neither TTFAC nor (apparently) the officials and advisers updating the medium-term budget framework and the longer term development planning (“TK3”) have an up-to-date “big picture” of those economic developments and the issues they raise. 6. As noted above, TTFAC is not commenting on the detail of the draft TK3. We appreciated that the very busy team involved made time to provide a briefing, answer questions on process and give us access to enough draft material to illustrate the approach and main themes. We have confined our comments to such matters.

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2. TTF Distribution Prospects & CIF Balances

2.1 Summary 7. TTFAC calculations based on the latest figures indicate that an automatic TTF distribution of about $4.78 million is payable from the TTF to the CIF; and that an expected excess of about $7.26 million over the target CIF savings balance of about $30.18 million may be available for inclusion in the National Budget process if all these base figures and calculations are confirmed. 2.2 Introduction 8. The Market and Maintained values of the Fund are calculated as at 30 September 2015 to give an indication of a likely automatic distribution. The size of the automatic distribution is taken to be the value by which market value exceeds maintained value as at the indicated date. 2.3 TTF Maintained Value at 30 September 2014 9. For the current year (October 2014 – September 2015) the Maintained Value of the Fund has been calculated from the following inflation indices for the Australian Consumer Price All Groups Index (base year 2011-12 = 100.0) – see Table 1.1 below. Table 1.1 Australian Consumer Price Index: All Groups (Base Year 2011/12 = 100.0) Date Index Status September 2014 106.4 Actual December 2014 106.6 Actual March 2015 106.8 Actual June 2015 107.5 Actual September 2015 108.0 Actual

10. The Maintained Value of the TTF as at 30 September 2015 - is calculated as shown in Table 1.2 below. Table 1.2 Calculation Description Maintained Value As at 30 September, 2015 Maintained Value of TTF as at 1st Oct 2014 x (CPI at Sep 2015/ CPI at Sep 2014) 142,231,614 $140,124,479 x (108.0 / 106.4) = Donors contribution in June 2015 (Australia) $Value x (CPI at Sep 2015/ CPI at 988,074 June 2015) $983,500 x ( 108.0/ 107.5*) = Total 143,219,688

11. Table 1.2 above calculated the Maintained Value of the Fund as at 30 September 2015 to be A$143,219,688.00.

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2.4 TTF Market Value at 30 September 2015 12. There was a slightly decrease in Market Value from $148,850,512 as at 30 September 2014 to $148,002,255 at 30th September 2015. This has been a decrease of around $850,000 for the financial year 2015. Figure 1 on the next page shows the trend lines for both Maintained Value and Market Value for the TTF since inception. The line graphs clearly show that for the third time since the year 2008 market value has exceeded maintained value. In accordance with the formula for automatic distribution stated in the International Agreement, The Government of Tuvalu can expect a distribution of around $4.8 million. The graph in Figure 2 shows the trends in levels of distributions from the Fund and CIF values at the same time each year (i.e. 30 September when the TTF distribution calculation is done) and over the same period as for Figure 1: 1987 – 2015. 2.5 CIF and Government’s Drawdown 13. As at 30 September 2015 the Consolidated Investment Fund had a balance of about $25.4 million. With the Fund likely to make a distribution of around $4.78 million (this balance is expected to increase to about $30.2 million for the start of the financial year 2016. That would amount to an excess of around $7.26 million over the target CIF savings balance ($22,915,150 - calculated as 16% of the TTF’s ‘maintained value’ at 30 September 2015). 14. For the fiscal year 2015 the Government of Tuvalu a made a contribution of $1.5M into the CIF while withdrawing $4.5 million. Over the same period, the CIF account has received a contribution of $542,854.48 from the New Zealand Government. 2.6 Recommendations 15. The Committee recommends that the Board and the Government of Tuvalu note that: a. The TTF ‘market value’ at 30 September 2015 was $148,002,255; b. The TTF ‘maintained value’ at the same date was $143,219,688; c. An automatic TTF distribution of about $4.78 million is payable from the TTF to the CIF because the ‘market value’ at 30 September 2015 exceeded the ‘maintained value’ by this amount; d. The CIF balance as at 30 September 2015 was around $25,400,000. e. The target CIF opening balance for FY2016 is $22,915,150 (16% of the ‘maintained value’ at 30 September 2015): f. The implied forecast CIF balance at the start of FY2016 is about $30,180,000, i.e. $25,400,000 plus a TTF distribution of about $4.78 million; and g. If this forecast CIF balance of around $30.180 million is confirmed, around $7.265 million of it (the excess above the target CIF savings balance of about $22.915 million) may be available for inclusion in the 2016 National Budget process.

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Figure 1: TTF Market Values & Maintained Values

Tuvalu Trust Fund Market Values & Maintained Values (as at 30 September) 160.0

140.0

120.0

100.0

80.0

60.0

40.0

20.0

0.0 $ million $ 2007 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2008 2009 2010 2011 2012 2013 2014 2015

TTF Market Value TTF Maintained Value

Figure 2: TTF Annual Distributions & CIF Balances

TTF Annual Distributions & CIF Balance

30 as at 30 September

25

20

A$ millions A$ 15

10

5

0 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 CIF Automatic Distribution

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3. 2015 Fiscal Developments & Prospects

3.1 Overview 16. For a third year in a row the Tuvalu Government seems likely to achieve a sizeable overall budget surplus of around $10 million. This view is based on actual fiscal results in Jan-Sep 2015, and expected results in Oct-Dec (including $6.5 million extra expenditure appropriated by the 2015 Supplementary Budget passed in October). This extra amount is to finance Cyclone-Pam-related remedial expenditure not already provided for, and Funafuti lagoon reclamation work using dredging and related equipment that was brought to Tuvalu for the borrow pit remediation project. 17. Key features of this expected outturn are summarised in Table 1 in the Summary Tables section at the end of this chapter and detailed in Annex 2, along with YTD Jan- Sep 2015 budget results and expected results for the remainder of 2015. But this year’s expected similar-sized overall budget surplus masks some significant, underlying developments in revenue and expenditure that pose potential fiscal risks and raise questions about their future sustainability at current levels. In particular, underlying the expected 2015 overall budget surplus outturn are four significant component results:  Total domestic revenue is expected reach almost $53 million, which is 120% of GDP, and 31% higher than in 2014. This is due almost solely to extraordinarily high fishery licence fees. A TTF distribution of $4.7 million also helped boost this total, although was partly offset by lower tax revenue.  Total recurrent expenditure is now expected to reach almost $40 million, which is 91% of GDP, and 10% higher than in 2014.  Total expenditure (including SDEs) is now expected to be about $50 million, which is 116% of GDP, and 24% higher than in 2014.  Total development partner aid is expected to be over $8 million, which is about 19% of GDP, but 28% lower in $ terms than in 2014. The 18. Successive budget surpluses have enabled the Government to consolidate its fiscal position, which is now historically strong. By end September 2015, its CIF reserves exceeded $25 million; its net NBT balance exceeded $18 million; and its net financial position (excluding concessional long-term loans) exceeded $43 million, which roughly equals Tuvalu’s GDP. In addition, the CIF was 17.7% of the corresponding TTF maintained value, thereby exceeding the prescribed target minimum CIF balance, which is set at 16% of this maintained value. 19. Table 2 in the ‘Summary Tables (Appendix)’ section of this chapter clearly shows the government’s currently strong financial position. This means that the Government now has a financial buffer that arguably is sufficient to enable it to stabilise cyclical swings in its key revenue items, or unexpected adverse events on a moderate-scale: but only for a limited period of time. 20. But how long this buffer could fulfil this stabilisation role would depend on the size and number of stabilisation drawings needed. For example, it would not be adequate for an adverse event on the large scale of Cyclone Pam. 21. Exactly when the adequacy of this fiscal buffer may be tested in practice is uncertain. What is certain, however, is that the Government now faces the prospect of a variety of significant uncertainties and related fiscal risks: some of which essentially are outside its sphere of influence and others within it.

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22. Potential major fiscal risks that stem from events outside the Government’s control include:  Global market uncertainties and volatilities noted in the next section (3.2);  Uncertain climatic changes causing volatility in the volume and type of Tuna fish caught in Tuvalu’s EEZ;  Extreme weather events such as tropical cyclones and El Nino droughts.  Potential changes in donors’ political/policy priorities could change the level of budget support that development partners provide as part of their aid. 23. Potential major fiscal risks arising from factors that are potentially within the Government’s control notably include:  Continuing failure to control some fast-growing expenditure programs, notably the Tuvalu Medical Treatment Scheme (TMTS) and the Student Education Loan Fund (SELF);  An urgent need to complete implementing some public-sector management reforms to improve revenue collection and strengthen controls on spending;  The need to keep funding reductions to the deferred maintenance backlog now a start has been made this year to overcome years of under-funding;  The emerging need to increase capital expenditure to strengthen and protect vital infrastructure as part of the post-Pam strategy of increased resilience;  Likely funding of reform/capital injections/community service obligations (CSOs) for some troubled public enterprises to protect/improve services.  Some Special Development Expenditures (SDEs) that are supposed to be “one- off” appear likely to be included in future recurrent expenditure.  The emerging need to re-invest some fishing revenue back into that sector to preserve and increase the income and other benefits to the people of Tuvalu.  A planned increase in civil service and MPs remuneration with effect from 1 January 2016, to compensate for inflation since these rates were last increased at the start of 2014. (The amount of the increase was not known in October.)  Expected new pressures to finance items on the Te Kakeega III ‘wish list’ of longer-term policies and actions. 24. Against this background the Government, in formulating the 2016 Budget, would be prudent to consider further boosting its already strong CIF position as part of an agreed medium-term fiscal strategy to guide its actions over the next few years. The time to do so is when domestic revenue is at historically high levels, not when it is experiencing a cyclical slump. 25. In addition, the Government would also be wise to be relatively conservative both in setting expenditure ceilings to limit its expenditure plans for 2016, and in budgeting for revenue receipts (especially fisheries licence fees) rather than taking the risk of expecting them to continue their exceptional growth trend. 26. A conservative figure for forecasting of fisheries revenue (net of reinvestment in the sector) is probably the single most important assumption that the Government must make in its budget scenarios for the next Medium-Term Fiscal Framework (MTFF).

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3.2 Fiscal Sustainability 27. Questions about the future sustainability of such budget surpluses from a medium- term fiscal strategy perspective arise for a combination of reasons. 28. Tuvalu’s fisheries licence fee revenue: First, it is uncertain to what extent Tuvalu’s fisheries licence fee revenue in 2016 and beyond will continue at such a historically high level. While there is little doubt that Tuvalu’s participation in the VDS Management Scheme has boosted returns on its fisheries resources, these returns are affected – amongst other things - by uncertain global economic conditions; volatility of Tuna catch volume in its EEZ, which varies with different weather patterns; volatility of Tuna catch prices, and market volatility in AUD/USD exchange rates which determines the AUD value received for USD payments for licence fees. 29. In 2015 fisheries licence fee revenue in AUD has been boosted by both its high USD levels, and by a sizeable appreciation of the USD vis-à-vis the AUD. Figure 1 below shows the volatility of USD/AUD exchange rates (interbank) since January 2005. Figure 2 shows the volatility of fishery licence fee revenue. Figure 1: Volatility of USD/ AUD Exchange Rates

US Dollar vis-a-vis AUD: 2005 - 2015

1.60 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

1.50 2009 Budget USD:AUD Mthly Av Finalisation Poly. ( USD:AUD Mthly Av)

1.40 2015 Budget Finalisation 2012 Budget Finalisation 1.30 2014 Budget Finalisation

2011 Budget 2013 Budget 1.20 Finalisation USD1 = AUD AUD USD1= Prep. Finalisation Prep. Prep. Prep. 1.10

Prep. Prep. 2010 Budget 1.00 Finalisation Prep.

