IMF Executive Board Concludes 2024 Article IV Consultation with Kiribati

May 10, 2024

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] 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[2]

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.

Kiribati: Selected Economic Indicators, 2020 – 29

Per capita GDP (2022): US$2,199.

Demographic: Population (2022): 123,375;
Life expectancy at birth (2020): 67.3.

Poverty in percent of population (2019):
Below $2.15 a day: 1.7; Below the national poverty line: 21.9.

Inequality (2019, income shares):
Top 10 percent: 22.9; Bottom 20 percent: 9.5.

IMF quota: SDR 11.2 million.

Main export products:
Frozen yellowfin tunas, crude coconut oil,
self-propelled works trucks, petroleum oil, and copra.

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Est.

Proj.

Real GDP
(percent change)

-0.6

8.5

3.9

4.2

5.8

4.1

3.3

2.5

2.1

2.1

Consumer prices
(percent change, average)

2.6

2.1

5.3

9.3

4.5

3.0

2.5

2.0

1.9

1.8

Inflation (end of period)

2.8

2.5

16.2

-2.1

4.8

2.5

2.0

1.9

1.8

1.8

Central government finance
(in percent of GDP)

Revenue and grants

105

72

69

101

103

92

82

91

88

87

Total domestic revenue

75

64

56

71

65

63

63

62

62

62

Of which: fishing revenue

57

44

36

51

46

44

43

42

42

41

External grants

30

8

13

30

39

29

19

28

26

26

Expenditures

101

83

87

102

126

107

95

104

103

103

Current

63

67

67

71

73

72

70

68

68

68

Development

39

16

21

31

53

35

25

36

35

35

Domestic recurrent balance 1/

-45

-47

-47

-51

-54

-53

-50

-49

-48

-48

Recurrent fiscal balance
(incl. budget support grants)

14

-2

-7

8

-7

-4

-4

-5

-5

-6

Overall balance 2/

4

-11

-18

-1

-22

-15

-13

-14

-15

-16

Financing

-4

11

18

1

22

15

13

14

15

16

Of which: Revenue Equalization Reserve Fund
(RERF)

12

0

0

0

17

9

9

8

8

8

RERF

Closing balance (in millions of A$)

1172

1353

1194

1389

1414

1475

1529

1579

1642

1714

Per capita value (in 2006 A$)

7264

8018

6530

7080

6835

6803

6772

6717

6710

6729

Balance (in percent of (GDP)

362

351

306

330

301

294

290

287

287

288

Cash reserve buffer 3/

Closing balance (in millions of A$)

278

216

200

192

164

157

157

157

157

157

Closing balance (in percent of GDP)

86

56

51

46

35

31

30

29

27

26

In excess of 3-months of current
spending and LCDF (in millions of A$)

219

144

124

108

61

53

53

51

44

40

Balance of payments

Current account including official transfers
(in millions of US$)

71

20.3

-6.5

28.6

30.2

30.4

29.2

29.4

30.5

31.3

(In percent of GDP)

31.8

7.0

-2.4

10.2

9.7

9.2

8.4

8.1

8.0

7.9

External debt (in millions of US$) 4/

39

36

32

30

28

43

57

78

105

135

(In percent of GDP)

16

13

13

11

9

13

17

22

28

35

External debt service (in millions of US$)

1.9

2.1

2.3

2.3

2.2

2.2

2.3

2.5

2.7

2.9

(In percent of exports of goods and services)

1.3

1.0

0.9

0.9

0.8

0.7

0.7

0.8

0.8

0.9

Exchange rate (A$/US$ period average)

1.4

1.3

1.4

1.5

…

…

…

…

…

…

Real effective exchange rate (period average)

75

78

78

83

…

…

…

…

…

…

Memorandum items:

Nominal GDP (in millions of A$)

324

385

390

420

470

501

528

551

572

595

Nominal GDP (in millions of US$)

224

290

271

279

311

329

342

354

366

382

Sources: Kiribati authorities; World Bank;
and IMF staff estimates and projections.

1/ Domestic recurrent balance excludes
fishing revenue, grants, and capital expenditure.

2/ Overall balance in the table is
different from official budget because
withdrawals from the RERF are classified as financing.

3/ Cash reserve buffer includes the government's
operational account and cash reserve account.

4/ The coverage is public external debt only.


[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

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