Summary of Tuvalu and its Economic Well Being Tuvalu is the world’s fourth smallest country and is lead by Prime Minister Willy Telavi. This country, whose capital is Funafuti, consists of nine tiny islands scattered over 500,000 square miles of the southwestern Pacific Ocean midway between Hawaii and Australia. Comparatively, the area occupied by Tuvalu is about 0.1 times the size of Washington, D.C. (Tuvalu, 2007). This country is a Polynesian island nation which became a full member of the Commonwealth of Nations and subsequently the 189th member of the United Nations in 2000 (Tuvalu, 2007). In this summary, the economic development of Tuvalu will be discussed in terms of overall economic well being. The key factors of Tuvalu’s economy as well as the differences in relation to the United States economy will also be discussed. This information will provide an understanding of how this small country is able to survive economically although faced with major challenges. A Least Developed Country (LDC) is a name given to countries with a low socioeconomic development and a low Human Development Index (HDI) rating amongst all other countries worldwide. The three measures that identify a LDC status are low income, human resource weakness, and economic vulnerability (UN-OHRLLS, 2005). Tuvalu is among several countries with LDC status. However, as of January 2012, the Department of Economic and Social Affairs (DESA) prepared an impact assessment for the Committee for Development Policy (CDP) in order to determine if Tuvalu is capable of being a developing country as opposed to a LDC. This committee found that Tuvalu fulfilled criteria that would allow it to become eligible for graduation from the LDC category for the first time since 2006. This occurred because out of several countries reviewed for eligibility; Tuvalu had the highest score on the economic vulnerability index (Department of Economic and Social Affairs, 2011). Tuvalu also met the Gross National Income (GNI) per capita and the Human Asset Index (HAI) criteria. In response to this possible graduation, the Tuvalu government submitted documentation pleading against consideration of graduation from LDC status due to Tuvalu’s environmental vulnerability. Loss of LDC status will cut current aid assistance which would contribute to an already staggering economic growth. If this graduation is confirmed, implementation of a status change as a developed country would occur in 2015 and all foreign aid would be dramatically reduced. How did Tuvalu get to this point? To understand Tuvalu’s economic journey, there must be knowledge about this country as a whole. Tuvalu’s LDC status gives rise to the important key factors in this country’s economy. This status is less about the size of the country and more about the management of resources, finances, income, and expenditures. There are several small countries that are able to thrive well economically. For instance, Liechtenstein is a tiny country where people enjoy a standard of living in the upper 20 percent of all countries (Liechtenstein, 2012). Tuvalu’s remoteness, on the other hand, struggles to maintain a decent standard of living because of the lack of economies of scale. The largest single employer in this country is the government. Government jobs on the islands pay a steady wage; however, only 30 percent of the labor force participates in this formal wage economy. The remaining 70 percent mainly work in informal and livelihood activities (Tuvalu, 2011). Tuvalu has almost no suitable drinking water and the thin poor quality soil is barely usable for agriculture. Another challenge that Tuvalu faces is low lying land in which the highest elevation is 16 feet above sea level. Tuvalu is the world’s second lowest lying nation and is particularly vulnerable to impacts from climate changes. The rising sea levels have Tuvaluans scrambling to find new homes as salt water intrusion has made their groundwater undrinkable and increasingly strong hurricanes have devastated shoreline structures (Robinson, 2008). Although Tuvalu’s economic living is extremely simple, there is no extreme poverty. Tuvalu is a non-trading country and has an inability to develop a manufacturing sector to produce exports that earn foreign exchange (United Nations, 2009). This country has almost no natural resources and subsistence is based mainly on intensive use of available limited resources. These limited resources consist of coconuts, fish, taro, pandanus fruit, bananas, and copra which are the only cash crop (Tuvalu, 2007). The main industries are fishing and tourism. However, due to this country’s remoteness, it is difficult to develop a thriving tourist industry which averages only about 1,000 visitors annually. Approximately 1,000 Tuvaluans work as phosphate miners in the rock island of Nauru country. However, because of the decline in phosphate resources, Nauru began repatriating Tuvaluans. Other revenues come from the sale of stamps and coins as well as revenue derived from the use of its area code “900” telephone lines. The government of Tuvalu also approved a 12 year lease to a California company, for the rights of Tuvalu’s “.tv” Internet domain name. The domain name brings in approximately $1.5 million annually. These funds have been placed in investments and are also used to help with the development of Tuvalu. Thus, Tuvalu’s overall main form of income is dependent on foreign aid. Australia, New Zealand, Japan, Korea, and the United Kingdom in conjunction with the government of Tuvalu established the Tuvalu Trust Fund (TTF) in 1987 (Tuvalu, 2007). These donor nations contributed $24.7 million collectively which was placed into a portfolio of investments and used each year to help Tuvalu meet its recurrent budget (Cannon, 2012). The TTF has since grown to $37 million by 1999 and was valued at more than $70 million in 2006. A look at certain national income accounting methods will show how all of these conditions affects the economic health of Tuvalu. The Gross Domestic Product (GDP) is one of the main indicators used to measure the health of a country’s economy. The GDP is the value of all final goods and services produced within a nation in a given year. The GDP at purchasing power parity (PPP) gives the GDP value that is adjusted when dealing with different currencies from different