0.90 Jul-11 Jul-11 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-12 Jul-13 Jul-15 Jul-14 Apr-11 Apr-11 Oct-11 Jan-11 Jan-11 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-12 Jan-13 Jan-14 Jan-15

Figure 2: Volatility of Tuvalu Govt. Fisheries Licence Fee Revenue

Tuvalu Govt. Fisheries Licence Fee Revenue: 1997-2015

30

25 (AUD)

20 Median 15 M illion 3 Year Moving Av 10

5

0

F'cst 2001 2005 2007 2008 2009 2011 1997 1998 1999 2002 2003 2004 2006 2010 2012 2013 2014 2000

2015

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30. In the face of the foregoing sources of uncertainty, TTFAC considers that it is neither realistic – nor fiscally prudent – to base the medium-term fiscal strategy on fisheries revenue in AUD continuing at such a high level in 2016 and beyond. 31. Volatility in the monthly timing and amounts of monthly USD fisheries licence fee receipts during a financial year compounds the government’s difficulties in reliably predicting the resultant annual AUD revenue. This volatility is evident in Figure 3 below, which shows AUD receipts and rough estimates of the USD amounts paid. Figure 3: Volatile Nature of Monthly Fisheries Licence Fee Revenue: 2014-15

16

14 Mthly Fisheries Licenses Actual (AUD) M illions

12 Mthly Fisheries Licenses Calcn. (USD) AUD

10

8

6

4

2

0

4 5 5 5 4 4 4 1 1 1 1 1 1 1 0 0 0 0 0 0 0 2014 2014 2 2014 2014 2 2015 2015 2015 2 2015 2015 2015 2015 2 2015 2015 2014 2 2 2014 2014 2 2014

l t r c y g n c u a a e u a J Jul J Jun Jan Jun O Apr Oct Apr Feb Sep Dec Feb Sep D Aug A Nov Nov Mar M May M

32. Prediction difficulties arise because the AUD value depends on exactly when the USD denominated licence fees are payable and exactly what precise level the applicable (but volatile) USD/AUD happens to be at the time. But this is hard to predict reliably. The AUD results, therefore, currently are akin to a lottery. Forecasting these results is made even more difficult by the current absence of available records of the corresponding USD value of the fees payable due. While the actual USD fee amounts payable are not held in the FMIS system, the NBT may have a record these transactions that MFED could access. If not, the government could require its fishery licence holders to supply this information to it as part of future licence fee agreements. 33. More accurate information about these transactions would greatly assist MFED to make a more reliable assessment of the fiscal risks from the key sources of volatility in this important revenue item. This information includes actual exchange rates used to convert the USD amounts to AUD. 34. Total revenue: Figure 4 below compares growth in the government’s four main revenue categories: taxation; investment income (including TTF distributions); government charges (including USD designated fisheries licence fees, and .tv domain name licence fees); and development partners’ budget support grants. It puts into stark perspective the importance of revenue from fisheries and .tv licence fees. 35. From a risk management perspective, it would be desirable for the government to try to reduce the risks of such concentrated reliance on just two key revenue sources, by continuing to strive to collect as much as practical of the moneys payable to it from taxes, including income and company tax, TCT, and excise duties. Recent reforms to tax administration and tax auditing - along with improved manpower and training resources for this role - have already yielded improved tax revenue collection: by

13 TTFAC Report 32 PART 2 9 November 2015 encouraging increased voluntary compliance by taxpayers. Such efforts need to be continued to improve the government’s prospects achieving fiscal sustainability. Figure 4: Tuvalu Govt. Revenue by Types: 2012-2015

40

35

30

Millions 25

20 AUD

15

10

5

0 2012 2013 2014 2015 Actual Actual Actual M FED F'cast

Taxa on Investment Revenue Government charges Total Develt. Partner Aid

36. Figure 5 below shows the differences in these revenue categories’ contribution to the government’s total revenue (actual or forecast) over the four years to end 2015. Figure 5: Tuvalu Govt. Revenue by Types Share of Total Revenue: 2012-2015

70

60

M illions 8

50

AUD 12 40 10 37 30 11 24 20 25 15 6 10 10 1 0 6 8 6 9 0 2012 2013 2014 2015 Actual Actual Actual M FED F'cast

Taxa on Investment Revenue Government charges Total Develt. Partner Aid

37. Total expenditure: Second, a key issue with the high level of total expenditure expected for the 2015 outturn is, “To what extent will it effectively commit the Government to maintain this historically level of expenditure in future?” If the one fifth of this total classified as “non-recurrent” is truly non-recurrent, then it may pose less of a potential fiscal problem in 2016 onwards. 38. But some grounds exist for thinking that the MTFF definition of non-recurrent expenditure may include some items that are ‘recurrent’ in nature. For example, the Treasury Department’s monthly statement of receipts and payments (published in its Monthly Dashboard) excludes items that Planning & Budget Department classified as being ‘SDEs’ for MTFF purposes. The exclusions apparently were made because the items were deemed to be essentially “recurrent”, not capital expenditure used for special development purposes. TTFAC was unable to resolve this issue this visit.

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39. Expenditure growth: Figure 6 below shows the main drivers of the substantial increase in total expenditure evident from 2012 onwards. It is based on actual expenditure for 2012-2014 and Jan-Sep 2015, and MFED’s forecast for the remainder of 2015, with the expenditure items grouped into six types as listed in the legend. Figure 6: Tuvalu Govt. Expenditure by Nature of Expense: 2012 - 2015

18

16 M illions

14 AUD 12

10

8

6

4

2

0 2012 2013 2014 2015 F'cst Staff Remuneration Social Programs Goods & Services

Grants, Subsidies, & CSOs Capital expdt Other Expdt

40. The four main drivers of the growth in expenditure from 2012 to end- 2015 are: a. Staff remuneration which has increased by 30% to $15.9 million; b. Social programs (including the TMTS, scholarships, and SDEs) which has increased by 165% to $17.4 million; c. Goods and services (including travel, communications, maintenance and fuel) which has increased by 138% to $10.7 million; d. Grants and subsidies (including CSO payments) which has increased by 120% to $3.8 million; 41. The other two groups of expenditure were only minor players in the increase: i.e. ‘capital expenditure’, and ‘other expenditure’ (including contributions to overseas organisations) 42. If controls on ‘staff remuneration’ and ‘social programs’ are not strengthened in 2016, this will add another ongoing fiscal risk to future fiscal sustainability. The problem is that the higher expenditure levels certainly mean higher ongoing recurrent expenditure commitments, while a corresponding increase in domestic revenue is likely to be quite uncertain. During TTFAC’s visit the 2016 Budget formulation cycle had not advanced sufficiently to provide a basis for any firm assessment of these fiscal risks – but the overall expenditure prospects are clearly for increased spending pressures that will be very difficult to restrain.. 43. Development partner grants: Again in 2015, another major contributor to the expected overall budget surplus is the sizeable amount of development partner grants received, albeit much lower than in 2014. In 2015 if such grants total more than $8 million as expected, they will convert the Government’s domestic budget surplus of $1.5 million into an overall budget surplus of nearly $10 million. An even more dramatic conversion occurred in 2014: when such grants converted a domestic funding surplus of $0.6 million into an overall budget surplus of over $12 million. Exactly what level of 15 TTFAC Report 32 PART 2 9 November 2015

such cash grants is likely to eventuate in 2016 is unknown at this stage. But it is understood that ROC has committed to increase its normal level of annual budget support for Tuvalu to $7.5 million (from $5 million). 44. Figure 7 below shows the extent to which budget support from Tuvalu’s development partners has contributed to its total revenue each year. Figure 7: Budget Aid Received from Tuvalu’s Development Partners: 1997-2015

70

Total Develt Partner Budget Aid 60 Total Domes c Revenues M illions

50 AUD

40

30

20

10

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 45. But this figure does not reveal its true financial impact on the overall budget balance each year. In the three years 2013 to 2015, for example, the amounts were sufficient to convert relatively small domestic funding surpluses into sizeable overall budget surpluses. Underlying Fiscal Position 46. In assessing the implications of the overall budget surpluses achieved in last two financial years - and expected surplus in 2015 – it is important to realise that they measure only the net result of each year’s fiscal performance. They do not reveal anything about the government’s underlying fiscal position or its likely future sustainability. To do that – as TTFAC has previously argued - “requires a more comprehensive exercise ... One that takes into account not just its likely medium-term fiscal performance, but also the resources needed to finance a variety of key reform actions that are essential for Tuvalu to achieve its development aspirations.”1 Medium-Term Fiscal Strategy 47. The Government will need such information in order to devise a relevant, realistic and sustainable medium-term fiscal strategy with clear fiscal goals and constraints (e.g. target fiscal ratios). The strategy’s primary aim is to try to ensure that the government acts in a fiscally prudent and sustainable way in formulating its annual budget plans. Logically, to this end the goals and constraints endorsed by the fiscal strategy set the fiscal bounds within which annual budget decisions are required to stay.

1 “29th Report of Tuvalu Trust Fund Advisory Committee: 3-15 April 2014”, 1 May 2014; page 16.

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Failure to comply with them risks encouraging budget decisions that are fiscally unsustainable or imprudent. 48. Table 3 in the Summary Table (Appendix) shows the key fiscal ratios for the government’s budget performance outturns in 2012-2014 and forecast 2015 outturn. In this context, an issue that may merits more attention is the calculation of the currently used estimates of Tuvalu GDP for 2013 onwards to provide reassurance of the reliability and robustness. 49. To be effective a medium-term fiscal strategy arguably needs to be consistent with an overarching whole-of-government strategic plan, which has clear public-policy goals (or outcomes sought) and clear priorities, and these are formally endorsed and embraced by the government. 50. The Government’s medium-term fiscal strategy, and whole–of-government strategic plan, together logically would spawn a various implementation plans that are specific enough to enable realistic draft budget plans to be formulated to give effect to the action and outcomes sought. But unless strategic plans are converted into such specific action plans, it is very difficult to budget for new or revised strategic policy actions. Medium-Term Fiscal Framework (MTFF) 51. The MTFF table at the start of each year’s Budget is intended to provide Parliament, the public, and the Government with a realistic measure of the likely fiscal implications of existing and planned new government policies. Formulation of the MTFF is underpinned by informed guesses about the pertinent features of the likely social, economic and environmental state of the world: in the budget year, and the two subsequent years. 52. To be effective the MTFF needs to incorporate commitments such as any specific implementation plans of action that are already approved – or likely to be – within the planning horizon in order to implement the government’s overarching strategic plan. For example, these sentiments apply to two topical issues:  An agreed specific implementation plan of action is deferred maintenance action that the Government envisages will be identified, approved and implemented through a series of individually-approved maintenance plans.  The new overarching strategic plan will be “Te Kakeega III” – and a series of new implementation plans will be built from actions assigned to government. 53. The Government needs to construct an up-to-date revised MTFF which is prudent in applying the lessons about past volatility in revenues, realistic about existing commitments not included in the existing base recurrent expenditure; and strategic in creating room to accommodate any recurrent spending that results from new strategic policy priorities. 3.3 Summary Findings 54. In 2015, for a third year in a row the Tuvalu Government seems likely to achieve a sizeable overall budget surplus of around $10 million. But this year’s expected overall budget surplus masks some significant, underlying developments in revenue and expenditure that pose potential fiscal risks and raise questions about their future sustainability at current levels. 55. Successive overall budget surpluses have enabled the Government to consolidate its fiscal position including its CIF balance, which is now historically strong. As a

