Tuvalu Trust Fund facts for kids

Quick facts for kids
Tuvalu Trust Fund

Type	Sovereign wealth fund
Industry	Institutional investor
Genre	"binary trust fund structure". The binary structure consists of an endowment fund and a revolving fund.
Founded	1987
Founder	United Kingdom, Australia, New Zealand and the government of Tuvalu.
Headquarters	Tuvalu, Australia and New Zealand
Key people	Professional Fund Managers - two Australian based firms - manage the fund on a day-to-day basis
Total assets	AUD$191 million (at end of 2022)

The Tuvalu Trust Fund is a special savings account for the small island nation of Tuvalu in the Pacific Ocean. It's like a big investment fund that helps Tuvalu's government pay for things. The money from the fund helps cover costs that the country's own budget might not have enough for. It also helps Tuvalu become more financially independent.

The Tuvalu Trust Fund was started in 1987. The United Kingdom, Australia, and New Zealand helped set it up. In 2012, the fund was worth about AUD$131 million. By the end of 2022, it had grown to about AUD$191 million. This fund is very important for Tuvalu's future.

How the Fund Started

The idea for the Tuvalu Trust Fund began with an agreement signed in Suva, Fiji, on June 16, 1987. Representatives from Tuvalu, Australia, New Zealand, and the United Kingdom all signed it.

The United Kingdom was involved because Tuvalu used to be a British colony. Tuvalu became an independent country in 1978. Australia and New Zealand joined because they wanted to help island nations in the South Pacific. These islands often have few natural resources or ways to make money for their governments.

The main goal of the fund was to help Tuvalu have a stable financial future. It would provide extra money for the government's regular spending.

In November 2023, Tuvalu and Australia signed a special agreement called the Falepili Union. As part of this, Australia will give more money to the Tuvalu Trust Fund. Australia will also help with a project called the Tuvalu Coastal Adaptation Project. This project helps Tuvalu deal with the effects of climate change. The agreement also allows some Tuvalu citizens to move to Australia if climate change affects their homes.

How the Fund Grew

When the fund started, Tuvalu put in A$1.6 million. The United Kingdom gave A$8.5 million, Australia gave A$8.0 million, and New Zealand gave A$8.3 million. Later, Japan donated A$700,000, and South Korea gave A$30,000. This brought the total to about A$27.1 million.

The United Kingdom stopped being part of the agreement in 2004. However, Australia and New Zealand still support the fund. Japan and South Korea have also continued to donate. Tuvalu itself has contributed a total of AUD$29.8 million, making it the biggest contributor to its own fund.

Thanks to good investments, the fund grew from A$27 million to A$66 million by 2000. Over its first 20 years, the fund earned an average of 6.2 percent profit each year. This provided Tuvalu with A$65.7 million in income. Some of this money (A$24.1 million) helped cover government budget shortfalls. A$29.2 million was put back into the fund to help it grow more. The rest was kept in a special account for the government to use.

Here's how the fund's value changed over the years:

And here are the values for 2022:

How the Fund Works

The Tuvalu Trust Fund has two main parts, like two different bank accounts.

• The first part is the endowment fund (called the 'A Account'). This is the main savings part. The goal is to make sure the money in this account keeps its value, even with inflation (when prices go up).
• The second part is a revolving fund or buffer account (called the 'B Account'). This account is also known as the Consolidated Investment Fund (CIF).

Each year, experts check the 'A Account'. If the money in it has grown more than what's needed to keep its value, the extra money is moved to the 'B Account'.

Having two accounts helps Tuvalu's government in two ways. It helps with long-term financial stability and also with short-term money needs. The 'B Account' acts like a cushion. If the 'A Account' doesn't make much money in a year, the government can still get funds from the 'B Account'. The government can use the money from the 'B Account' for its regular spending.

The Tuvalu Trust Fund was set up carefully to prevent problems like mismanagement. It separates the main savings from the money that can be spent. This makes sure that money isn't used for unauthorized projects. The fund is managed by a board, professional fund managers, and independent experts. This helps keep everything fair and transparent.

How the Fund Helps Tuvalu's Budget

The Tuvalu Trust Fund was created to add to the country's national budget. It helps with economic growth and makes Tuvalu more financially independent. The government has promised that all money from the fund will be used for public services and checked by Parliament.

Since 1990, the fund has provided about 15% of Tuvalu's yearly government budget. The fund's value is about 2.5 times Tuvalu's total economic output (GDP). This makes it a very important safety net. It helps balance out other income sources that can change a lot, like money from fishing or from licensing the .tv internet domain name.

From 1987 to 2017, the Tuvalu government received about AUD$100 million from the fund.

Falekaupule Trust Fund (FTF)

Because the Tuvalu Trust Fund was so successful, another fund was created. This is the Falekaupule Trust Fund (FTF). It helps develop the outer islands of Tuvalu. The Asian Development Bank (ADB) provided A$6 million to start it in 1999. The Tuvalu government also added money, and each of Tuvalu's eight island communities contributed too. The government matched the island contributions.

The FTF is managed similarly to the main Tuvalu Trust Fund. Each island community has a representative on the board. In 2001, the FTF was worth about AUD$15 million. A special reserve account was set up for the FTF in 2005. This account works like the 'B Account' of the main fund. It helps make sure there's a steady flow of money for the islands. By 2007, the FTF had grown to AUD$25.3 million.

The global financial crisis affected the FTF. It needs to keep its value stable before it can give out money. In 2010, the fund's market value was lower than its target value. This meant no money could be given out until it recovered. Since it started, the FTF has given out AUD$6.4 million. Most of this (AUD$5.3 million) went to island development projects.

Tuvalu Survival Fund (TSF)

In 2016, the Tuvalu government started another fund called the Tuvalu Survival Fund (TSF). This fund helps pay for programs to deal with climate change. It also provides money to quickly respond to natural disasters, like tropical cyclones.

The TSF keeps its money at the National Bank of Tuvalu. The government contributes to the TSF from its national budget. In 2020, the fund had A$5 million.

See also

• Economy of Tuvalu
• Foreign relations of Tuvalu
• Nauru Phosphate Royalties Trust