## CLIMATE CHANGE IN KIRIBATI: THE WAY FORWARD

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### Introduction — climate risks and vulnerabilities
- Global temperature projections and risks:
  - "The global average temperature will almost certainly rise to 1.5 degree Celsius above pre-industrial levels in the coming decades."
  - "The risk of runaway climate change... if the global average temperature were to increase to and above 2 degrees Celsius... is deemed very high."
- Kiribati’s exposure and key channels of impact:
  - Vulnerabilities: tidal inundation, tropical cyclones, droughts, heatwaves, sea level rise (SLR), ocean acidification, marine heatwaves.
  - Natural-resource channels at risk: freshwater lenses, soils, fisheries (including potential migration of tuna stocks).
  - Physical constraint: "the high point on most of Kiribati’s atolls is at or below 4 meters."
- Observed and anticipated impacts:
  - Examples of territory loss and forced relocation: Tebunginako, Abaiang.
  - Social and economic outcomes at risk: agriculture disruption, food security, poverty, inequality, gender disparity, health deterioration.
- International cooperation and responsibility:
  - "International cooperation... is critical" and "the cost of maintaining the livelihoods in Kiribati in the face of climate change already exceeds its means."

### Adaptation — current actions, needs, and cost estimates
- Policy and institutional progress:
  - Key national instruments: 2012 National Disaster Risk Management Plan; 2013 National Communication under the UNFCCC; NDCs 2016 and revised NDCs 2022; 2018 Kiribati Climate Change Policy; Disaster Risk Management and Climate Change Act 2019; 2021 New Environment Act.
  - Recent focus areas: resilient infrastructure, water management, mangrove planting, coastal protection (seawalls), community awareness programs.
- Infrastructure and project examples:
  - Water: monitoring and reduction of leakage, improved distribution, and a water desalination plant in Tarawa.
  - Coastal protection: mangrove planting and seawalls to reduce erosion and seawater intrusion.
  - Physical infrastructure retrofits and reconstruction: roads, runways, causeways, bridges, ports, berths, and public buildings made more resilient.
- Labor mobility as adaptation:
  - 2015 Kiribati Household Survey evidence:
    - "94 percent of households had been impacted by natural hazards within the 10 years preceding the survey."
    - "75 percent of households saw the need of migration for one or more family members if sea levels continued to rise."
    - "9 percent of people reported to have attempted to migrate but failed, and only 1.3 percent of people had migrated for more than 3 months in the past 10 years."
  - Recent mobility developments:
    - New Zealand RSE scheme cap raised "by about 3,000 workers for the 2022/23 season" (from "16,000 workers in the previous year").
    - Pacific Access Category permanent visa to New Zealand: "an annual cap of 75 slots."
    - Australia Pacific Engagement Visa: "to allow up to 3,000 individuals from Pacific countries to Australia."
    - Pacific Australia Labor Mobility (PALM) scheme reforms underway.
  - Caveat: "If carefully designed to prevent brain-drain impact of skilled workers, these policies could be beneficial."
- Environmental data, early warning, and regional cooperation:
  - Data gaps constrain forecasting and planning.
  - Example regional project: Climate Information and Early Warning Systems, One Pacific Programme (concept note December 2021 to the Green Climate Fund) across 14 Pacific SIDS, including Kiribati.
- Cost and financing scale:
  - World Bank (2017) estimate: adaptation costs exclusively for coastal protection could reach "US$54 million (equivalent to 11 percent of GDP per year) in the 2040s."
  - Dabla-Norris et al. (2021) model-based estimate: Kiribati "would need to invest more than 25 percent of its GDP annually to upgrade and retrofit its infrastructure with the objective to contain annual expected losses to below 1 percent of GDP."
  - Historical external funding: DGIZ et al. (2020) — Kiribati accessed "AU$76.5 million of external funding during 2011-2018, of which 46.4 percent was used for climate adaptation" — "equivalent to an annual average of 1.69 percent of 2018 GDP."
- Strategic fiscal guidance:
  - Need to "adopt a strategic approach in incorporating adaptation costs in its medium- and long-term fiscal planning by first ensuring fiscal space from general budget, along with continuing seeking support from development partners for stronger institutional and financial capacity."