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result, the Government now has a financial buffer that arguably is sufficient to enable it to stabilise cyclical swings in its key revenue items, or unexpected adverse events on a moderate-scale: but only for a limited period of time. 56. But how long the government’s financial position could effectively fulfil this stabilisation role would depend on both the amount of stabilisation drawings needed in a financial year, and how many years of drawings needed to be financed before the CIF balance is restored to its pre-drawing level. 57. It is currently uncertain when external shocks are likely to test the adequacy this fiscal buffer in practice. However, it is certain that the Government now faces the prospect of a variety of significant uncertainties and related fiscal risks: some of which are entirely outside its sphere of influence, and others within it. 58. The high level of total expenditure expected for the 2015 outturn raises the issue, “To what extent will it effectively commit the Government to maintain this historically level of expenditure in future?” 59. Four main expenditure types are largely responsible for the growth in total expenditure from 2012 to end- 2015: a. Staff remuneration which has increased by 30% to $15.9 million; b. Social programs (including the TMTS, scholarships, and SDEs) which has increased by 165% to $17.4 million; c. Goods and services (including travel, communications, maintenance and fuel) which has increased by 138% to $10.7 million; d. Grants and subsidies (including CSO payments) which has increased by 120% to $3.8 million; 60. About 1/5th of this total expenditure is classified as SDEs, which the MTFF treats as on-recurrent expenditure. If all the SDE items truly are not recurrent, then this portion of total expenditure may not be interpreted as an ongoing commitment for it to carry over into 2016. In that case, other things unchanged, this could reduce the government’s fiscal exposure in 2016. Of course, the fiscal position will be different next year. How different will depend to a large extent on the 2016 Budget, which is yet to be finalised. 61. Also, TTFAC has found evidence to suggest that some “SDE” expenditure items in the MTFF may be essentially ‘recurrent’ in nature. To the extent this is so, it would mean that the “SDE” expenditure in question could be ongoing. TTFAC was unable to resolve this issue during the October 2015 mission, but will endeavour to do so in April 2016. 62. While budget-support grants from Tuvalu’s development partners have been a major source of government revenue in the three years 2013-15, the likely total level of such cash grants in 2016 remains as yet unknown. But at least the ROC is understood to have committed to increase to $7.5 million (from $5 million) its normal level of annual budget support for Tuvalu. 3.4 Conclusions Fiscal Caution to Manage High Uncertainty & Fiscal Risks 63. Although the Government now is in a historically strong fiscal position, it is formulating the 2016 Budget against a backdrop of considerable uncertainty and related fiscal risks in 2016, and beyond. To manage these risks and uncertainty effectively

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arguably requires a relatively conservative fiscal stance in terms of items that are within the government’s sphere of control. Need for Up-to-Date, Robust Medium-Term Fiscal Strategy 64. The Government’s ability to make effective budgetary and fiscal management decisions would much improved if such decision-making is supported by the existence of an up-to-date robust medium-term fiscal strategy. 65. To fulfil this role effectively the fiscal strategy needs to be supported by an up-to- date medium-term fiscal framework (MTFF) that realistically reflects the fiscal implications of the Government’s underlying strategic policy goals and resultant implementation plans, which may require multi-sectoral initiatives with multi-year horizons. More specifically, to be effective an MTFF needs to reflect realistically the:  Expenditure needed to sustain day-to-day core government activities - as well as extra-ordinary capital expenditure on items such as deferred maintenance, recapitalisation/ restructuring of Public Entities, or boosting/replenishing CIF reserves) and donor-funded development projects and reforms – over multiple financial years;  Adequate unallocated contingency amount to cover risk of underestimation due to unexpected additional expenses being incurred due to higher than expected prices or less favourable than expected exchange rates; and  Revenue likely to be received under existing and/or planned new policies, after explicitly allowing for volatility in underlying key determinants of major revenue items. 66. Having an up-to-date, realistic MTFF is a necessary condition – but not sufficient - for the Government to achieve fiscal sustainability. 67. The Government may also be wise to be relatively conservative both in setting ceilings to limit its expenditure plans for 2016, and in budgeting for revenue receipts (especially fisheries licence fees) rather than taking the risk of expecting them to continue their exorbitant growth trend. Further Boosting CIF Reserves Would Help Cover Fiscal Risks 68. With the prospect of considerable uncertainty and risks in the next several years - and bumper fisheries licence fee revenue for 2015 - it would seem opportune to add further to CIF even though its actual balance is now slightly above the “target CIF savings balance” which equals 16% of the current “maintained value” of the TTF.2 The time to do so is when domestic revenue remains at historically high levels, not when it is in a cyclical slump. But such a decision would be best made as part of agreed medium- term fiscal strategy. Action Needed to Assess & Mitigate Fiscal Risks Better 69. Access to USD transaction data: USD-denominated licence fees (fisheries and .tv domain) are a major component of the government’s revenue. Assessing and managing the fiscal risks associated with the volatility of the USD/AUD rate, could be made much more effective by ensuring that MFED has ready access to reliable records

2 This “target CIF savings balance” - and other rules r egarding the CIF – are set down in the “Financial Instructions: Version 2015.01”, pp.51-2.

19 TTFAC Report 32 PART 2 9 November 2015

of the actual USD amounts of fees payable before they are converted to AUD. Currently MFED does not have such access to this information. 70. Although the actual USD fee amounts payable are not held in the FMIS system, the NBT may have a record these transactions that MFED could access. If not, the government could require its fishery licence holders to supply this information to it as part of future licence fee agreements. 71. Diversification of significant revenue sources desirable: From a risk management perspective, it would be desirable for the government to try to reduce the fiscal risks of such concentrated reliance on just two key revenue sources, by continuing to strive to collect as much as practical of the moneys payable to it from taxes, including income and company tax, TCT, and excise duties. Action Needed to Facilitate Fiscal Sustainability 72. Continued enhancement of tax-administration effectiveness: With this aim in mind, it is desirable that the Government continue to support efforts to enhance tax administration effectiveness - including continuing tax administration training for this role – which has already yielded improved tax revenue collection. This arguably would significantly improve the government’s chance of achieving fiscal sustainability. 73. Better control of TMTS and scholarships expenditure needed: If increasing expenditure on ‘staff remuneration’ and ‘social programs’ (TMTS, overseas scholarships and SELF) remains essentially unchecked in 2016, then this represents an ongoing fiscal risk to future fiscal sustainability. 74. Maintaining core staff capacity is key to fiscal/operational sustainability: Another necessary condition is that the government give high priority to ensuring that staff appointed to key government roles remain in them for sufficient time to become effective in performing them; have sufficient overlapping time to brief whoever their replacements are; and generally are only released to take up in-service overseas scholarship at a time that is not unduly disruptive or damaging to the functioning of the roles concerned. This issue is discussed in more detail in Further Boosting CIF Reserves Would Be Beneficial 75. With the prospect of considerable uncertainty and risks in the next several years - and bumper fisheries licence fee revenue for 2015 - it would seem opportune to add further to CIF even though its actual balance is now slightly above the “target CIF savings balance” which equals 16% of the current “maintained value” of the TTF.3 The time to do so is when domestic revenue remains at historically high levels, not when it is in a cyclical slump. But such a decision would be best made as part of agreed medium- term fiscal strategy. 76. The overall budget surpluses achieved in last two financial years - and expected surplus in 2015 – measure only the net result of each year’s fiscal performance. They do not reveal anything about the government’s underlying fiscal position or its likely future sustainability. To do that “requires a more comprehensive exercise ... that takes into account likely medium-term fiscal performance, and the resources needed to finance a variety of vital reform actions that are essential to achieve Tuvalu’s development aspirations.”

3 This “target CIF savings balance” - and other rules r egarding the CIF – are set down in the “Financial Instructions: Version 2015.01”, pp.51-2.

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3.5 Recommendations 77. TTFAC recommends that the Government of Tuvalu: a. Consider further boosting its already strong CIF position in the near future to ensure that it can play an effective financial stabilising role for longer than otherwise would be possible, in view of the degree of uncertainty about fiscal performance in 2016 and resultant fiscal risks. b. Adopt a conservative approach in both setting expenditure ceilings to limit its expenditure plans for 2016, and in budgeting for revenue receipts (especially fisheries licence fees), rather than taking the risk of expecting them to continue their exorbitant growth trend. c. Authorise MFED be asked to take steps to obtain timely, reliable records of the USD value of licence fees payable to the government for fisheries access and .use of the tv domain name, either from the NBT or the licence holders. d. Continue to support further TA tax administration training in order to enhance tax revenue auditing, collection and enforcement and, thereby, to significantly improve the government’s prospects of achieving fiscal sustainability. e. Initiate action needed to enable the Monthly Dashboard to include reporting of a monthly statement of receipts and payments on an MTFF-compatible basis, to enable it to be used effectively to monitor ongoing budget performance. f. Identify and implement action to limit further sizeable increases in expenditure on ‘staff remuneration’ and ‘social programs’ (TMTS, overseas scholarships and SELF) in 2016, and thereby the scale of associated ongoing fiscal risks that arguably would undermine future fiscal sustainability. g. Ensure MFED constructs an up-to-date, revised MTFF, which is consistent with logically-based fiscal targets and constraints that are likely to help the government to achieve fiscally sustainable budgets in 2016 and beyond.

21 TTFAC Report 32 PART 2 9 November 2015

3.6 Summary Tables (Appendix) For convenience, this section comprises the summary tables referred to earlier in this chapter, the more detailed tables from which the summaries are produced and some fiscal ratios. Table 1: Govt of Tuvalu: Forecast 2015 Outturn versus 2014 Outturn Budget Item 2014 2015 Change ex 2014 Outturn MFED Forecast Outturn Outturn (Revised Oct) ($) ($) ($) (%) Taxation $5,933,484 $8,807,363 2,873,878 48.4% Investment Revenue $9,752,025 $6,030,437 -3,721,588 -38.2% Government charges $23,833,874 $36,904,951 13,071,077 54.8%

Total Domestic Revenue $39,519,383 $51,742,750 12,223,367 30.9%

Staff $15,211,350 $15,907,273 695,923 4.6% All Non-Staff Expenditure $20,684,846 $23,450,125 2,765,279 13.4% Total Recurrent Expdt. $35,896,196 $39,357,398 3,461,202 9.6%

Structural Balance $3,623,187 $12,385,353 8,762,166

Special Development Expdt $4,674,015 $7,848,992 3,174,977 67.9% Transfers to the TTF $0 $3,000,000 3,000,000 Total Non-Recurrent Expdt. $4,674,015 $10,848,992 6,174,977 132.1%

Domestic Funding (Gap) / Surplus -1,050,828 1,536,360 2,587,189

Funded by:

Total Develt. Partner Aid $11,630,443 $8,344,367 -3,286,077 -28.3%

Overall Budget (Deficit) / Surplus $10,579,615 $9,880,727 -698,888 -6.6%

Table 2: Tuvalu Govt. Financial Position Excluding Soft Loans: 2012 - 2015 (AUD)

Account Names 31/12/12 31/12/13 31/12/14 31/03/15 30/06/15 30/09/15 Govt Operating Accounts at NBT 321,583 9,317,199 4,304,619 1,423,651 3,384,637 11,791,596 Total Govt Investment Accs at NBT 1,930,213 2,210,012 2,152,840 2,165,825 2,542,477 2,246,180

Govt Indebtedness to NBT -2,537,287 -2,167,149 -906,418 -906,418 0 0

Tuvalu Development Fund at NBT 2,384,160 2,404,936 2,457,184 2,791,767 4,663,146 4,319,935

