Strengthening Public Financial Management (PFM): The Case of Tuvalu

Abstract

Recent studies on public financing and debt sustainability in the Pacific highlight public financial management (PFM) as central to good governance, fiscal discipline, and economic stability. Donors and financial institutions promote standardized PFM reforms to improve transparency and accountability, yet these models often overlook the social, cultural, and ecological realities of small island states. This thesis examines PFM in Tuvalu using an institutional framework that integrates regulative, normative, and cognitive institutions, drawing on old and new institutional economics. It analyzes how formal fiscal rules interact with culturally embedded norms, belief systems, and traditional governance structures to shape fiscal outcomes. While donor-led reforms have strengthened regulatory systems aligned with international standards, their effectiveness is constrained by limited capacity and local ownership. The study finds that normative values such as shared ownership (kaitasi), strategic decision-making (kai filifili), and inclusive dialogue (fakapotopoto), alongside cognitive institutions embedded in kinship networks, churches, and island councils, play a critical role in budget planning, execution, and accountability. These institutions reinforce fiscal discipline through communal trust and moral authority.

The thesis argues for a hybrid PFM approach that integrates modern financial systems with traditional maneapa and Falekaupule governance, and for incorporating ecological and climate-related risks into fiscal planning. Aligning formal PFM systems with cultural and environmental foundations is essential to strengthening fiscal resilience and long-term sustainability in Tuvalu.