### Mitigation — emissions profile and commitments
- Emissions baseline and trend:
  - Current emissions: "about 79 kilotons of CO2 per year, or 0.68 tons per capita."
  - Historical: "a marked increase from 0.32 tons of CO2 in 1990."
- NDC commitments:
  - "Kiribati has committed to reducing emissions by 8.0 percent by 2030 compared to a business-as-usual (BAU) projection."
  - Conditional ambition: "On the condition of receiving international support, the commitment becomes significantly more ambitions" (text ends before specifying the supported target).
- Additional mitigation note:
  - "23.8 percent against the 2030 BAU projection." (renewable/mitigation-related target repeated in the source).

### Renewable energy deployment and status
- Role of renewables:
  - Introducing renewable energy is identified as one of the most effective ways to achieve emissions reductions for Kiribati.
- Historical and recent deployment:
  - Solar panels first installed since 1990s; development stagnated due to high cost of maintenance — only 0.35 percent of total power generation nationwide in 2017 was from solar energy (GoK, 2021).
  - Government’s Development Plan 2020-2023 goal: being a “100-percent solar-powered country by 2036” through centralization of solar power systems in outer islands and South Tarawa.
- Outer islands:
  - No on-grid power systems, except for Kiritimati; main power supply is private diesel generators.
  - Off-grid solar rollout since early 1990s, expanded in 2005 under development partner funding.
  - Household reliance on solar panel electricity for lighting in 2019 (KNSO, 2021):
    - Central Gilbert: 70 percent (over 70 percent)
    - Southern Gilbert: 49 percent
    - Line and Phoenix Islands: 35 percent
    - Northern Gilbert: 15 percent
  - POIDIER (GEF-funded, launched 2021) aims to install “high-quality solar grid system at globally competitive costs” and create a demo electricity revenue and billing system.
- South Tarawa (main grid):
  - Electricity produced using diesel generators; in 2019, 88 percent of households in South Tarawa used on-grid electricity; solar panel use was 2 percent (KNSO, 2021).
  - About 50 percent of the country’s total imported fuel in 2019 was used for main-grid power generation (GoK, 2021).
  - Kiribati Grid Connected Solar Photovoltaic (PV) Project (started 2012) increased renewable share in the main grid to 9 percent upon completion in 2018.
  - South Tarawa Renewable Energy Project (STREP) expected to increase share to 44 percent in 2024 after completion.

### Non-price instruments and sectoral mitigation options
- Examples of non-price instruments: CO2 intensity standards for industries, fuel economy requirements (e.g., CO2 per kilometer), emissions targets for new buildings.
- Kiribati NDC Investment Plan 2021 primary mitigation options:
  - Transport: promote bicycle and electric vehicle initiatives; introduce low carbon mini-container and cargo ship.
  - Energy efficiency: increase capacity to design and construct low energy buildings through thermal insulation retrofits.
- Buildings and water infrastructure:
  - Construction of a “climate resilient and low carbon water supply infrastructure”—a desalination plan to provide fresh water for at least 95 percent of South Tarawa’s population.
  - The desalination energy consumption will be self-supplied from a newly installed 2,500-kilowatt solar photovoltaic system.
- Recommendation:
  - Ensure availability of renewable alternatives before applying price-based instruments so households and firms can switch from fossil fuels.

### Carbon tax design, impacts, and distributional effects
- Administration:
  - Carbon tax: fee imposed on burning fossil fuels based on CO2 or CO2-equivalent released; can be collected "upstream," at point of extraction or importation. For Kiribati, upstream collection at point of importation is feasible.
- Illustrative carbon tax of US$25 per ton:
  - Parry et al. (2021) advise US$25 per ton as part of an international carbon price floor.
  - Price impacts:
    - Gasoline price would increase by 9.7 percent.
    - Electricity price would increase by 8.6 percent.
    - Liquefied petroleum gas (LPG) price would rise by 7.3 percent.
    - Other carbon-intensive goods (e.g., transit) would become more expensive through pass-through.
- Distributional incidence:
  - Energy goods disproportionately consumed by richest households:
    - Richest quintile spend 6 times more on electricity than poorest quintile (in percent of household consumption).
    - Richest quintile spend 2.5 times more on gasoline than poorest quintile (in percent of household consumption).
  - Consumption losses from the illustrative carbon tax:
    - Loss equivalent to 1.7 percent of household initial consumption for the richest quintile.
    - Loss equivalent to 1.1 percent of household initial consumption for the poorest quintile.
  - Loss of labor income for workers in the energy sector would be shouldered mostly by the richest but would be small due to lack of extractive activities in Kiribati.