GOT NET BALANCE AT NBT 1,815,553 11,779,069 8,022,297 5,488,897 10,604,333 18,371,782

GOT GUARANTEES TO FIJI BANKS 0 0 0 0 0 0

GOT RESERVES (CIF) 4,459,230 5,419,544 24,643,524 25,265,248 25,072,970 25,415,215

TOTAL NET BALANCE 6,274,782 17,198,613 32,665,821 30,754,145 35,677,302 43,786,996

Source: National Bank of Tuvalu, TTF, MFED, & TTFAC

22 TTFAC Report 32 PART 2 9 November 2015

Table 3: Detailed Fiscal 2015 Outturn (MFED Forecast) v. 2014 Outturn

Budget Item 2014 2015 Change ex 2014 Contrib to Outturn MFED Forecast Outturn Change in Outturn Overall (Revised Oct) Budget Bal ($) ($) ($) (%) (%) 411 Income tax 2,518,206 1,899,023 -619,183 -24.6% -89.2% 412 Company tax 469,492 3,361,540 2,892,048 616.0% 416.8% 414 TCT 151,460 262,307 110,848 73.2% 16.0% 415 Import duties 1,256,882 1,478,147 221,265 17.6% 31.9% 416 TCT (on imports) 1,099,632 1,066,745 -32,888 -3.0% -4.7% 417 Excise Duties 389,080 445,795 56,715 14.6% 8.2% 418 Other taxes 48,732 293,806 245,074 502.9% 35.3% Taxation 5,933,484 8,807,363 2,873,878 48.4% 414.1% 421 Dividends 2,649,139 537,818 -2,111,322 -79.7% -304.3% 422 Interest 581,046 574,011 -7,035 -1.2% -1.0% 423 Rents 173,503 190,806 17,303 10.0% 2.5% 451 TTF Distribution 6,348,336 4,727,802 -1,620,534 -25.5% -233.5% Investment Revenue 9,752,025 6,030,437 -3,721,588 -38.2% -536.3% 431 Fish licences 15,951,218 27,958,501 12,007,284 75.3% 1730.3% 432 Marine Department 1,445,861 1,922,114 476,253 32.9% 68.6% 434 Other charges 922,637 1,061,532 138,895 15.1% 20.0% 436 .TV 5,514,159 5,963,033 448,874 8.1% 64.7% Government charges 23,833,874 36,905,180 13,071,306 54.8% 1883.7%

A. Total Domestic Revenue 39,519,383 51,742,979 12,223,596 30.9% 1761.5%

Staff 15,211,350 15,907,273 695,923 4.6% -100.3% All Non-Staff Expenditure 20,684,846 23,450,125 2,765,279 13.4% -398.5% B. Total Recurrent Expdt. 35,896,196 39,357,398 3,461,202 9.6% -498.8%

C. Structural Balance 3,623,187 12,385,582 8,762,395

7SD Special Development Expdt 4,674,015 7,848,992 3,174,977 67.9% -457.5% 791 Transfers to the TTF 0 3,000,000 3,000,000 -432.3% Total Non-Recurrent Expdt. 4,674,015 10,848,992 6,174,977 132.1% -889.9%

D. Domestic Funding (Gap) / Surplus -1,050,828 1,536,589 2,587,418

Funded by: 442 ROC 5,000,000 6,395,240 1,395,240 27.9% 201.1% 443 Japan (fuel grant) 0 560 560 0.1% 445 Other Recurrent Grants 0 0 0 0.0% Develt. Partner Aid: Recurrent 5,000,000 6,395,800 1,395,800 27.9% 201.1%

448 ROC 0 45,000 45,000 6.5% 441 EU 0 0 0 0.0% 444 ADB 0 0 0 0.0% 449 AusAID 2,000,000 0 -2,000,000 -100.0% -288.2% 446 NZAID 543,755 0 -543,755 -100.0% -78.4% 447 World Bank 3,345,359 2,015,023 -1,330,336 -39.8% -191.7% 450 Others 741,329 -106,726 -848,055 -114.4% -122.2% Develt. Partner Aid: Non-Recurrent 6,630,443 1,953,297 -4,677,146 -70.5% -674.0%

E. Total Develt. Partner Aid 11,630,443 8,349,097 -3,281,346 -28.2% -472.9%

G. Overall Budget (Deficit) / Surplus 10,579,615 9,885,686 -693,928 -6.6% -100.0%

23 TTFAC Report 32 PART 2 9 November 2015

Table 4: Detailed 2015 Fiscal Outturn (MFED Forecast) v. 2015 Budget Budget Item 2015 2015 Change ex 2015 Budget Contrib to Budget Forecast Change in Outturn Overall (MFED) ($) (%) Budget Bal

411 Income tax 1,800,000 1,899,023 99,023 5.5% 3.4% 412 Company tax 2,779,986 3,361,540 581,554 20.9% 20.2% 414 TCT 300,000 262,307 -37,693 -12.6% -1.3% 415 Import duties 1,330,000 1,478,147 148,147 11.1% 5.1% 416 TCT (on imports) 880,000 1,066,745 186,745 21.2% 6.5% 417 Excise Duties 450,000 445,795 -4,205 -0.9% -0.1% 418 Other taxes 413,100 293,806 -119,294 -28.9% -4.1% Taxation 7,953,086 8,807,363 854,277 10.7% 29.6% 421 Dividends 1,883,862 537,818 -1,346,045 -71.5% -46.6% 422 Interest 120,000 574,011 454,011 378.3% 15.7% 423 Rents 196,579 190,806 -5,772 -2.9% -0.2% 451 TTF Distribution 6,500,000 4,727,802 -1,772,198 -27.3% -61.4% Investment Revenue 8,700,441 6,030,437 -2,670,004 -30.7% -92.5%

431 Fish licences 13,838,620 27,958,501 14,119,881 102.0% 489.3% 432 Marine Department 1,683,600 1,922,114 238,514 14.2% 8.3% 434 Other charges 1,068,546 1,061,532 -7,014 -0.7% -0.2% 436 .TV 4,050,000 5,963,033 1,913,033 47.2% 66.3% Government charges 20,640,766 36,905,180 16,264,414 78.8% 563.6%

A. Total Domestic Revenue 37,294,292 51,742,979 14,448,687 38.7% 500.7%

710 Staff 15,885,162 15,907,273 22,111 0.1% -0.8% 730 Travel and communications 1,607,056 2,323,182 716,125 44.6% -24.8% 740 Maintenance 1,409,553 2,234,217 824,664 58.5% -28.6% 741 Deferred Maintenance Fund 0 500,000 500,000 -17.3% 750 Goods and services 4,493,873 4,390,507 -103,366 -2.3% 3.6% 751 Medical Treatment Schemes 2,300,000 3,521,501 1,221,501 53.1% -42.3% 752 Fuel and Oil 2,055,122 1,250,094 -805,028 -39.2% 27.9% 761 Grants & Subsidies 2,287,084 3,459,688 1,172,604 51.3% -40.6% 753 Scholarships 2,339,777 3,018,938 679,161 29.0% -23.5% 760 Other Expenses 286,732 703,702 416,970 145.4% -14.4% 762 Overseas Contributions 794,049 914,936 120,887 15.2% -4.2% 770 Capital 68,241 89,278 21,037 30.8% -0.7% 780 Loan Repayment 451,245 701,374 250,130 55.4% -8.7% 781 Interest Expense 132,357 22,345 -110,012 -83.1% 3.8% 793 Community Service Obligations 553,712 320,363 -233,349 -42.1% 8.1% All Non-Staff Expenditure 18,778,802 23,450,125 4,671,323 24.9% -161.9% B. Total Recurrent Expdt. 34,663,964 39,357,398 4,693,434 13.5% -162.6%

C. Structural Balance 2,630,328 12,385,582 9,755,253

7SD Special Development Expenditure 4,529,624 7,848,992 3,319,369 73.3% -115.0% 791 Transfers to the TTF 0 3,000,000 3,000,000 104.0% Total Non-Recurrent Expdt. 4,529,624 10,848,992 6,319,369 139.5% -219.0%

D. Domestic Funding Gap -1,899,295 1,536,589 3,435,885

Funded by: 442 ROC 7,983,819 6,395,240 -1,588,579 -19.9% -55.1% 443 Japan (fuel grant) 1,000,000 560 -999,440 -99.9% -34.6% 445 Other Recurrent Grants 0 0 0 0.0% Develt. Partner Aid: Recurrent 8,983,819 6,395,800 -2,588,019 -28.8% -89.7%

448 ROC 0 45,000 45,000 1.6% 441 EU 0 0 0 0.0% 444 ADB 0 0 0 0.0% 449 AusAID 2,000,000 0 -2,000,000 -100.0% -69.3% 446 NZAID 520,800 0 -520,800 -100.0% -18.0% 447 World Bank 3,000,000 2,015,023 -984,977 -32.8% -34.1% 450 Others 166,000 -106,726 -272,726 -164.3% -9.5% Develt. Partner Aid: Non-Recurrent 5,686,800 1,953,297 -3,733,503 -65.7% -129.4%

F. Total Develt. Partner Aid 14,670,619 8,349,097 -6,321,522 -43.1% -219.1%

G. Overall Budget (Deficit) / Surplus 12,771,324 9,885,686 -2,885,637 -22.6% -100.0%

24 TTFAC Report 32 PART 2 9 November 2015

Table 5: Detailed Fiscal Outturns: Actual 2012-14, Forecast 2015 & Fiscal Ratios Budget Item 2012 2013 2014 2015 Actual Actual Actual MFED F'cast 411 Income tax 2,184,271 1,528,028 2,518,206 1,899,023 412 Company tax 1,018,153 2,977,900 469,492 3,361,540 414 TCT 20,662 347,310 151,460 262,307 415 Import duties 1,188,685 1,117,410 1,256,882 1,478,147 416 TCT (on imports) 561,037 929,286 1,099,632 1,066,745 417 Excise Duties 617,929 447,638 389,080 445,795 418 Other taxes 134,101 412,957 48,732 293,806 Taxation 5,724,839 7,760,530 5,933,484 8,807,363

421 Dividends 752,418 129,187 2,649,139 537,818 422 Interest 350,215 154,648 581,046 574,011 423 Rents 162,567 171,145 173,503 190,806 451 TTF Distribution 0 0 6,348,336 4,727,802 Investment Revenue 1,265,201 454,980 9,752,025 6,030,437

431 Fish licences 8,401,494 18,028,934 15,951,218 27,958,501 432 Marine Department 1,400,373 1,561,947 1,445,861 1,922,114 434 Other charges 1,339,992 1,502,415 922,637 1,061,532 436 .TV 3,712,031 4,355,012 5,514,159 5,963,033 Government charges 14,853,890 25,448,307 23,833,874 36,905,180 A. Total Domestic Revenue 21,843,930 33,663,817 39,519,383 51,742,979

710 Staff 12,414,322 12,812,464 15,211,350 15,907,273 730 Travel and communications 1,262,602 1,295,172 1,845,711 2,323,182 740 Maintenance 1,282,645 1,743,731 1,772,301 2,234,217 741 Deferred Maintenance Fund 0 500,000 750 Goods and services 3,759,542 4,389,683 4,381,879 4,390,507 751 Medical Treatment Schemes 2,345,213 2,573,766 2,778,631 3,521,501 752 Fuel and Oil 2,047,804 937,757 1,209,346 1,250,094 761 Grants & Subsidies 1,713,871 1,969,671 2,464,608 3,459,688 753 Scholarships 1,884,944 1,800,429 1,799,028 3,018,938 760 Other Expenses 107,609 200,612 353,873 703,702 762 Overseas Contributions 394,603 799,000 759,175 914,936 770 Capital 20,507 93,344 93,243 89,278 780 Loan Repayment 57,933 42,344 264,100 701,374 781 Interest Expense 120,659 92,997 59,455 22,345 793 Community Service Obligations 0 768,382 2,903,496 320,363 Total Non-Staff Expenditure 14,997,933 16,706,887 20,684,846 23,450,125 B. Total Recurrent Expdt. 27,412,255 29,519,352 35,896,196 39,357,398

