Domestic revenue mobilization vital for Tuvalu, as growth projected to reach 3% in 2022

But the Asian Development Outlook (ADO) 2022, ADB’s flagship annual economic report, notes that surging global oil prices will significantly affect inflation in the import-dependent country. The report says the narrow economic base of Tuvalu heightens the importance of domestic resource mobilization for achieving fiscal sustainability.

“Delivering reforms to tax policy and tax administration that result in more efficient revenue collection is critical for supporting inclusive and sustainable growth in Tuvalu, as the economy emerges from the impacts of the global pandemic,” said ADB Senior Country Officer Letasi lulai.

Government dependence on volatile external revenue sources poses a threat to fiscal sustainability. For example, the instability of fish stocks makes it difficult to project license revenue from foreign fishing vessels and hampers efforts to produce a robust medium-term fiscal strategy. The report says internal revenue sources need to be improved, as government spending remains the main driver of economic activity in Tuvalu.

Inflation is estimated to have surged to 6.7% in 2021 with the introduction of so-called “sin taxes” that year. Passed in the 2021 budget, these sin taxes were imposed on imports of cigarettes, alcohol, soft drinks, salted beef, lamb flaps, candies, and other unhealthy items to discourage consumption. At the same time, duties on the import of fruit and vegetables were removed. Higher prices for imported goods and the surge in global oil prices are forecast to translate into 3.8% inflation in 2022 before it moderates slightly in 2023./.