### Fiscal revenues and compensatory measures
- Revenue magnitude and potential use:
  - Resources raised by the carbon tax would be about 0.35 percent of GDP.
  - Example compensatory policy: proxy-means testing to target a uniform cash transfer to the poorest two quintiles would cost only a fifth of the resources raised by the carbon tax and ensure this group is no worse off on average.
  - Remaining resources could finance investments in education and health to achieve the 2030 Sustainable Development Goals (IMF, 2021) and continued climate adaptation (resilient infrastructure).

### Climate finance: needs, access challenges, and strategy
- Scale of financing needs:
  - Financing required for climate investments is described as very large and may exceed 11 percent of GDP annually in 2040.
- Institutional arrangements:
  - 2016: Government of Kiribati established the Climate Finance Division within MFED to build infrastructure to access climate funds.
  - MFED designated to manage climate projects co-funded with international Accredited Entities (AEs) and Climate Funds (CFs).
- Funding gaps and disbursement delays:
  - Approved funding has covered only a small fraction of estimated investment needs; actual disbursements are significantly lower.
  - The gap between approved and disbursed GCF funding for Kiribati is wide and similar to other Pacific island countries.
  - South Tarawa Water Supply Project: first disbursement occurred in February 2021; project faced delays due to COVID-19 and border closures; delays in disbursements from the GCF continue as of the first quarter of 2023.
- Main challenges to access CFs:
  - Direct Access (DA) status requires fulfilling hundreds of criteria on Fiduciary Standards, Transparency and Accountability, AML/CFT, Environmental and Social Safeguards (ESS), and Gender Policy.
  - High compliance costs and stringent PFM/PIM requirements can be overwhelmingly complicated and time-consuming for PICs with limited institutional and human resource capacity.
  - Each project requires extensive background work (cost-benefit analysis, quantitative indicators) and ongoing expenses to ensure implementation.
- Short-term and medium-term strategy recommendations:
  - Short-term: Seek funding through bilateral donors or via Accredited Entities (AEs) working with MDBs and regional institutions.
  - Medium-term: Embed climate projects in a coherent national strategy to reduce time needed to produce concept notes; strengthen PFM/PIM capacity targeted at CFs’ PFM requirements (audit and control frameworks).
  - Coordinate with other PICs (SPREP and PIFS) to undertake joint regional projects and potentially achieve economies of scale.
  - Continue leveraging bilateral support and AEs: grants received from Australia, the EU, Japan, New Zealand, and multilateral support from ADB and World Bank.

### Analysis highlights and policy implications
- Scale of adaptation challenge:
  - Large financing needs relative to GDP: "11 percent of GDP per year" for coastal protection in the 2040s; "more than 25 percent of its GDP annually" for infrastructure upgrades to cap expected losses below 1 percent of GDP.
- Priority areas with high cost-benefit potential (citing GCA, 2019):
  - Early warning systems; resilient infrastructure; protecting dryland agriculture crop production; mangrove planting; more resilient water resources management.
- Policy recommendations distilled from the note:
  - Secure international climate finance and multilateral/bilateral support given limited domestic means.
  - Integrate adaptation costs into medium- and long-term fiscal planning and ensure fiscal space in the general budget.
  - Prioritize investment in early warning systems, resilient infrastructure, water security, and ecosystem-based measures (e.g., mangroves).
  - Expand and carefully design labor mobility schemes to provide adaptive livelihoods while minimizing brain drain.
  - Invest in environmental data, forecasting, and regional cooperation (e.g., One Pacific Programme) to improve preparedness and planning.
  - Combine mitigation commitments with conditional international support to increase ambition.

