Nauru - Economy





The economy of Nauru has long been dependent on phosphates. Estimates are that the deposits will be exhausted within a few years. In anticipation of this event, substantial amounts of phosphate income are invested in trust funds to help cushion the transition. By 1987, an estimated $450 million had been set aside to support the country after the phosphates run out. At one point, the value of the Nauru Phosphate Royalties Trusts reached $1 billion, making Nauruans on paper the richest people in the Pacific. However, dividends from the trusts have declined sharply since 1990 and the government has been borrowing from the trusts to finance fiscal deficits. In addition, a 1994 audit of the trust revealed that about $8.5 million had been lost due to bad investments and corruption.

By 1996 deficit spending had caused the country to default on servicing its external debt and was also creating problems in meeting the government payroll. A strict government austerity program reduced government spending 38% in 1998–99. Money has been lost through failed investments in property, aviation and fishing, but the evidence is indirect since there is no public accounting. In 2002, Air Nauru Pacific service was grounded because of arrears on bills to Qantas maintains. The air service is vital for food supply. Telephone service has also been occasionally cut because of unpaid bills.

The government has attempted to use the now-dwindling revenue from phosphates to diversify the island's economy, mainly through overseas investment and the development of a national airline and shipping line. Aside from phosphates, Nauru has few domestic resources, and many food products and virtually all consumer manufactures are imported. The government subsidizes imports so that food and other necessities are available at nominal cost. Nauru's economy is currently very weak and increasingly dependent on Australia. Offshore financial operations were begun in 1993, but the economy suffered in that year due to a major financial scandal. In 2000, the OECD listed Nauru one of 38 "noncooperative" tax havens. In 2002, it was one of only seven jurisdictions that remained on the list for not taking sufficient corrective action. A temporary infusion of funds was promised through Nauru's agreement with Australia to act as an off-shore location for the processing of asylum seekers. For the use of its land, Nauru has been promised up to A $30 million.

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