A-B = C. Structural Balance [A-B] -5,568,325 4,144,465 3,623,187 12,385,582

7SD Special Development Expenditure 1,925,450 2,963,262 4,674,015 7,848,992 791 Transfers to the TTF 0 0 0 3,000,000 D. Total Non-Recurrent Expdt. 1,925,450 2,963,262 4,674,015 10,848,992

C+D = E. Domestic Funding (Gap) / Surplus -7,493,774 1,181,203 -1,050,828 1,536,589 FUNDED BY: Develt. Partner Aid: Recurrent 4,766,645 5,164,790 5,000,000 6,395,800 Develt. Partner Aid: Non-Recurrent 5,974,906 4,573,388 6,630,443 1,953,297

F. Total Develt. Partner Aid 10,741,551 9,738,178 11,630,443 8,349,097

E+F = G. Overall Budget Balance [Surplus/ (Deficit) ] 3,247,776 10,919,381 10,579,615 9,885,686

2012 2013 2014 2015 FISCAL RATIOS (%) TARGET Actual Actual Forecast MFED F'cast 20% Taxation / GDP 14.9% 19.7% 14.4% 22.4% tbdDomestic Revenue / GDP 56.7% 85.4% 95.9% 131.3% 60%Recurrent Expenditure / GDP 71.2% 74.9% 87.1% 99.9% -11%Core Budget Balance / GDP -19.5% 3.0% -2.6% 3.9% 55% Wages and Salaries / Domestic revenue 56.8% 38.1% 38.5% 30.7% 6%TMTS Expdt / Domestic revenue 10.7% 7.6% 7.0% 6.8% 5% Tuvalu O'seas Scholarship Expdt / Domestic revenu 8.6% 5.3% 4.6% 5.8% GDP (AUD million) 38.5 39.4 41.2 39.4 25 TTFAC Report 32 PART 2 9 November 2015

4. Public Sector Management: Progress & Prospects

4.1 Overview 78. As noted above, the current very favourable fiscal context has been achieved partly by luck, but it has been sustained in recent years through the government’s policy stance: a combination of a prudent medium-term fiscal framework and good progress with public sector management (PSM) reforms. The foundations of the PSM reforms have been major improvements in Public Financial Management (PFM). 79. It is pleasing to note the number of TTFAC recommendations that have been reflected in successful reforms in wider PSM and specifically in PFM. However we felt that a number of recent unanswered recommendations could usefully be revisited in the current context when the wider National Sustainable Development Strategy (Te Kakeega II) is being rethought and refreshed with widespread public consultation, and the current Integrated Reform Matrix is also finishing. 4.2 Recently Completed Reforms 80. Recently completed reforms of Public Financial Management, many of which were included in new Financial Instructions effective from 1 January 2015, include: a. All new policy proposals with fiscal consequences require a MFED report and recommendation before Cabinet will consider them; b. Streamlined expenditure warrants & devolved virements processes give line Ministries more freedom to manage within programs: c. The only authority to commit public money is now a purchase order issued by Treasury only if sufficient uncommitted authorised funds are available. d. All proposals for loans or guarantees can be approved only by the Minister of Finance after detailed analysis by MFED’s Planning & Budget Department. That analysis must be done before any other process, arrangement or commitment occurs. 81. These reforms bring good practices into the public sector. They will need time to become thoroughly understood and applied, but there is scope to extend their use. A major step has been taken towards getting the right balance between consistent high-quality fiscal decision-making throughout the public sector and more freedom for each sector ministry to apply their specialised knowledge to operational decisions. 4.3 Unfinished Reforms

Adding Payroll System to FMIS 82. A system will tend to fail at its weakest points. This is true of PFM systems. The major remaining weakness with Tuvalu’s reformed PFM systems is the absence of an effective payroll system integrated into the reformed systems. The current outdated payroll system has an unacceptably high risk of errors, lacks adequate safeguards, is associated with a high level of overspending and has repeatedly been identified by experts as a top priority for remedial reform action.

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83. The best technical solution has been identified: a payroll module integrated into the Financial Management Information System (FMIS) operated by the Treasury Department via ACCPAC. Corrective action is long overdue. Assets Register 84. MFED is starting to compile a kind of balance sheet for the public sector. This should receive the leadership and resources needed to speed and support this work because sound based decision-making on major public sector reform issues requires: a. calculating the true cost of continuing existing government/PE activities; b. identifying and budgeting for upcoming capital expenditures; c. identifying and budgeting for maintenance expenditures; d. identifying and budgeting for expenditure to increase the resilience of vital infrastructure to natural disasters, etc; e. identifying and avoiding “false economies” such as when deferring maintenance shortens the useful life of the assets i.e. brings forward the time when capital expenditure is needed to replace these assets; and f. calculating the true subsidy to consumers of “Community Service Obligations” (CSOs) when PE prices do not fully recover the cost of capital equipment that is being used up. 4.4 Extending Existing Reforms Performance Measurement & Reporting 85. Major Ministry of Finance and Economic Development (MFED) priorities for 2015 included “to work with line Ministries to develop measurable key performance targets for each activity” and “to produce 2016 National Budget and Key Performance Targets” 4 . Also, recent ADB technical assistance for PERMU supported the development of a reporting template to improve performance reporting across all Public Enterprises. This put more emphasis on measuring and reporting service delivery rather than solely financial results. 86. Both for ministries and PEs, these are welcome next steps to extend earlier reforms that have had to focus more on financial discipline and controls to achieve sustainable fiscal results for government and financial/commercial viability of PEs: first the top priority was survival, later comes service delivery. And the timing of this shift in emphasis fits in very well with the challenges that TK3 will bring. 87. Experience in other countries suggests that, firstly, coping with this shift in emphasis is difficult: managers need time and support to change their thinking and gain the new skills. Secondly, despite differences between public sector and private sector objectives, there is a common set of major issues that must be resolved for any system of performance measurement and reporting. This creates a lot of scope for sharing. For example, currently the “dashboard” approach that was first developed and refined in the private sector is being used within MFED. Therefore combined off- site training sessions can be efficient because of getting more value from scarce

4 Government of Tuvalu 2015 National Budget – p. 49

27 TTFAC Report 32 PART 2 9 November 2015 expert trainers, and also stimulating for participants because of the greater scope for exchanging ideas and making contacts who will help each other change their thinking.

Performance Auditing 88. Staff of the Office of the Auditor General have been receiving training in public sector performance audit which extends to non-financial reporting the same principles as financial audit – especially assurance that users can rely on these figures to support decisions about the activities being reported. Potential benefits of improved non- financial reporting on the outcomes of government spending include:  reassurance where government spending is achieving the intended results;  opportunities for improvement i.e. getting better “value-for-money” in areas where current results do not justify the expenditure involved; and  reduction in donor processes that currently duplicate government reporting. 89. It will be important that there is a strong shared understanding between:  the managers being trained in first developing and then later using non-financial measurement and reporting;  the support staff who will be involved in collecting the data and compiling the reports; and  the audit staff who have already been trained to assess the quality of the reporting itself and to evaluate the information about performance. 90. Obviously one way to do this would be to use these audit staff as part of the training resources available to help the managers and support staff. Leveraging Value from Core Govt. Good Practice Procedures 91. Recent developments in public financial management – especially examples such as new financial instructions and the new procurement procedures – can be thought of as clarifying, simplifying and documenting good practices so they are well- suited to local conditions and clearly communicated. This creates opportunities "leverage" PFM achievements to date. Leverage means getting considerable additional benefits from existing reforms without a lot of extra spending or new policies. 92. One opportunity TTFAC has identified is to adopt some of the PFM good practice procedures (e.g. purchasing, better documentation of financial controls, designated accounting officers) as default procedures for Public Trading Enterprises i.e. all PTE’s would be required to adopt them unless they could demonstrate that their own procedures were better. We have also indicated our support for extending performance auditing from core government to PTE’s and Kaupule projects. 93. An additional benefit from wider use of good practice procedures is that the same training can be shared by more staff. This is already being done successfully e.g. Kaupule Project Officers are being trained in financial controls by the Auditor General’s Office. TTFAC also suggests that basic training in project management – especially project planning – could be shared by Kaupule project officers and relevant staff within core government to supplement the improved financial management. Similarly, proposals for PTE’s to receive Community Service Obligation payments should be subject to the same scrutiny as other spending proposals, so PTE

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Accounting Officers should be required and trained to comply with the new policy proposals in the Financial Instructions. Sector Budgeting 94. The Government of Tuvalu shares many of the same budgeting challenges as governments of much larger countries. One of challenge is identifying and making provision for all the impacts of significant policy initiatives when those initiatives are the primary responsibility of a single Minister, but the impacts include additional spending in a number of different votes. In these circumstances, a sector budgeting approach can be extremely useful. In response to the unexpected impact on the Education vote of Kiribati-based internships for Cuba-trained doctors, an ad hoc committee had to be formed so that all be impacted ministries could help to identify all the issues and reach agreement on recommended solutions. 95. Strengthened PFM procedures may help to identify such issues in future, but the issues will still need to be resolved. Other countries have found value in establishing permanent committees to coordinate the development of policies and the prioritisation of budget spending, and to resolve the issues that arise, for widely-defined sectors: e.g. social sector, economic development sector. This enables the combined knowledge and experience at both senior management and Cabinet ministerial level to help develop and agree on solutions to large complex sector-wide issues before these go to the full Cabinet. 96. A related issue is the timeframe. Again the example of the Cuba-trained doctors helps to illustrate the issue. There is some evidence that other countries (e.g. Solomon Islands) were also somewhat surprised to learn that the Cuba training did not produce people who could rapidly be registered as general practitioners. But there might have been more active enquiries made by government officials into the full costs across the whole “life cycle” of this initiative if multi-year projections beyond the three-year fiscal horizon were required for all new spending proposals with their own unique pattern of expenditure. E.g. lessons might have come from the experience of Kiribati. 4.5 Desirable Future Public Sector Reforms Sustainable Capacity of Core Staff and Systems 97. Fiscal sustainability is not just about adopting processes to translate government strategic policy goals into practical actions to implement them, or estimating realistically the likely costs involved. Crucially it also about ensuring the government has available on an ongoing basis a sufficient minimum core of staff with the skills and experience needed to carry out the government’s vital roles effectively. 98. Arguably the Government needs to accord high priority to ensuring that, insofar as practicable:  Adequate skilled staff-cover available to carry out key roles: Key roles and activities always need to have enough skilled-staff cover available to enable them to be carried out effectively and sustainably.  Adequate normal minimum tenure of roles: Staff members need to remain in those key roles for long enough to build up and utilise valuable institutional knowledge that enables them to perform the roles effectively.

