Negative 27.3% growth in 2007 and will continue to 2009

Dionisia Tabureguci  
Even without factoring in the withdrawal of the Australian refugee centre from Nauru and economic activities tied to it, the rock island nation experienced a heavy slump in its economic growth in 2007, according to the recently released Asian Development Bank Outlook for Small Pacific Countries in 2008. 

Nauru recorded a negative growth of 27.3 percent in 2007 due to a combination of hard-hitting factors: a contracted public sector, low construction spending on phosphate facilities and suspension of phosphate mining due to storm damage to port infrastructure.

Growth is also forecast to be in negative territory this year and next year, although on a much smaller scale as the closure of the Australian refugee processing centre starts to filter into the economic system. 

The centre employs around 100 Nauruans directly and 900 Nauruans indirectly and is an important source of fund for the government. 

According to the ADB Outlook, the contraction in the public sector involved reining in the budget deficit to 17.4 percent of GDP in Nauru’s Fiscal Year 2007 (ended June 30 2007).

Deep deficits in the previous two years were largely funded by underpaying civil service salaries and accumulating salary arrears, it said, and the 2007 deficit was an improvement.

But while small budget surpluses are projected for 2008 and 2009 on the back of cuts in capital expenditure and an expected full year in phosphate mining this year, Nauru is forecasted to record a growth of negative 2.4 percent this year and a negative 4.4 percent next year.

This is a direct result of the closure of the Australian refugee facility, although Australia’s donor programme—Nauru said to be worth A$1000 per person per year—will be maintained.  

“The foremost financial management issue is the need to develop a response to the high level of international and domestic debt (equivalent to about 30 percent of GDP),” ADB said.

“Attempts to repay even a small share of the external debt could place severe pressure on the budget, potentially absorbing any fiscal surplus from the renewal of phosphate mining, and compressing public expenditures on essential services.”

An ADB Country Economic Report released earlier this year noted that a positive economic outlook for Nauru would depend largely on the government addressing structural problems and making changes to establish a base for future economic growth.

Nauru, one of the world’s smallest nations, was amongst the richest countries in the world until the demise of its phosphate industry in the 1980s. 

It has been struggling ever since  to recover from a series of asset losses that drove it to near bankruptcy while political upheavals saw it changing governments frequently over the last 20 years.

While there were some hope for stability in the last five years under President Ludwig Scotty’s government, elected to power in 2004 after it promised sweeping reforms and good governance, the country again suffered political shocks when, after last year’s national elections, Scotty was voted out and a new team led by weightlifting champion Marcus Stevens couldn’t make much political moves with its one-seat majority. 

Last month’s snap election to end the political deadlock that ensued, saw the re-election of Stevens with a six-seat majority in the 18-seat parliament. He hopes to return the country to political and economic stability.

An election monitoring team to Nauru from the Pacific Islands Forum Secretariat (PIFS) concluded in its report released last month that the April elections, while held under stressed circumstances (short notice under a State of Emergency), “was a credible one, whose result accurately reflected the will of the people of Nauru”.

The PIFS team, comprising Makurita Baaro, former Chief Secretary and Secretary to Cabinet of Kiribati, and Shennia Spillane from PIFS, made the following three recommendations:

• That future governments consider carefully the necessary period for election preparation and campaigning, even in circumstances of political crisis, to ensure that the need for a speedy election is balanced against the rights of voters and potential candidates to full participation in the process. An election timetable of less than three weeks should be avoided unless absolutely necessary.

• That government considers implementation of the recommendations of the 2007 Forum Election Observer Team’s report as soon as practicable, including a review of the Electoral Act and Regulations. The Forum Secretariat is requested to assist Nauru facilitate the necessary regional or international assistance to that end, should this be requested by Nauru.

• That parliament and government move ahead with the constitutional reform process without delay, giving careful consideration to measures proposed to strengthen political stability, enhance the accountability of leaders, and enhance the clarity of provisions governing Nauru’s political institutions.