### Conclusion and policy priorities
- Climate vulnerability and impacts:
  - Kiribati is among nations most exposed to risks posed by climate change: sea level rise has caused territory loss and forced relocation; fisheries and freshwater lenses are endangered.
  - Model-based projections have significant uncertainty and localized effects are hard to predict with confidence.
- Policy priorities:
  - Scale up adaptation and mitigation projects to protect public infrastructure and natural resources.
  - Maintain and expand renewable energy measures (solar panels, centralized systems), environmental standards, regulatory requirements, and consider carbon taxes once low-carbon alternatives are widely available.
  - Leverage climate finance effectively: short-term focus on bilateral and AE channels; medium- to long-term focus on embedding projects in national strategy, improving PFM/PIM capacity, and coordinating regionally.
  - Advocate international cooperation and streamlined CF accreditation requirements to reduce high compliance costs for small and fragile countries and prioritize CF requirements where strong capacity meaningfully strengthens financial safeguards.

*Italic: Source — "CLIMATE CHANGE IN KIRIBATI: THE WAY FORWARD", IMF content unit 1kirea2023001.*

### References ____________________________________________________________________________ 16

### CLIMATE CHANGE IN KIRIBATI: THE WAY FORWARD

### Introduction — climate risks and vulnerabilities
- Global temperature projections and risks:
  - "The global average temperature will almost certainly rise to 1.5 degree Celsius above pre-industrial levels in the coming decades."
  - "The risk of runaway climate change... if the global average temperature were to increase to and above 2 degrees Celsius... is deemed very high."
- Kiribati’s exposure and key channels of impact:
  - Vulnerabilities include tidal inundation, tropical cyclones, droughts, heatwaves, sea level rise (SLR), ocean acidification, and marine heatwaves.
  - Natural-resource channels at risk: freshwater lenses, soils, fisheries (including potential migration of tuna stocks).
  - Physical constraints: "the high point on most of Kiribati’s atolls is at or below 4 meters."
- Observed and anticipated impacts:
  - Territory loss and forced relocation: example of Tebunginako, Abaiang.
  - Social and economic outcomes at risk: agriculture disruption, food security, poverty, inequality, gender disparity, health deterioration.
- International cooperation and responsibility:
  - "International cooperation... is critical" and "the cost of maintaining the livelihoods in Kiribati in the face of climate change already exceeds its means."

### Adaptation — current actions, needs, and cost estimates
- Policy and institutional progress:
  - Key national instruments: 2012 National Disaster Risk Management Plan; 2013 National Communication under the UNFCCC; NDCs 2016 and revised NDCs 2022; 2018 Kiribati Climate Change Policy; Disaster Risk Management and Climate Change Act 2019; 2021 New Environment Act.
  - Recent focus areas include resilient infrastructure, water management, mangrove planting, coastal protection (seawalls), and community awareness programs.
- Infrastructure and project examples:
  - Water: monitoring and reduction of leakage, improved distribution, and a water desalination plant in Tarawa.
  - Coastal protection: mangrove planting and seawalls to reduce erosion and seawater intrusion.
  - Physical infrastructure retrofits and reconstruction: roads, runways, causeways, bridges, ports, berths, and public buildings made more resilient.
- Labor mobility as adaptation:
  - Migration is recognized as an adaptation strategy; evidence from the 2015 Kiribati Household Survey:
    - "94 percent of households had been impacted by natural hazards within the 10 years preceding the survey."
    - "75 percent of households saw the need of migration for one or more family members if sea levels continued to rise."
    - "9 percent of people reported to have attempted to migrate but failed, and only 1.3 percent of people had migrated for more than 3 months in the past 10 years."
  - Recent visa and labor scheme developments:
    - New Zealand RSE scheme cap raised "by about 3,000 workers for the 2022/23 season" (from "16,000 workers in the previous year").
    - Pacific Access Category permanent visa to New Zealand: "an annual cap of 75 slots."
    - Australia Pacific Engagement Visa: "to allow up to 3,000 individuals from Pacific countries to Australia."
    - Pacific Australia Labor Mobility (PALM) scheme reforms underway.
  - Caveat: "If carefully designed to prevent brain-drain impact of skilled workers, these policies could be beneficial."
- Environmental data, early warning, and regional cooperation:
  - Data gaps constrain forecasting and planning.
  - Example regional project: Climate Information and Early Warning Systems, One Pacific Programme (concept note December 2021 to the Green Climate Fund) across 14 Pacific SIDS, including Kiribati, to provide early warnings and technical advice.
- Cost and financing scale:
  - World Bank (2017) estimate: adaptation costs exclusively for coastal protection could reach "US$54 million (equivalent to 11 percent of GDP per year) in the 2040s."
  - Dabla-Norris et al. (2021) model-based estimate: Kiribati "would need to invest more than 25 percent of its GDP annually to upgrade and retrofit its infrastructure with the objective to contain annual expected losses to below 1 percent of GDP."
  - Historical external funding: DGIZ et al. (2020) — Kiribati accessed "AU$76.5 million of external funding during 2011-2018, of which 46.4 percent was used for climate adaptation" — "equivalent to an annual average of 1.69 percent of 2018 GDP."
- Strategic fiscal guidance:
  - Need to "adopt a strategic approach in incorporating adaptation costs in its medium- and long-term fiscal planning by first ensuring fiscal space from general budget, along with continuing seeking support from development partners for stronger institutional and financial capacity."