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 Adequate overlap required for outgoing staff to brief their replacements: When it is time for staff in these roles to move on, they remain in their respective roles for sufficient overlapping time to brief the new staff about the roles’ key features, systems, lessons learned, contacts and any other issues. 99. At present, however, government decisions about staff placements and study leave – and their timing – often appear to have little regard for any disruption or inconvenience they may cause to the government’s capacity to effectively carry out its key activities or projects. This is true of MFED as well as other key ministries. 100. A major direct cause of much such disruption – and loss of effective performance of key roles – arguably is that these key staff are allowed to take up scholarships when it suits them, rather than when would suit the ministry in which they work. While not advocating that staff be prevented from taking up scholarship offers, it would be reasonable to expect that as a general rule – the timing of approved leave to take up an in-service overseas scholarship should be determined in consultation with – or at the discretion of - the ministry in which these staff work. 101. Unless priority is given to remedying this problem, possibly along the lines suggested, successive governments will remain exposed to the risk that they will be unable to carry out their activities as well as they could potentially do, or similarly to achieve the potential benefits from effectively implementing desired public sector reforms. Quality of Government’s Commercial Agreements 102. Back in April 2015, TTFAC suggested that, for the longer term, the government should develop a shared central expert resource to provide “end-to-end” support for detailed revenue policies and practices, drawing on international expertise as required. In other words that support would start with design and/or negotiation and extend right through to being the repository for the government’s major contracts and the liaison point with international experts. In most cases, international support is available from other governments in areas like design of detailed revenue policies and practices, but difficulties emerge when policy changes such as “tax holidays” are proposed. And the most troublesome weak spot is the combination of commercial lawyering and corporate finance expertise involved when governments enter into commercial agreements with private entities. TTFAC wishes to again suggest how this could be done – see below. A Centralised Contract Management Support Unit 103. Over 50% of government income derives from sovereignty rentals and yet there is no individual person or unit monitoring or advising the Minister of Finance on the performance of these contracts. Fisheries contracts and the .tv contract alone make up the bulk of government revenue. Often the Ministries responsible for negotiating, concluding and managing international contracts are over-burdened: lacking the time and skills necessary to maximise value. The Attorney General’s office is the repository for all international contracts, but currently individual Ministries are responsible for leading negotiations and day-to-day contract management. 104. Government services in support of the administration and management of international contracts are limited and could be improved with the establishment of a central unit in the Ministry of Finance providing professional services and support to line Ministries. Such support would include: conducting due diligence; financial and

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economic analysis; market analysis; financial planning; commercial legal services; performance monitoring and general trouble-shooting. Early warning systems would be built into the contract monitoring system established. These services would not only ease the burden on line Ministries when faced with contract negotiations – it introduces a greater measure of predictability for planning and budgeting purposes. Development partners have expressed willingness to fund advice from experts with relevant specialist TA expertise – especially in legal and corporate finance aspects. 4.6 Private Sector Development Initiatives Overview 105. Public Sector Reform must extend to improving how policies and practices of public institutions support private sector development initiatives, and to removing barriers to such initiatives. The 2015 National Budget indicated that MFED would be getting assistance to draft a “National Strategy for Private Sector Development, but unfortunately TTFAC was unable to get an update on this initiative, given the limited time available on mission and the pressures of MFED staff at that time. We understand, from the draft material shared with us, that TK3 will give considerable emphasis to this theme, therefore we have identified some previous recommendations that may be of assistance in exploring options and developing responses. Commercial Banking Services 106. We reiterate our earlier advice that a pressing need is for government to understand and find solutions to the fundamental problems both of the local banks, National Bank of Tuvalu (NBT) and the Development Bank of Tuvalu (DBT), face in obtaining adequate security and, in the event of default, recovering the funds owing. These issues are shared by other Pacific nations that have customary systems of land tenure, limited opportunities for long-term employment outside the public sector, and a significant proportion of informal economic activity including a non-monetised subsistence sector. None of those other countries have made progress without spending years in careful and comprehensive community consultations, with technical experts in a support role rather than designing and driving. It is not clear that Tuvalu would/should be any different. 107. Since giving this advice earlier, in October we found there is at least one local example of a successful commercial loan that is secured by a carefully and patiently negotiated four-way agreement between the investor (a financial institution), the local Kaupule, the original land-owners and commercial tenants. So progress is possible. However, TTFAC also found that DBT has expanded further into consumer lending because this has lower default rates than lending for economic development – and it is still unclear that DBT can develop, attract and retain suitably trained and experienced commercial lending staff to carry out the assessments of borrowers’ business plans, financial viability analysis, and multi-party negotiations that appear to be required. Reform of NAFICOT 108. TTFAC stands by earlier advice that decisions on reform of NAFICOT must recognise and deal with the fact that because NAFICOT is only one element of a relatively complex system. The system has been formed over time as Tuvalu added and changed policies and institutions within a very complex framework of international agreements, law and practice. Here are some examples that were drawn to our attention of policy elements/institutions in that system:

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 Overall policy on Tuvalu joint-venture fishing;  Tuvalu Fisheries Investment Plan;  Tuvalu policy on re-flagging i.e. criteria guiding the decisions and activities of the Tuvalu Registry based in Singapore;  Tuvalu Tuna Fishery Management and Development Plan;  Potential Tuvalu policy, budgetary and operational decisions on measures it will implement to combat illegal, unlicensed and unregulated fishing;  Potential Tuvalu policy, budgetary and operational decisions to guide its continuing participation in the Vessel Days Scheme – e.g. should Tuvalu actively trade vessel days and how should this be managed? 109. The difficulty with managing this (and any) complex system is that changes to one part affect other parts. Attempts to improve things piece by piece can make things worse. Therefore the best results must include:  looking at it as a system, and focusing on the one central objective, which is to maximise the long-term benefits to the people of Tuvalu from its tuna resource;  doing proper financial modelling of any and all proposals for commercial exploitation of the resource – we note below that financial modelling is an expertise which appears to be missing at present; and  doing similar comprehensive analysis of the policy options that arise through Tuvalu’s involvement in international treaties and agreements. 110. This is one of the most valuable resources that Tuvalu possesses. But decisions on how best to achieve the Government’s objectives within the system outlined above have not always had the benefit of specialist legal and commercial advice from experts who also have knowledge and experience of the Pacific tuna fisheries system. 111. Right now, when the fiscal position is strong and the fisheries sector prospects are strong, is a good time for a thorough stocktake – i.e. the kind of review already indicated on the Integrated Roadmap but much more comprehensive – remembering that getting the benefit of legal and commercial advice – especially financial modelling – from professionals with specific expertise on the Pacific tuna fisheries framework is critically important for a successful comprehensive review. That review would treat any future role of NAFICOT as part of an overall strategic solution.

Privatisation of Vaiaku Lagi Hotel 112. An earlier ADB-funded TA concluded that the proposed sale of VLH should not proceed until the Government had completed the necessary preparation to ensure that it received a reasonable price. TTFAC agreed. Current arrangements are unsatisfactory and the situation is not sustainable longer-term, but we recommend further preparation to get greater clarity about other factors such as the government’s policy objectives, the metrics of recent/current operations, and the scope for upgrading and expanding existing facilities. 113. Uncertainty about such matters substantially increases the risks for a potential investor and therefore reduces the price they would be prepared to pay – but it should be relatively simple to decide whether the Government can reduce these and other areas of uncertainty.

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114. It is a common error in privatisations to produce such information after the sale: i.e. too late to encourage additional bidders or to improve the final price. An obvious starting point is for the Government to provide clear published criteria for selecting the successful tender; and for the existing board and management to help prepare and present a briefing on the existing business and what is known about existing and potential opportunities to create value for that business. 115. For further examples: if the government has a medium-term policy on regular Fiji Airways flights, regular shipping services to outer islands, etc this should be clarified and documented in time to be supplied to potential bidders. The same applies to any planned government conferences, existing policies on tourism, any policies on targeted training for the hospitality industry, etc. 116. Examples of relevant metrics obviously include VLH occupancy records, etc but also analysis of incoming passengers’ arrival cards over the last four or five years to quantify total number of visitors and average length of stay, distinguish between government-related visitors and tourists, quantify how many listed VLH as their address while in Tuvalu, etc. As well as existing lease arrangements, a prospective investor may want to know what protection they have against loss of views across the lagoon and/or access to the lagoon, and what would be involved in reclaiming and redeveloping some of the lagoon for their own purposes to expand existing facilities. Promoting Private Sector Provision of Services 117. In April 2014 an ADB TA completed a review of PWD functions with the aim of identifying which operational aspects might be best provided by the private sector, and which should remain with PWD. It concluded that there were no aspects of current operations that were suitable for being separated from PWD and privatised. But the GM PWD advised that all the rationalisation options were kept under review. 118. From our consideration of the ADB review and discussions with GM PWD, we would recommend that the Government accept that finding in relation to reform of PWD, but go further and confirm and extend to all PTE’s and all parts of the core public sector the practices adopted by PWD. That would mean that top management of all these institutions would keep under review all the various options for switching from public to private sector provision of services. We suggest that this be: a. Formalised as a strategy for promoting increased private sector activity; b. Backed by good practices such as “market testing” and agreed public criteria for private sector participation; c. Integrated with the recently reformed purchasing policies and procedures; d. Extended to all Public Trading Enterprises and all ministries and departments with trading functions; and e. Made subject to progress reports on reviews of opportunities and rationalisation actions (to be included in every public organisation’s annual report. 119. In April 2015, in consultation with the then Business Development Officer (BDO) in Department of Industry, we developed the proposal that she could be responsible for implementing the policy, although someone else would have to develop the broad policy and specific instructions. The main area of specifics would be how to do “market testing” – and this would have to be totally in line with the CPU

33 TTFAC Report 32 PART 2 9 November 2015 procedures, so we suggested that possibly Procurement TA John Richardson could be given extra days to assist with this work. 120. We suggested that the BDO would liaise with bodies such as (i) the Tuvalu National Private Sector Organisation (TNPSO) to identify the kind of work that the private sector would like to bid for; (ii) CPU and MEFD and/or PMO/Secretary to Government re application to public sector (e.g. policies re staff whose work was outsourced, instructions to Ministries to conduct market testing at a time of the year that would fit in with the annual cycle, etc); (iii) PERMU re application to PEs; (iv) Ministry of Education re TVET; etc. 121. Back in April this year PERMU expressed the hope that ADBTA would help address these proposals in late April, but we understand there was insufficient time. 4.7 Recommendations 122. TTFAC recommends that the Government of Tuvalu: a. Note that good progress has been made with PSM reforms on the foundations built by major improvements in Public Financial Management (PFM), but more remains to be done; b. Agree to give high priority to replacing the current outdated public sector payroll system with a payroll module integrated into the Financial Management Information System, and ensure that computerisation is accompanied by a review and updating of relevant procedures and policies; c. Ensure that the compilation of an assets register receives the leadership and resources needed to speed and support this work, which will provide the foundations for more soundly-based decision-making on major public sector issues. d. Ensure that current and planned initiatives to support performance improvement through better performance measurement and reporting are sufficiently coordinated to get full value from the expert resources that will be brought on to support these changes, and also promote collaboration between the new generation of practitioners within managers, support staff and performance auditors. e. Explore the options outlined by TTFAC for “leveraging” i.e. extending the existing reforms into new areas so as to get considerable additional benefits from existing reforms without a lot of extra spending or new policies f. Sustain the capacity (staff and systems) that has been and is being created through public sector reforms by giving high priority to ensuring that staff appointed to key government roles: i. Remain in them long enough to become effective in performing them; ii. Have sufficient overlapping time to brief whoever their replacements are; and iii. Generally are only released to take up in-service overseas scholarship at a time that is not unduly disruptive or damaging to the functioning of the ministry or roles concerned.

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g. Urgently consult donor partners on support they will provide to manage and reduce substantial but avoidable fiscal risks that are associated with the Government’s existing and planned commercial arrangements, and its ongoing involvement in multinational bodies that regulate international commerce or aspect of it; and, in particular: i. collaborate with donors to increase awareness of good practices and overcome the lack of procedures and funding for appropriately qualified and experienced commercial lawyering, corporate financial advice, financial modelling, etc; and ii. consider setting up a centralised contract management support unit as earlier recommended by TTFAC’s April 2015 report h. Consider TTFAC suggestions on private sector development initiatives (in section 4.6 above) for inclusion in the processes around TK3.

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5. Integrated Policy M atrix (IPM ) Stocktake and “TK3”

5.1 Status of Policy Actions at end of Matrix Timeframe 123. The table below summarises the expected status for each “Integrated Policy Action” by the December 2015 finish of the Matrix timeframe.

