Tuvalu Trust Fund

History

An agreement to establish the trust fund was signed in Suva, Fiji on 16 June 1987 by representatives of the governments of Tuvalu, Australia, New Zealand and the United Kingdom. The initial amount invested by the latter three nations amounted to A$27.1 million. The United Kingdom withdrew from the agreement in 2004. Australia and New Zealand continue to contribute capital to the Tuvalu Trust Fund and provide other forms of development assistance.

Through successful investment abroad, the initial assets of A$27 million grew to A$66 million in 2000 and A$100 million in 2010. This amount was achieved with the help of other international donors of Japan and South Korea. The 20th anniversary review of the Tuvalu Trust Fund described the performance as:

The International Monetary Fund 2014 Country Report described the market value of the Tuvalu Trust Fund as having dropped significantly during the global financial crisis, but has since recovered. The performance of the Tuvalu Trust Fund and the Consolidated Investment Fund (CIF) from 2010 was as follows:

As of 31 March 2014 the Tuvalu Trust Fund had a market value of A$141,752,034.69 above (by A$3.85 million) the maintained value of A$137,901,477.40. The A$3.85 million was automatically distributed to the 'B Account', increasing the CIF balance to A$17.3 million as of 31 March 2014.

Contribution to the Tuvaluan budget

The Tuvalu Trust Fund was established for the intended purpose of helping to supplement national deficits, underpin economic development, and help the nation achieve greater financial autonomy. An undertaking of the Government of Tuvalu is that it will "treat all moneys received by it from the Fund as public moneys of Tuvalu and as such subject to Parliamentary appropriation and scrutiny." Brian Bell, a member of the Tuvalu Trust Fund Advisory Committee since the inception of the Fund in 1987, describes the purpose of the Tuvalu Trust Fund as being:

The Tuvalu Trust Fund, has contributed roughly (A$79 million) 15% of the annual government budget each year since 1990. With a capital value of about 2.5 times GDP, the Trust Fund provides an important buffer for Tuvalu's volatile income sources from fishing and royalties from the revenue from licensing of the .tv domain name.

Distributions from the Tuvalu Trust Fund are not always available. No distributions were made in the four years (2000–2004), with the previous most significant distribution being in 1988. In 2005 the government had to draw from the 'B Account' in order to bring the budget deficit down to an acceptable level.

Meeting the needs of the 2013/14 budget of the government also required drawing from funds held in the 'B Account'. However funds were available as the result of fiscal surpluses achieved in 2012 & 2013, the CIF had increased to more than $A17 million (38 percent of GDP).

Structure

The capital of the Tuvalu Trust Fund is known as the 'A Account'. The 'B Account' or 'Consolidated Investment Fund' (CIF) is a revolving 'buffer account' that receives funds distributed from the 'A Account'. The operation of the Fund through two accounts assists in stabilizing the long-term financial situation of the Government of Tuvalu as well as addressing short-term budget needs. The 'B Account', which belongs exclusively to the Government, holds income distributions from the 'A Account' until funds are needed to be used for the national budget. The funds held in the 'B Account' therefore serves as a buffer against the volatility of the 'A Account' returns, i.e., during years when there are no returns or low returns. For example:

The role of the 'B Account' is therefore to improve the predictability and consistency of transfers from the 'A Account'. The 'B Account' must maintain a sufficient balance to cover the years in which there are no returns or low returns from the 'A Account'. There is no specific language in the agreement that established the Tuvalu Trust Fund as to the minimum balance of the 'B Account'. There has been a debate about how much of a buffer is sufficient.

The Tuvalu Trust Fund was established with a management structure that was designed to avoid the mismanagement and corruption that has plagued many other Pacific trust funds. One important element of the Tuvalu Trust Fund is that it is structured to avoid overdrawing to fund unauthorised projects. This is achieved through the separation of fund capital from fund proceeds available for distribution. The success of the Tuvalu Trust Fund is attributed by Brian Bell to the following factors: Accountability through a Board of four directors with Tuvalu in the chair and the other original parties providing members; the use of Professional funds management to provide investment advice; the monitoring of the performance of the fund by actuarial consultants (the Fund Monitor); the auditing of the fund by international auditors; and an advisory committee to monitor Tuvalu's economic performance and provide advice to the Government and the Board.

Falekaupule Trust Fund (FTF)

The success of the Tuvalu Trust Fund was followed by the establishment of the Falekaupule Trust Fund (FTF), which is a trust fund for outer island development. The Asian Development Bank (ADB) provided A$6 million in loan funds, with the FTF being established in July 1999 and with the funds being invested in February 2000. The Tuvalu Government agreed to match the amount provided by the ADB, with contributions from each of the eight island communities of Tuvalu, and with the contributions from the island contributions also matched by the Government. The governance structure of the FTF follows that of the Tuvalu Trust Fund, but each with island community having a representative on the board and the government provides a non-voting chair. In 2001 the value of the FTF was around $15 million of which $1.2 million was contributed by the island communities. The market value of the FTF has increased:

The global financial crisis affected the FTF, which is required maintained its value in real terms before a distribution can be made. At 30 September 2010, the maintained value was $27.3 million; the result of capital growth and contributions from development partners. This is some $3.5 million higher than the market value of $23.8 million. The gap of 15% between the market value and the maintained value must be recouped before another distribution can be made. Since the commencement of FTF there have been four years in which distributions were made. The FTF has distributed $6.4 million with some $5.3 million allocated to island development (the balance of $1.1 million is held in reserve by the communities). This equates to an average of $55,000 spent per island per year.