countries. Because this amount can vary drastically, using PPP allows for fair comparison of the economy between countries. The most recent GDP purchasing power parity amount available for Tuvalu is a 2011 estimate of $37.47 million (Central Intelligence Agency, 2012). This value indicates that Tuvalu is one of the more prosperous Pacific island countries. The GDP per capita PPP is the value of all final goods and services produced within a nation in a given year divided by the average population for the same year. The most recent GDP per capita PPP for Tuvalu is estimated at $3,400. This value may indicate a relatively lower standard of living as well as a lower productivity and growth within the economy. According to The World Bank (2012), Tuvalu’s GDP growth rates for the past 5 years are 5.5% in 2007, 7.6% in 2008, -1.7% in 2009, -5.0% in 2010, and 1% in 2011. These figures show an uneven economic growth partly due to the undiversified agriculture caused by poor soil quality, limited access to fresh water, and the high cost of imported fuel. Tuvalu has an estimated population of 10,619 as of 2012. The population growth rate for the past five years is 0.3% in 2007, 0.2% in 2008, 0.2% in 2009, 0.2% in 2010, and 0.2% in 2011 (Central Intelligence Agency, 2012). This small and steady increase in population growth is not surprising due to the fact that Tuvalu is one of the world’s most isolated and vulnerable countries. Since Tuvalu is the second lowest lying nation in the world, vulnerability to sea level rise is a concern. It is estimated that a rise in sea level between 8-16 inches over the next century might submerge the nation entirely (The World Bank, 2011). Many Tuvaluans abandon their homes to start over in New Zealand which causes a population shift that is certain to become more pronounced throughout the years as the islands gradually disappears underwater (Tuvalu, 2012). Tuvalu spends no percentage of GDP on military expenditures. There are no armed forces aside from local police which includes a maritime surveillance unit. For island defense, Tuvalu relies on Australian trained volunteers (United Nation, 2009). The Human Development Index (HDI) rankings have not included Tuvalu due to insufficient data available for crucial calculations. However areas of development such as standards of living, education, and health will be discussed. Tuvalu’s present standards of living are difficult to sustain due to slow growth in employment. Poverty, especially in the outer islands, has risen. A proportion of the population living in poverty has increase from 17.5 percent in 2005 to 25 percent in 2011 (The World Bank, 2011). Education is free from the age of seven and compulsory for 10 years. Tuvaluans are 99 percent literate; however, the lack of basic skills and insufficient opportunities for vocational skill development are constraining the competitiveness. This decreases the access to seasonal employment opportunities overseas. Lastly, health in Tuvalu is in a crisis. In 2010, there were 11 recorded cases of HIV, 17.5 percent of respondents had a sexually transmitted disease, over 400 people suffer from diabetes, nine people receive treatment for kidney failure, cardiac conditions are common, and children regularly experience worms and skin infections (World, 2010). Medical and dental care is very limited in Tuvalu. The only hospital available is located in Funafuti, the capital of Tuvalu, and the outer islands have trained nurses only. Serious medical conditions are referred to health professionals and hospitals in Guam or Hawaii (Foreign & Commonwealth Office, 2012). When comparing United States and Tuvalu, Table 1 shows a substantial difference between the two countries. The GDP PPP as well as the GDP per capita PPP indicates that Tuvalu’s economy is much smaller and its people earn less money than the United States. The health expenditures per capita indicate that the United States spends more money on health care than Tuvalu. The life expectancy of both nations indicates that more people die sooner in Tuvalu than the United States. When comparing the GDP growth rate, Table 2 indicates that both Tuvalu and the United States had annual periods of growth and recession. In 2011, both countries show a positive growth rate which indicates that each economy is expanding. Tuvalu’s growth has expanded from -5.0 percent in 2010 to 1 percent in 2011; whereas the United States growth has expanded from 3 percent to 1.7 percent respectively. This indicates that Tuvalu, compared to the United States, had a larger growth in 2011 than the previous year. Lastly, Table 3 shows a positive population growth rate in each country. This growth rate is a factor that may help determine the burdens imposed on a country based on population changes. The slow and steady population growth rate for Tuvalu might be ideal because of this country’s limited resources. The United States can accommodate a larger population growth rate because of its superior economy as compared to Tuvalu. In conclusion, Tuvalu’s has had economic progress throughout the years. However, due to this country’s vulnerability, the progress is at a continuous risk of reversal. There are many environment and global economic forces that are beyond Tuvalu’s control. Overall, although Tuvalu continues to strive for improvement, its economic well-being remains in jeopardy. TABLE 1 United States Tuvalu
GDP purchase power parity $15.29 trillion (2011) $37.47 million (2011)
GDP per capita PPP $49,000 (2011) $3,400 (2010)
Health Expenditures per capita $8,362 (2010) $534 (2010)
Population 313.8 million (2012) $10,619 (2012)
% GDP spent on military expenditures 4.7% (2011) none
Human Development Index Rankings 4 (out of 173) Unranked Life expectancy: 78.5 Life expectancy: 65.1 Gross National Income per capita: $43,017 Gross National Income per capita: $4,670 Mean years of schooling: 12.4 Expected years of schooling: 16.0 HDI index: 0.943
(Central Intelligence Agency, 2012)
(Human Development Report, 2011)

TABLE 2 GDP growth rate (annual %) 2007 2008 2009 2010 2011
Tuvalu 5.5% 7.6% -1.7% -5.0% 1.0%
U.S.A. 1.9% -0.4% -3.5% 3% 1.7% (The World Bank, 2012)

TABLE 3 Population Growth Rate 2007 2008 2009 2010 2011
Tuvalu 0.3% 0.2% 0.2% 0.2% 0.2%
U.S.A. 1.0% 0.9% 0.9% 0.8% 0.7% (The World Bank, 2012)

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