Integrated Policy Action Verification Measure Expected Status at end December 2015

TKII Strategic Area: Good Governance Macroeconomic Growth and Stability

1. Public Procurement 1.1. Cabinet approval of 2014 procurement policy report detailing 1.1 DONE – i.e. completed through a satisfactory alternative. implementation of CPU activities. Report to include (i) Publication & regular updating of a Contract Registry with this 1. Increase transparency and value procurement tenders completed, (ii) Number and value of information has replaced a one-off report. for money of public procurement contracts issued, (iii) Staff training conducted (iv) 2015 workplan. through the implementation of the procurement policy and the 1.2. Government Procurement website developed 1.2 DONE. Website is live but hampered by internet problems. information is available publicly 1.3. Procurement manual and public procurement information 1.3 ALMOST DONE. Manual delayed to April 2016. Policies are published on website still being refined in light of experience.

2. Tuvalu Medical Treatment 2.1. Cabinet decision memorandum(s) approving the revised 2.1 SITUATION GETTING WORSE. MOH continue to grapple Schemes (TMTS) TMTS policy instituting piloted cost saving measures and with spiralling costs of the TMTS. Attempts to recruit needed strengthening the patient referral process; specialists to PMH failed due to unattractive remuneration Increase the efficiency and packages. Positioning of a Medical Liaison Officer in Suva to transparency of the TMTS to enable a 2.2. 2014 Annual Report submitted to Cabinet and made public, regularly review cases is urgently required. Whether increased greater focus on Primary and reporting on revisions to the TMTS, number of people treated, cost and patient referrals under the scheme are due to systematic Preventative Health [PPH] Care average cost of treatments, cost saving measures and strategies to abuse, poor administration or increased illness caused by caused strengthen the referral process. by worsening environmental or social factors warrants attention and study. TTFAC recommends that the true drivers of costs and patient volumes be investigated. 2.2 ALMOST DONE. A multi-annual report covering the period 2011-14 is nearing completion and is due to be presented by the end of 2015. This will be accompanied by a National Health Reform Strategy 2016-19 which will propose cost saving measures and actions designed to strengthen the referral process.

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Integrated Policy Action Verification Measure Expected Status at end December 2015

3. Vaiaku Lagi Hotel (VLH): 3.1 Government preparation towards the sale of the Vaiaku Lagi 3.1 ALMOST DONE. All preparations required in the Verification Privatisation Hotel undertaken, including: Measure have been completed except for the tender process. i. Formal issue of the sub-lease of the land to the hotel. Tendering was deferred to allow completion of actions required to achieve a reasonable price and attract serious bidders. TTFAC ii. Settlement of all debts and taxes owed between agrees and recommends some further actions to improve value; Government and VLH. and that government clarifies what it wants to achieve by this iii. VLH 2013 financial results and details updated. privatisation. Current status is unclear but likely to be addressed iv. Sale and tender documents prepared. in the TK3 process. v. Tendering process undertaken. 4. NAFICOT 4.1. Audit report of NAFICOT and associated JVs tabled to 4.1 ALMOST DONE. JV audit reports nearly completed. Not yet Parliament tabled in Parliament Comprehensive review of NAFICOT with a view to restructuring and 4.2. Cabinet decision to implement key recommendations 4.2 INCOMPLETE. The results of the independent review were strengthening management and following independent review of NAFICOT and JVs. not accepted by the Government. TTFAC recommends technical operations including independent assistance be obtained to help decide the best future for NAFICOT review on the joint venture along with all the necessary actions to support the practical agreements and bring its operation implementation of the government’s Tuna Management and under the PE Accountability Act. Development Plan – especially people with industry expertise in the specific scientific, policy, legal & commercial (operations and corporate finance) issues relating to Western Pacific tuna fisheries.

5. Public Works Department: 5.1 PWD functions reviewed to identify operational aspects 5.1 DONE. PWD functions were reviewed and the Privatise PWD functions as best provided by the private sector and which should remain Government accepted the reviewer’s recommendation that all identified in the rationalization with the Government (PWD) . should remain with PWD. 5.2 Cabinet decision memorandum approving the 5.2 DONE. Covered in Cabinet’s approval of a new enterprise rationalization strategy for selected PWD functions. reform plan.

6. Treasury 6.1 Commitment Control Paper approved by Cabinet and a 6.1 DONE. demonstration of a functioning purchase order module within Strengthen Treasury commitment ACCPAC. & expenditure control by introducing centralised commitment control procedures

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Integrated Policy Action Verification Measure Expected Status at end December 2015

7. Strengthen Oversight of 7.1 Fisheries Department updates all backlog of financial 7.1 DONE – i.e. completed through a satisfactory alternative. Revenues records in TUFMAN. Later, Fisheries Dept. and Treasur y reconcile 2013 fishing revenue records from TUFMAN and i. Financial records in the fisheries ACCPAC. management system, and concluding a full reconciliation of 7.2 Cabinet endorsement or tabling to Parliament of Fisheries 7.2 INCOMPLETE. Finalisation of draft Fisheries Department 2013fishing revenues with Corporate Plan. This Corporate plan should detail the Corporate Plan has still not been completed. TTFAC has Treasury records. Government’s commitment to: (i) keep up to date financial repeatedly highlighted the need for more frequent and more records in TUFMAN; (ii) conduct regular reconciliation of regular reconciliation and reporting (possibly with some ii. Updating all financial records in fishing revenues collected by TUFMAN with Treasury records redesign of reporting) to enable closer monitoring of the fishing the customs database and (in ACCPAC); and (iii) production of quarterly fisheries reports revenues that make up such a large percentage of total concluding a full reconciliation of going forward. government revenues. The situation is unsatisfactory. customs revenues 7.3 Ministry of Finance letter on the establishment of a 7.3 DONE – i.e. incomplete when we checked earlier, but we Customs revenue database that is reconciled with Treasur y understand it was completed through a satisfactory alternative. 2014 records

8. Review of Financial 8.1. The revised Financial Instructions is approved by Cabinet 8.1 DONE. The revised Financial Instructions were completed in Instructions and include details on rules to manage, replenish, guide and 2014 and implemented from 1 Jan 2015. This is a major step regulate the use of the CIF as a long-term fiscal buffer. towards getting the right balance between consistent high- Review management of the CIF and quality fiscal decision-making throughout the public sector and establish a set of management rules more freedom for each sector ministry to apply their specialised to guide, replenish and regulate the knowledge to operational decisions. Management rules re CIF’s use of the CIF as a long-term fiscal role as a long-term fiscal buffer were reviewed and modified. buffer

9. Public Enterprise Reform Plan 9.1 Cabinet approval of Public Enterprise Reform Plan setting 9.1 DONE. PERMU advise that a draft PE Reform Plan has To be developed to enhance PEs’ out strategies to improve PE’s commercial and financial been approved by Cabinet. However, the version we were commercial orientation and viability. given is very light on detail about exactly how commercial financial viability and financial viability will be improved. Steady progress has been made on reporting, but much remains to be done.

TKII Strategic Area: Good Governance and Outer Island Development

10. Piloting of a streamlined Outer 10.1 Audit Report of the Auditor General of Kaupule accounts 10.1 ALMOST DONE. Current and likely final status is uncertain Island financial reporting for 2012, 2013 and 2014. but good progress has been made. framework 10.2 Pilot 2014 Kaupule accounts submitted to Auditor 10.2 DONE. Reduce Kaupules’ administrative and General for audit using the new streamlined financial reporting enable better tracking of funds. framework.

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Integrated Policy Action Verification Measure Expected Status at end December 2015

TKII Strategic Area: Education and Human Resources

11. The Government continues to 11.1. SELF Annual Report tabled in Parliament covering 11.1 SITUATION GETTING WORSE. Still no Annual Report but a improve efficiency of the tertiary regulations and implementation of the Student Education Loan policy & operating manual has been agreed by Cabinet, including education scheme Fund (SELF) program, including repayments repayments procedures. TTFAC remains concerned that loans will be difficult to recoup under current procedural Enabling government to increase arrangements. Actual expenditure has exceeded 2015 budget by spending on basic and vocational a factor of five. Procedures are not effective in controlling education. expenditure or revenues (loan repayments). AN URGENT REVIEW AND IMPROVEMENTS ARE NEEDED. 11.2. TTFAC report verifies that the Government met its fiscal 11.2 DONE. (see April 2015 report) ratios of at least 5% increase in primary non-salary education expenditure in2014 11.3. Letter from Minister of Education or Cabinet Decision to 11.3 DONE and implemented. broaden the curriculum of TMTI to (i) include training for fishing (i) August 2015 vessel crews, with specific date for first intake; and (ii) open TMTI to female participation with a view to training them for service (ii) 1st woman graduated mid-April 2015 oriented activities.

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5.2 Integrated Policy Matrix Stocktake Summary 124. The results of the Matrix (nine satisfactory results out of eleven selected areas of policy action i.e. better than 80% “pass rate”) and the generally positive attitude of participants (feedback from most donors and the Ministers and officials responsible for achieving those results) suggest that this approach is likely to continue. Below (at 5.3 Lessons for “TK3”) we offer brief suggestions on lessons that probably apply to future steps of the new National Development Plan TK3 as well as to the expected successor to the current IPM (likely to be a sub-set of the agreed TK3). 125. Before that, here are two more detailed summaries of TTFAC investigations into the two problem areas where the fiscal situation has been getting worse not better. Health Sector Reform Challenges Reform Strategy 126. MOH is currently drafting a health reform strategy covering all aspects of its operations. The plan is being prepared with WHO/UNFPA assistance but was unavailable at the time of the TTFAC mission in October. TMTS 127. The Tuvalu Medical Treatment Scheme (TMTS) provides assistance to sick people who need to travel from the Outer Islands to Funafuti and also to those needing medical attention outside of Tuvalu. Overseas referrals accounts for most of TMTS expenditure and is by far the most costly element. In 2015 the TMPS budget was $2.2 million but forecasted expenditure is $3.5 million – an increase of 60%. 128. Until recently the Suva Private Hospital (SPH) was the preferred choice to which patients were referred but this is changing as the number of SPH specialists dwindle and waiting times for Tuvaluan patients increase. Some patients can be kept waiting in Suva for months on end and this is a significant factor in escalating costs. Patients themselves can be reluctant to return to Tuvalu resulting in some being rejected from the scheme with all benefits stopped. At any one time there can be over 100 patients in Suva making it difficult for MOH to monitor and evaluate individual cases. To address this problem MOH intend to place a Medical Liaison Officer attached to the High Commission in Suva. This position has been approved by PSC and recruitment is underway. A large part of the Officer’s work will be to conduct weekly reviews of all patients under the scheme. 129. Because of the noticeable decline in SPH services MOH has increased patient referrals to Fortis Private Hospital (FPH) in India. Despite the additional airfares involved the two-week turnaround time the Indian hospital offers makes it far cheaper than referring patients to SPH. If the decline in SPH services continues MOH may consider sending all patients to India. 130. A team from FPH will visit Tuvalu in January with a view to help MOH put in place processes aimed at improving essential services at QMH, cutting back on overseas referrals. MOH will seek to encourage FPH to place a fulltime Hospital Administrator in QMH. At the beginning of 2015 MOH planned to recruit three specialists aimed at limiting the number of overseas referrals, but packages offered

