Prepared by:Ms Puara. Tanei

Economic AdviserPlanning & Budget Department

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OutlineHow TTF was

EstablishedObjectiveTrust Fund ModelCapital Governing bodyLegal status Benefits & Costs of

TTFLessons Learnt

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How TTF was established: 1986 Budget Deficit Worries ($800,000) Options Available:

Copra Stamps Handicrafts Fishing TRUST FUND – YES, best option BUT

with a HIGH targeted Initial Capital of $26 million

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Objective:The TTF therefore aims to:Assist the Government to achieve greater financial

authority in the management of its recurrent budget;Enable the Government to maintain and if possible

improve existing levels of social infrastructure and services;

Enhance the capacity of the Government to receive and effectively utilize external capital development and technical assistance;

Enable the Government to meet long-term maintenance and operating costs of social and economic infrastructure and services; and

Assist the Government to develop the economy of Tuvalu.6-8 September 2012

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Trust Fund ModelFigure 1:

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Tuvalu Trust Fund

(Investments)

Initial capitals from Trustees

Additional contributions

Rein

vest

ed

earn

ing

s

Distributions

Consolidated Investment

Fund (exclusively

Govt controlled)

Inte

rmitte

nt

Con

tribu

tion

s

Recurrent

Budget

CapitalThe TTF was initially capitalized with AUD$27.1 m in ‘donor donations’ from :• UK (AUD$8.5 m), NZ (AUD$8.282 m), Australia (AUD$8 m), Tuvalu (AUD$1.6 m), Japan (AUD$695,000) & South Korea (AUD$31,000).Since establishment there have been additional donations from donors totaling to AUD$38.6m which comprises:• AUD$6.4 m from Australia, AUD$3.2m from NZ, AUD$37,821 from South Korea, and AUD$28.2m from GoT. Note, Tuvalu is the Fund’s largest contributor

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Capital - cont The TTF capital is invested in a balanced

portfolio of equities and fixed interest securities in international financial markets in Australia & around the world.

CIF as ‘buffer’ to support the Government’s Recurrent Budget

Real Value of TTF adjusted to Australian CPI ‘Disciplined’ draw downs from CIF to finance

budget deficits Accession of TTF Capital is highly discouraged

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Tuvalu Trust Fund

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Governing BodyBoard of DirectorsProfessional Fund ManagersProfessional Consultant actuariesAdvisory Committee Secretariat

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Legal Status:

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The establishment of the TTF was marked by the signing of an international agreement between The Tuvalu Government and potential donors  in Suva on 16 June 1987.

The purpose of the Fund (as stated in the International Agreement) is to contribute to the long-term financial viability of Tuvalu by providing an additional source of revenue for recurrent expenses of the Government of Tuvalu.

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Benefits Challenges/Cost

- The success of the trust fund has gained a positive reputation for Tuvalu.

- Growing & maintaining the size of the Fund to ensure adequate total revenue & grant availability for intended use.

-The Fund has been seen as an excellent alternative mechanism for delivering untied development aid to a developing country

- Maintaining parties to the Fund Agreement over a long period of time that ensure viability and integrity of the structure of decision making.

- Tuvalu has managed to demonstrate that a trust fund set up can have significant positive impacts on national budget and the economy as a whole;

- It would be a challenge to differentiate climate related finance from normal ODA invested into such a general development Fund.

Costs & Benefits of TTF:

Costs & Benefits of TTF – cont.Benefits Challenges/Costs

-The TF distributes earnings to the Government of Tuvalu to buffer unexpected situations like financial crises or natural disasters;

- Regardless of its success, the TTF is still prone to the effects of global financial crises due to the smallness of the Fund size.

-The Fund is a successful model for multinational and multiparty governance arrangements.

- Difficulties in determining if the Fund has made any tangible difference in the lives of the people of Tuvalu apart from using the CIF to supplement the government budget in times of shortfall to the budget revenues.

The TTF structure is innovative and efficient.6-8 September 2012Regional Clinic on the Design and Management of NCFs Bangkok ,Thailand

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Lessons learntThe model of the TTFPrudent financial managementStrong ownership and relationship with

partners

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THANK YOU

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