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Project Rationale and Linkage to Country/Regional Strategy |
The decline in phosphate exports since the late 1990s has meant that there has been no real growth in the Nauruan economy for over a decade. Primary phosphate reserves are estimated to be enough for 1-2 years of production, and deeper, secondary reserves might last 20 years. An intergenerational trust fund (ITF) is being established with ADB assistance so that income from phosphate mining can be saved for when the reserves are exhausted. Full exploitation of the phosphate resource, however, requires considerable investment to refurbish the necessary infrastructure. Improved governance, especially of the SOEs that dominate the economy, is also needed to encourage the public and private investment required. The Government has requested that the program grant be used as seed funding for the ITF.
The Nauru government's current PFM strategies are based on a desire to avoid a repeat of the prior practices in the 1980s and much of the 1990s that severely undermined the government's fiscal position and the Nauruan economy. While some progress has been made since 2004 in improving the quality of PFM compared with that prevailing previously, there are a considerable number of outstanding issues to be addressed to achieve a more satisfactory overall standard. A major improvement is also required in the financial performance and governance of Nauru's major SOEs. The NUA received a fuel subsidy of approximately A$6 million in FY2010 and blackouts/brownouts were common in early 2011. The poor dividend performance of RonPhos, the phosphate export company, has also been a strain on government finances.
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