📋 Tender Overview
The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Kiribati.
The economy strengthened after the removal of all COVID-19 restrictions in the second half of 2022. With the resumption of infrastructure projects, improved weather conditions, supportive fiscal measures, and a recovery in international arrivals, growth is estimated to have improved to 4.2 percent in 2023 from 3.9 percent in 2022. Inflation has decelerated from its recent peak, driven by the moderation of global commodity prices, improved supply-side conditions, and base effects. The current account is estimated to shift back to a surplus of 10.2 percent of GDP in 2023, buoyed by a resurgence in fishing license fees, a rise in remittances, and a decline in global commodity prices.
Economic activity is expected to accelerate in 2024. Real GDP growth is projected at 5.8 percent in 2024, primarily driven by higher consumption following a 38 percent increase in civil service wages. Meanwhile, headline inflation is projected to average 4.5 percent in 2024, largely driven by increased domestic demand. While the current account is expected to remain in surplus over the medium term, the surplus will remain below its historical average, reflecting an increase in imports required for domestic consumption and infrastructure projects, and a gradual decline in fishing license fees as a percent of GDP. Risks to the outlook are tilted to the downside, with key risks including an intensification of regional conflicts, deepening geo-economic fragmentation, an abrupt global slowdown, commodity price volatility, higher demand-driven inflation, and climate change.
Executive Board Assessment
Executive Directors welcomed the strong economic recovery on the back of supportive fiscal policies and increased infrastructure investment. Directors noted that risks are tilted to the downside and that Kiribati, as a small island economy, remains vulnerable to global shocks and climate change. They encouraged the implementation of sound policy measures and structural reforms, supported by capacity development, to enhance private sector led growth, promote fiscal and debt sustainability, and enhance inclusiveness and climate resilience.
Directors agreed that fiscal consolidation is crucial for safeguarding fiscal and debt sustainability. They highlighted the uncertainties related to fishing revenue and external grants, alongside Kiribati’s substantial climate adaptation needs, and concurred that enhancing revenue mobilization is key. Directors also emphasized the need to rationalize recurrent expenditure including the elevated public wage bill, streamlining the copra subsidy, and improving the targeting and efficiency of social protection payments. Formulating a sustainable fiscal framework would also help promote fiscal discipline. Directors concurred that promptly reforming the sovereign wealth fund withdrawal rule would help preserve the fund’s real value and facilitate budget planning. A few Directors saw merit in the authorities’ easing of the withdrawal rule to allow for allocating more resources toward infrastructure investment while preserving the value of the fund.
Directors commended the authorities’ continued efforts to bolster institutional and administrative capacity. They agreed that further enhancing public financial management is key to supporting fiscal sustainability. Directors also encouraged additional actions to strengthen state owned enterprises’ governance and transparency, including enhancing their commercial mandate and financial viability.
Directors underscored the importance of stepping up structural reforms to address the drivers of the economy’s fragility and foster development. They welcomed recent initiatives to close the infrastructure gap and improve internet connectivity. Directors stressed the need for continued efforts to expand private sector employment and investment, upgrade exports, close human capital and gender gaps, and strengthen institutions and governance. They welcomed efforts to improve financial regulation and support financial inclusion, including the formation of the Kiribati Financial Supervisory Authority, and stressed its prompt operationalization.
Noting Kiribati’s vulnerability to climate risks, Directors emphasized that investing in adaptation and securing climate finance remain critical. They concurred that efforts should continue to bolster the sustainable utilization of Kiribati’s natural resources and emphasized the importance of finalizing the Environment Act and the Fisheries Act in this regard.
