Mismanagement
The great wealth of the tiny pacific island led it to be nicknamed the "Kuwait of the Pacific". With this great wealth, citizens and government officials flaunted it, believing it to be an endless supply. This led to high external representation and excessive official overseas travel (that included golf in the Bahamas) which blew out budgets year after year so that the government began to borrow money to supplement its huge spending. The public service had over 1,500 employees (in a country with a population less than 10,000) and the government ran deficits of A$10 million in the 1990s.
Eventually, more than A$200 million was borrowed. In order to consolidate this debt and pay interest, the government took out an A$240 million loan from General Electrics Capital Division, which was levied against the nation's international real estate portfolio.
Read more about this topic: Nauru Phosphate Royalties Trust