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 like a special savings account for the small island nation of Tuvalu in the Pacific Ocean. It was set up to help Tuvalu have enough money for its government and to grow its economy. This fund helps Tuvalu become more financially independent, meaning it doesn't have to rely as much on other countries for money.

The fund was started in 1987 by the United Kingdom, Australia, and New Zealand. It provides money to cover any gaps in Tuvalu's national budget. This means if the government doesn't collect enough money from taxes or other sources, the fund can help make up the difference.

Even when the world economy faced challenges, like the 2008 financial crisis, the Tuvalu Trust Fund has shown strength. By 2012, its value had recovered to about AUD$131 million. By the end of 2022, the fund was worth around AUD$191 million. This shows how important it is 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 until it became an independent nation in 1978.

Australia and New Zealand joined in as part of their aid programs. These programs help island nations in the South Pacific that don't have many natural resources. The main goal of the fund was to give Tuvalu a steady source of income. This money would help pay for the government's regular expenses.

More recently, in November 2023, Tuvalu and Australia signed a special agreement called the Falepili Union. As part of this agreement, Australia promised to give more money to the Tuvalu Trust Fund. They also agreed to help with the Tuvalu Coastal Adaptation Project, which protects Tuvalu from rising sea levels. This agreement also helps Tuvaluans move to Australia if climate change makes their home difficult to live in.

How the Fund Grew

When the fund first 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 added A$30,000. This brought the total starting amount 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 and provide other help to Tuvalu. Japan and South Korea have also continued to make donations. Tuvalu itself has become the biggest contributor to the fund, adding a total of AUD$29.8 million over time.

Thanks to smart investments, the fund's value has grown a lot. The initial A$27 million grew to A$66 million by 2000. In its first 20 years, the fund earned an average of 6.2 percent profit each year. This provided AUD$65.7 million in income for Tuvalu. A big part of this money, AUD$24.1 million, was used to help cover government budget shortfalls. Another AUD$29.2 million was put back into the fund to help it grow even more.

Here's how the Tuvalu Trust Fund and another related fund, the Consolidated Investment Fund (CIF), have grown over the years:

By 2022, the values were even higher:

How the Fund Works

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

• The first part is called the 'A Account' or the endowment fund. This account holds the main capital of the fund. The goal is to make sure this money keeps its real value, even with inflation (when prices go up over time).
• The second part is called the 'B Account' or the revolving fund. This 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'. The 'B Account' acts like a buffer or a safety net. If the 'A Account' doesn't earn much money in a certain year, the government can still get funds from the 'B Account'.

The money in the 'B Account' can be used by the Tuvalu Government for its regular expenses. This helps the government manage its budget better, especially when its other income sources might change. There's no strict rule about how much money needs to be in the 'B Account', but the fund's board aims for it to be about 16 percent of the 'A Account's' maintained value.

The Tuvalu Trust Fund was set up very carefully to prevent problems like mismanagement or corruption. It has a strong management structure. For example, the money that is invested is kept separate from the money that can be spent. This makes sure that funds are not used for unauthorized projects.

Experts say the fund's success comes from several things:

• It has a board of directors, with Tuvalu leading it, and other original countries as members.
• Professional fund managers give advice on how to invest the money.
• Consultants regularly check how the fund is performing.
• International auditors check the fund's finances.
• An advisory committee watches Tuvalu's economy and gives advice to the government and the board.

How the Fund Helps Tuvalu's Budget

The main purpose of the Tuvalu Trust Fund is to add to Tuvalu's national budget. It helps the country develop and become more financially independent. The government has promised that all money received from the fund will be treated as public money. This means it will be carefully checked and approved by the Parliament.

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

Between 1987 and 2017, the Tuvalu Government received AUD$100 million from the fund. If you adjust for inflation, that's like getting AUD$154 million in 2017 money.

Other Important Funds

Tuvalu has also created other successful funds based on the Tuvalu Trust Fund's model.

Falekaupule Trust Fund (FTF)

After the success of the Tuvalu Trust Fund, the Falekaupule Trust Fund (FTF) was created. This fund helps with development projects on Tuvalu's outer islands. The Asian Development Bank (ADB) provided A$6 million in loans to start the FTF in 1999. The Tuvalu Government also matched this amount. Each of Tuvalu's eight island communities contributed money, and the government matched those contributions too.

The FTF is managed similarly to the Tuvalu Trust Fund. Each island community has a representative on the board, and the government provides a non-voting chairperson. By 2007, the FTF had grown to AUD$25.3 million. It also has a reserve account, like the CIF, to help make sure there's a steady flow of money for the islands.

Tuvalu Survival Fund (TSF)

In 2016, the Tuvaluan government set up the Tuvalu Survival Fund (TSF). This fund is specifically for climate change programs. It also helps Tuvalu 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. For example, in 2016, 10 percent of Tuvalu's GDP was put into the fund. By the end of 2020, the fund had A$5 million.

See also

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