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were not attractive and no positions were filled. The budget line has been used to recruit locums from PNG. 131. A Tuvalu-NZ medical scheme has a set budget and New Zealand’s own screening process. Normally no more than 10 patients per year are able to access the scheme (because of the budget constraint). The government may wish to find out whether NZMFAT could provide long-term medical specialists to Tuvalu with costs offset against the Tuvalu-NZ referral scheme. Under other recent arrangements, a first lot of patients (with knee problems) were sent to Taiwan in August, and heart cases were sent to Malaysia. Currently there are no Cuban Doctors practicing in Tuvalu, however, MOH ambitions are to engage 5 or 6 doctors in the near future.– A request has been sent to the Cuban authorities. 132. In response to the deteriorating condition of the PMH Hospital a JICA team will visit Funafuti in November to conduct an assessment of remedial actions required including the possibility of undertaking necessary structural changes. Education Sector Reform Issues Broadening the scope of TMTI 133. In August TMTI took in the first intake of trainees for fishing positions on vessels fishing in Tuvaluan waters. However, none of the trained fishermen have been successful in securing jobs on foreign vessels. The PNA proposal to legislate for all DWFN to accept a certain proportion of Tuvaluan fishermen as crew was thwarted (by Kiribati) at a recent meeting of regional Ministers of Fisheries. The NZ employment market for qualified fishermen appears to be buoyant, however, TMTI graduates are not certified and therefore ineligible to apply for jobs in NZ. It is unclear whether further fisheries courses will be offered at TMTI due to the lack of employment opportunities. There are no plans to broaden the scope of TMTI to include training in the hospitality or aged care industries. Student Education Loan Fund (SELF) – ‘Sky’s the limit’ Scholarship. 134. The Fund is jointly managed by MOES for pre-service applicants and the OPM for in-service applicants under a body known as the SELF Management Board. 135. The 2015 budget sets aside $150,000 for student loans, however, as of October 2015 total expenditure had reached over $1 million with combined 2014 and 2015 expenditure forecast to reach $1,727,311. This is a five-fold increase over budget - financed by viring from other OPM accounts and also through supplementary budgets approved by Parliament. 136. The loan repayments policy is outlined in the SELF operational manual, however, there are a number weaknesses in the repayment logic. For example, awardees are expected to repay their loans by the end of the year following the completion of their award or immediately if the award is terminated . In either case it seems doubtful whether the awardee will possess the financial wherewithal to comply with either of these conditions, with or without a job. It appears equally unlikely that the guarantors of awardees will be able to repay debt if awardees default on repayments. Some loan recipients are government employees who continue to receive salaries during the period of study. In this case it may be

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appropriate to deduct an amount from the awardees’ fortnightly salary thus reducing the loan burden. 137. There is still no annual report for the SELF scheme. SDE – Primary School Construction 138. Primary school construction on Nanumea, Nukufetau and Funafuti has been postponed until 2016. The delay is partially an outcome of new design plans post- TC Pam. The Fiji Volunteers Teachers (FVT) scheme 139. The volunteers scheme continues to enhance the quality of education in Tuvalu at very little cost. Plans are to extend the scheme to provide two volunteers for each primary school and a number of teachers for Motufoua Secondary School. Plans to extend the scheme to include TVET teaching are still being considered. Agreements with various Fiji Technical colleges to train Tuvaluan youth in vocational skills have been put in place to place. The FVT scheme is a very good example of regional cooperation and excellent value for money. 5.3 Lessons for “TK3” 140. In the feedback TTFAC received from donors and Tuvalu government stakeholders, one of the IPM’s benefits that was referred to as “focus”. An enormous amount of narrative across very many topics was reduced to a short list of measurable actions. 141. However, this also led to a problem of “inflexibility”. When TTFAC’s April Report recommended agreement between the government and its donor partners to changes some Matrix policy actions – particularly in light of the need to reprioritise and to reflect lessons emerging from responses to cyclone Pam. We found no changes were made, and two reasons given were (i) an extreme reluctance to reopen issues that had been resolved through considerable efforts; and (ii) resistance to changing agreements after they had been ratified at high levels within governments and development agencies. 142. Putting together the lessons about focus and inflexibility, it seems prudent not to rush into implementation plans and donor commitments before being very sure about what results/outcomes are proposed, stakeholders’ priorities, technical feasibility, resource availability and realistic timeframes. 143. The implications are that, at the highest level, which is TK3, TTFAC recommends that the current round of public consultation focus particularly on identifying and prioritising goals which are expressed as the desired results or outcomes. Once there is some agreement on priorities, that would be the best stage to introduce technical advice on the best options for meeting the selected goals. The following step would be preliminary costing. Only then will proper detailed prioritisation (selection and scheduling of projects and programmes) be possible within a Medium-Term Fiscal Framework (MTFF), and that appears to be the best time for development partners to get more involved in the detail of what a new Integrated Reform Matrix could contain.

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144. At the “factory floor” level of practical implementation, TTFAC has identified with concern the apparent fundamental disconnect between resourcing of major government functions/reforms and the timing of the government’s in-service scholarships. Unless this is promptly addressed and resolved, there will be potentially very damaging implications for continuity of reforms, and overall public sector management capability during the early years of TK3. Much that has been gained in PSM reform could be lost as staff turnover causes a loss of the institutional knowledge about what needs to be done, how and why; and a corresponding loss of the in-house capability to do what is needed. 145. Also, TTFAC has previously highlighted the potential benefits of a move by the Government to deal with annual budget issues on a sector-by-sector basis rather than mainly as a vote-by-vote basis. These benefits include making it much easier to recognise and manage the many ways in which the government’s success in achieving its core objectives depends on the results of more than one Ministry or Department. Also, those dependences between Ministries often develop over a number of years. Therefore, resourcing and funding need to be planned and budgeted within the government’s medium-term fiscal framework. 146. The full benefits rely on how well senior Ministers and officials can work together to share different perspectives and experience. This is a leadership matter for Ministers to discuss and resolve. One feature of this proposal is that such reforms can (and should) move only as far and as fast as the government wants, and they do not need lots of internal resources to be diverted – nor do they need lots of external resources to be added. 5.4. Maintaining & Improving Social Infrastructure & Services 147. This relates to a purpose of the TTF: “enable the Government to maintain and if possible improve existing levels of social infrastructure and services”. We identified and started to investigate two major “cross-cutting issues” – governance and gender – that appear extremely relevant to the objective, and which share a number of interesting connections. And their importance for successful long-term sustainable development is widely recognised around the world. There simply was not enough time to do justice to either of them. The following brief observations may nonetheless be helpful to those involved with TK3.

Governance 148. Improvements in governance are part of the social infrastructure needed for strengthening the capacity of public sector bodies to promote resilience, improve service delivery and create opportunities on outer islands. Bodies include Kaupule, Public Enterprises and Public Utilities. All would benefit from better access to:  governance policies and practices designed for local conditions;  local sources of professional/technical advice to support decision-making at top leadership/governance levels and senior management levels;  local mentors with relevant experience and who have a track record of demonstrating the right behaviours;  guidance and training in general principles and practices of good governance (e.g. collective decision-making, how to identify and manage conflicts of interest); and

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 guidance and training in powers and responsibilities under relevant legislation (e.g. Directors’ and company officers’’ responsibilities under the Companies Act; participants in Falekaupule assemblies under the Falekaupule Act). 149. The situation of Kaupule is particularly important. TTFAC’s April 2015 report included in Annex 7 a section on “Governance of Expenditures by Falekaupule”. In the main report TTFAC’s messages were summarised as follows: “Investigations have revealed major deficiencies in all levels of Kaupule PFM processes from Falekaupule budgeting down to a general lack of financial controls. This is definitely an area where there is low quality spending, waste and apparent misappropriation of funds – but cyclone Pam has highlighted the need for strengthened kaupule leadership and management simply because outer islands must rely on their own resources for immediate on-the-spot relief efforts during a civil defence emergency such as a natural disaster. There have been recent positive developments through the work of the Falekaupule Trust Fund Project Officer and the Office of the Auditor General. But genuine long-term solutions may not be achievable until pressure for improvements comes from Falekaupule constituencies themselves.”

Gender 150. A preliminary discussion with a police representative about their role in implementing new legislation designed to combat domestic violence, especially against women and children, revealed evidence of a programme of activities that was based on very thorough research and planning and was being very carefully executed. In addition, a lot of thought was going into the next steps: getting a consensus both internally and with external stakeholders on the “Why” and “How” of the plan to fully integrate/mainstream gender-related policing activities with the community policing role. 151. A major statistical initiative was also under way to get a better understanding of gender-related issues in the community. Because that initiative was drawing on personal and confidential information contained in station log books, police were very sensitive about not sharing the statistics until they were confident the figures could not be used to guess at the identities of the individuals involved. Overall the quality and integrity of the police approach was very impressive. 152. A meeting with a representative of the Gender Affairs Department revealed that, in recent years, a lot had been learnt simply from complying with the investigating and reporting requirements that followed from Tuvalu’s accession to the Convention on the Elimination of All Forms of Discrimination against Women (CEDAW). However it was difficult for the Department to get relevant information. 153. One of the conclusions of the 2013 “Stocktake of the Gender Mainstreaming Capacity of Pacific Island Governments” for Tuvalu, organised by the Secretariat of the Pacific Community, was that it was unrealistic to expect and unhelpful to attempt significant change without firm evidence – especially relevant statistics about gender- related issues. However, since then there has been limited progress in developing and compiling such statistics for Tuvalu. And it may be some time before Police can share with Women’s Affairs the operational statistics that are being completed. This is all rather discouraging in terms of the prospects for good progress towards the gender- related goals that the government has committed to.

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5.5 Recommendations 154. TTFAC recommends that the Government of Tuvalu: a. Note TTFAC summary (5.2 above) of accomplishments and unfinished business from the Integrated Policy Matrix that expires this December. b. Give high priority to that “unfinished business” i.e. fixing two fiscal problem areas – the Tuvalu Medical Treatment Scheme (TMTS) and the Student Education Loan Fund (SELF) scholarships – to make them more effective in delivering the target benefits as well as making their costs better controlled. c. Agree with the specific recommendations made by TTFAC (paragraph ) on how best to schedule the next phases for turning TK3 into a prioritised affordable action plan. d. Ensure that crosscutting issues such as better governance and gender-related practices are properly included in the TK3 process because of their potential contribution to maintaining and improving social infrastructure and services.

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Annex: List of People Met by TTFAC Name Position Hon Maatia Toafa Minister of Finance and Economic Development Hon Taukelina Finikaso Minister of Foreign Affairs, Trade, Environment & Labour Hon Satini Manuella Minister of Health Hon Monise Laafai Minister of Communication & Transport Letasi Iulai Secretary for Finance & Economic Planning Palipa Lauti Acting Senior Assistant Secretary Niko Apinelu Secretary for Education, Youth & Sports Isaia Taape Secretary for Health Siose Teo General Manager, National Bank of Tuvalu Manraoi Vaaia General Manager, Development Bank of Tuvalu Peteli Fakatoafe Finance Manager, National Bank of Tuvalu Vavau Fatuuga Director for PERMU Jason Wan ROC Ambassador Siliga Kofe Technical Adviser to “TK3” process Taasi Pitoi Director for Marine Katepu Laoi Acting Assistant Secretary, Personnel & Training Amalinda Tala Coordinator , Procurement Unit Tusipese Morikao Acting Senior Economic Adviser Nuausala Nuausala Office of Budget & Planning Samasoni Auina Director Fisheries Garry Preston Technical Adviser, Fisheries Malofou Sopoaga Acting Director, Public Works Department Mase Tumua Auditor General Office Mafalu Lotolua General Manager, Tuvalu Electricity Corporation Sarah Moses Technical Adviser for Finance Kelena Tapa Staff MFED, Planning & Budget Technical Adviser for Public Sector Reform, Office of the Prime Katrina Rajak Minister

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Name Position Lupe Tavita Acting Director, Gender Affairs Department Simeti Lopati General Manager, Tuvalu Telecommunication Corporation Anisi Penitusi Management, Tuvalu Telecommunication Corporation Eri Kausea Management, Tuvalu Telecommunication Corporation Iuni Soloseni Police Officer Gaylene Macfarlane Technical Adviser for Police Tepalu Lemeke Staff, Treasury Department Seipua Scott Staff, Treasury Department Oyda Teo Staff, Treasury Department Kiatoa Ulika Manager Corporate Services, National Provident Fund

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