Tuvalu - Economy

Overview: In terms of population, Tuvalu is among the smallest countries in the world. It has very few resources and few sources of revenue – fishing licences, remittances from overseas workers (especially seamen and those living in New Zealand), small-scale copra exports, sale of postage stamps and coins, sale of passports and resale of rights to international telephone codes (initially to the sex industry and subsequently for gambling) – and balance-of-payments deficits have to be made up by income from the Tuvalu Trust Fund and bilateral aid, especially from Australia and New Zealand.

During 1988–98 GDP growth averaged 5.2% and was among the highest in Pacific Island economies. After 1998 growth slowed, in the face of the international downturn. It then raced ahead at 13.4% in 2000 and 5.9% in 2001 moderating in 2002–05, while inflation was no more than 5% p.a.

In 1987, the governments of Australia, New Zealand, the UK, Japan and South Korea (and Tuvalu itself) acknowledged that the country would need financial support for the foreseeable future, and each government agreed to contribute money to set up a Tuvalu Trust Fund. The fund is invested by commercial fund managers and income is drawn by the government as required, so long as its current value is above its real value according to the Australian consumer price index. At its foundation, the fund totalled US$27 million and was valued in March 2000 at US$53 million.

In August 1998 a Canadian company agreed to lease Tuvalu’s internet domain name ‘.tv’. However, the deal subsequently collapsed and, in April 2000, agreement was reached with US company Idealab! on a deal worth A$90 million over 12 years.

People on Funafuti have a higher income than those living mainly at subsistence level on the outer islands. The country looks to regional co-operation, through the Pacific Community and in smaller groupings on matters of common interest such as fisheries, the marketing of copra and the expansion of regional air services.

The economy has generally shown good growth during the 2000s, moderating slightly from 2005 (2.0%), into 2006 (3.0%) and 2007 (2.5%), while inflation has been well contained.

Trade: Principal exports are copra, handicrafts, fish and postage stamps. Principal imports are food and live animals, manufactured goods, capital goods and fuels. Tuvalu’s main trading partners for exports are Germany (62% in 2005) and Italy; and for imports Fiji Islands (46%), Japan and China.

From 2007, when the Cotonou Agreement between the European Union and the ACP grouping of developing countries came to an end, negotiations proceeded on a series of regional Economic Partnership Agreements, to replace the preferential trade agreements of the Cotonou Agreement with WTO-compliant free-trade areas.