NAURU: Positive economic growth propects - ADB
Updated
The Asian Development Bank says it has an optimistic outlook for medium-term economic growth in Nauru. A new report from the bank says Nauru's government is addressing some of the economy's structural problems, and is working towards building an economic base for the future. But the report comes as the Australian detention centre on Nauru prepares to close, and the country's debt stands at $1 billion Australian dollars.
Presenter: Jemima Garrett
Speakers: Craig Sugden, Asian Development Bank Pacific country economist
SUGDEN: Well, our view is that there are some grounds for optimism. The economy is obviously facing a contraction over the medium term, but there are some sectors that have prospects for growth and can limit the extent of the downturn.
GARRETT: So what are those sectors?
SUGDEN: The key sectors for Nauru will be phosphate mining and government. Phosphate mining has recommenced on a limited scale. There is some potential to ramp that up and there's also an issue of moving into what is called the secondary phosphate reserves, which are quite large. The second key area is going to be government expenditure. Smaller economies become very dependent on public expenditure, so new projects, employing people, becomes critical for economic prospects.
GARRETT: Nauru is facing up to the imminent closure of the detention centre, just how dire is its economic predicament at the moment?
SUGDEN: The detention centre's become, if you like, one of the new growth areas of the economy, so the removal of that is obviously going to have a big impact. There's approximately 100 Nauruans directly employed and perhaps as many as a thousand, that is approximately ten per cent of the total population indirectly employed. So this is a major contraction in the economy.
GARRETT: Your report says the Nauru government is addressing some of the economic problems. What has the government done to make a significant difference to Nauru's economic prospects?
SUGDEN: Nauru's prospects rest on correction of the some weaknesses in governance, and these get back to use of public resources. So Nauru has made a lot of progress in recent years in upgrading the quality of its public finances and its management in particular of the state-owned enterprises.
GARRETT: Nevertheless you say there's still a lot to do. What exactly?
SUGDEN: The reform program is only in its early stages, although there has been a good response to date it needs to be a lot deeper. And to put this into context we need to recognise that Nauru went from a position of having more than a billion dollars in assets 20 years ago to now having approximately a billion dollars in debt. This is indicative of a deep weakness in government processes.
GARRETT: The Australian government has said that it will provide Nauru with development assistance in compensation for the loss of the detention centre. How significant a step is that?
SUGDEN: Total aid to Nauru has been as much as $30 million per annum in recent years, which is approximately 100 per cent of GDP. So the Australian government's commitment to keep aid at reasonably high levels is critical.
GARRETT: So will that aid start to flow soon enough to avert the really severe economic hardship people will face as they lose the last of the jobs in the detention centre?
SUGDEN: Aid will not be able to replace the stimulus that was provided by the detention centre, but what it can do is limit the extent of the downturn.
GARRETT: Considering Nauru's enormous debt will it ever be able to get back on its feet when it owes so much money?
SUGDEN: The debt overhang is a big problem for Nauru. There's an issue of large external and also even larger internal debt. So working out a path on debt is critical. A sustainable Nauruan economy would look very different to what it was in the past. A sustainable economy would have a much stronger emphasis on local production, for example of fisheries, agricultural products to meet local demand and it would require a much more limited scope of public services than had been provided in the past.
