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The global economic crisis won’t stop Tuvaluan children from playing Kilikiti

© ESCAP Pacific Operations
A beach in Tuvalu

By: Lincoln Sihotang, UNESCAP Pacific Operations Centre

14 December 2009 - Nowadays children in Nanumaga Atoll are happier than those who lived 10 years ago. Tupua is a 12-year old boy who lives in Tokelau Village, the only village in Nanumaga Atoll, Tuvalu. He and his friends have a regular favorite activity every Saturday night: playing kilikiti. Kilikiti is a Tuvaluan version of cricket which can be pretty much enjoyed by all villagers from children to adults. While children who grew up 10 years ago could only play kilikiti during the daytime it is now possible for Tupua and his friends to play in the evening. This is because Tokelau Village has electricity that enables Tupua and his friends to play kilikiti under floodlights in front of his yard in the evening.
The electricity supply was installed as part of the outer island electrification project where the funding came from the Tuvalu Trust Fund (TTF) profit distribution through the National Budget. The good performance of the TTF between 1999 and 2001 enabled the government to spend AUD $1 million for the Electrification of Outer-Islands project as part of its national development programme. TTF was established in 1987 with the purpose to provide an additional source of revenue for recurrent expenses and capital investment of the Government of Tuvalu. The revenue from TTF assists the Government in many ways such as in the maintenance and improvement of existing levels of social infrastructure and services.
 Since its establishment, TTF has been a huge success and has been a role model for similar trust funds in other least developed countries. Based on the Tuvalu Trust Fund Twentieth Anniversary Report published in 2007, initial capital contributions to the Fund amounted to AUD $27.1 million; with additional contributions from both development partners and the government of Tuvalu itself this had grown to AUD $64.8 million in June 2007. At that date the market value of TTF was AUD $106.6 million. With an average real rate of return of 6.2 % per annum, the Fund had also provided AUD $65.7 million in revenue to Tuvalu.
According to David Abbott, the Macroeconomic and Poverty Reduction Specialist from the United Nations Development Program (UNDP) Pacific Centre, TTF was able to achieve this performance because the Fund had been invested in a balanced portfolio of asset classes including, international equities, a property fund, a hedge fund and fixed interest securities. The Investment Strategy of the Fund requires that over the long-term the objective is to achieve a real rate of return equivalent to at least 4.5% per annum. “Funds invested are managed by best-in-class fund managers whose performance against benchmarks is monitored on a quarterly base by the Fund Monitor; managers who consistently fail to achieve returns at least to the benchmark may be replaced by managers with better levels of performance” he added.
However, the end of 2007 gave a different sign. The collapse of the financial system in the United States (US) in summer 2007 has affected the global financial system resulting in the Global Economic Crisis (GEC).  The fall in global stock markets also affected TTF revenue.  TTF invested a good share of its capital in stock markets. As global stock markets declined, the market value of TTF also dropped. According to a recent report of ADB, at the end of March 2009, the value of TTF was about 25% below the real maintained value (the capital contributions adjusted for inflation). This has resulted in the absence of a distribution from TTF to the national budget for 2009 and Government does not expect any distribution in the next two to three years. Without the contribution of TTF to the national budget, fewer development projects are likely to be funded by the government which therefore will have to rely more on development partners for projects finance. Most development projects will be funded by foreign donors, mainly industrialized countries namely Japan, Australia and New Zealand. However donor countries like Australia and New Zealand have also been affected by the GEC and therefore might cut their foreign aid. Fortunately, through prudent management of the earlier distributions, the government has been able to build a small reserve fund which will still be able to make some contribution to the budget until the main Trust Fund is able once again to make a direct distribution to the budget.
The most recent forecasts suggest that the global economy will have recovered by the second half of 2010. However financial conditions at the moment are still far from normal and are highly vulnerable. According to David Abbott the TTF might only return to positive territory by the end of the 2012 financial year. This means the government of Tuvalu will be unlikely to allocate new funding for any development projects in Tupua’s village in the near future. Tupua is still able to play kilikiti every Saturday night with his friends but no other stimulating stories on development from his village will be heard for a while until the global economy is back to normal. 

Remark: Tupua is not the real name of the boy.

Reference: ADB. Country Operations Business Plan. Tuvalu 2010-1012. October 2009.
                   Tuvalu Trust Fund. 20th Anniversary Profile. 1987-2007.
For more information please contact:
Lincoln Sihotang on (+679) 3319669



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