Tuvalu News

News Release No. 66/99 from the Asian Development bank
13 July 1999

Press Inquiries Only
Contact: Rita R. Festin
Tel. No. (632) 632-5890
E-mail: rfestin@mail.asiandevbank.org

ADB Helps Tuvalu's Outer Islands Become More Self-Sufficient

A plan to help the outer islands of the Pacific nation of Tuvalu become more self-sufficient was boosted today by the approval of a US$4 million concessionary loan by the Asian Development Bank for an Island Development Program.

The program will help to shift responsibility for managing development programs in the outer islands from the central government to local communities. To support this, a system will be put in place to ensure sustainable financial resources, including the establishment of a trust fund to be called the Falekauplue Trust Fund which will be placed with an off-shore fund manager. The income stream will be used for projects to be identified by the communities themselves.

Such a program will foster regional development by providing a macroeconomic policy framework, delivering much-needed support services and promoting business development. It supports the government agenda for national development and public sector reform.

Big differences between rural and urban incomes have produced a flow of people from the subsistence economies of the outer islands to the public sector-dominated cash economy of the main island, Funafuti. This has retarded growth in the outer islands while straining Funafuti's infrastructure and environment. 

A more balanced regional development would benefit the whole country. It would especially make rural communities in the outer islands more self-reliant and would improve the services to the outer islands. It is essential, however, for the private sector, including family or community-based initiatives, to take the lead in this regard. 

The ADB will also provide a technical assistance grant of US$600,000 to build the capability of the Department of Rural Development of the Ministry of Internal Affairs and Rural and Urban Development and the island councils. The grant will also help implement the policy changes identified in the program and monitor the process. 

The loan will come from the ADB's Asian Development Fund and will have a maturity of 24 years, including a grace period of eight years. The interest rate will be 1 percent per annum during the grace period and 1.5 percent per annum thereafter. The executing agency will be the Ministry of Internal Affairs and Rural and Urban Development.

The following provides prospective suppliers, contractors, consultants, and others with general information about the Project. Detailed information may be obtained from the Executing Agency indicated below. Particulars given with respect to "consultants" and "procurement" are based on present planning and may change in the course of Project Implementation.

BORROWER: Tuvalu
 
THE PROPOSAL:
 
Island Development Program loan and technical assistance to support the implementation of the Program.
 
THE PROGRAM RATIONALE:
 
Substantial rural-urban income disparities have led to an unsustainable flow of people from the subsistence economies of the outer islands to the public sector- dominated cash economy of the main island, Funafuti. This has retarded growth in the outer islands, and strained the infrastructure and the environment of Funafuti. Island development led by the private sector, including family or community-based initiatives, is essential to place the country on a more sustainable growth path. Over the past five years, the Government has initiated a comprehensive agenda for national development and reforms, which covers the following: public sector reforms including the corporatization and privatization of Government businesses; reorientation of the economy toward private sector-led growth; improved economic infrastructure; devolution of responsibility for island development to local government; implementing the education for life program; and improving human settlements. Some progress has been made but much more needs to be done. The Program provides support for the priority areas of the comprehensive agenda most relevant to island development. The main impact will be on the rural communities of the outer islands. Two thirds of the population in the outer islands where the vulnerable groups are concentrated live under the poverty line. The whole country will benefit from more balanced regional development. The islands will become increasingly self-reliant, and less dependent on the central Government for their economic development. The trust fund it seeks to set up is designed as a low transaction cost, flexible, and demand-driven mechanism to channel resources to the islands for projects to be identified by the communities themselves according to a set of eligibility criteria.
 
OBJECTIVES AND SCOPE:
 
The objectives of the Program are to (i) support the process of decentralization, (ii) achieve a significant level of development finance for island communities, (iii) create an improved enabling environment for island development, and (iv) support the Government through technical assistance for capacity building for island development project management.
 
CLASSIFICATION:
 
Economic Growth
 
ENVIRONMENTAL ASSESSMENT:
 
Category C: Environmental implications were reviewed, and no significant adverse impacts were identified.
 
THE BANK LOAN:
 
 
 
Loan Amount and Terms:
 
Equivalent to US$4 million from the Bank's Special Funds resources. The loan will have a term of 24 years, including a grace period of 8 years, and will carry an interest charge of 1 percent per annum during the grace period, and 1.5 percent per annum thereafter.
 
Program Period and Tranching:
 
August 1999-July 2002. The loan will be released in two tranches. The first tranche, amounting to 70 percent of the loan, will be made available upon loan effectiveness. The second tranche is expected to be released after one year, subject to compliance with the conditions of its release.
 
Executing Agency: Ministry of Internal Affairs and Rural and Urban Development
 
Procurement:
 
The proceeds of the loan are expected to be disbursed against a broad range of imports, subject to a negative list. Eligible imports incurred up to 180 days prior to loan effectiveness may be reimbursed from the proceeds of the loan.
 
Counterpart Funds:
 
The counterpart funds to be generated from the proceeds of the loan will be used by the Government to create a trust fund for island development. The fund will be invested off-shore, and the earnings will be used to finance development projects for the islands.
 
Technical Assistance:
 
A technical assistance grant of US$600,000 will be provided for capacity building of the Department of Rural Development of the Ministry of Internal Affairs and Rural and Urban Development and the island councils (the kaupule), and to assist in implementing the policy changes identified in the Program and monitor the process.
 
Risks and Safeguards:
 
The principal risks are (i) weak political will, (ii) poor financial return of the proposed fund, (iii) lack of involvement of the local communities, (iv) poor choice of projects, (v) low participation of women, and (vi) lack of reasonable communication. Specific arrangements have been made to minimize these risks.

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