### Mitigation — emissions profile and commitments
- Emissions baseline and trend:
  - Current emissions: "about 79 kilotons of CO2 per year, or 0.68 tons per capita."
  - Historical: "a marked increase from 0.32 tons of CO2 in 1990."
- NDC commitments:
  - "Kiribati has committed to reducing emissions by 8.0 percent by 2030 compared to a business-as-usual (BAU) projection."
  - "On the condition of receiving international support, the commitment becomes significantly more ambitions" (text ends before specifying the supported target).

### Analysis highlights and policy implications
- Scale of adaptation challenge:
  - Estimates indicate very large financing needs relative to GDP: "11 percent of GDP per year" for coastal protection in the 2040s; "more than 25 percent of its GDP annually" for infrastructure upgrades to cap expected losses below 1 percent of GDP.
- Priority areas with high cost-benefit potential (citing GCA, 2019):
  - Early warning systems; resilient infrastructure; protecting dryland agriculture crop production; mangrove planting; more resilient water resources management.
- Policy recommendations distilled from the note:
  - Secure international climate finance and multilateral/bilateral support given limited domestic means.
  - Integrate adaptation costs into medium- and long-term fiscal planning and ensure fiscal space in the general budget.
  - Prioritize investment in early warning systems, resilient infrastructure, water security, and ecosystem-based measures (e.g., mangroves).
  - Expand and carefully design labor mobility schemes to provide adaptive livelihoods while minimizing brain drain.
  - Invest in environmental data, forecasting, and regional cooperation (e.g., One Pacific Programme) to improve preparedness and planning.
  - Combine mitigation commitments with conditional international support to increase ambition.

_Italic: Source — "CLIMATE CHANGE IN KIRIBATI: THE WAY FORWARD", IMF content unit 1kirea2023001._

### 23.8 percent against the 2030 BAU projection.

### 1kirea2023001 - 23.8 percent against the 2030 BAU projection.

### Renewable energy deployment and status
- 23.8 percent against the 2030 BAU projection.
- Introducing renewable energy is identified as one of the most effective ways to achieve emissions reductions for Kiribati.
- Historical and recent deployment
  - Solar panels were first installed since 1990s; development stagnated due to high cost of maintenance—only 0.35 percent of total power generation nationwide in 2017 was from solar energy (GoK, 2021).
  - The Government’s Development Plan 2020-2023 sets a goal of being a “100-percent solar-powered country by 2036” through centralization of solar power systems in outer islands and South Tarawa.
- Outer islands
  - The outer islands have no on-grid power systems, except for Kiritimati islands; main power supply is from private diesel generators.
  - Off-grid solar rollout since early 1990s and expanded in 2005 under development partner funding.
  - Household reliance on solar panel electricity for lighting in 2019 (KNSO, 2021):
    - Central Gilbert: 70 percent (over 70 percent)
    - Southern Gilbert: 49 percent
    - Line and Phoenix Islands: 35 percent
    - Northern Gilbert: 15 percent
  - The Promoting Outer Island Development through the Integrated Energy Roadmap (POIDIER), funded by the Global Environment Facility (GEF), launched in 2021 to install “high-quality solar grid system at globally competitive costs” and to create a demo electricity revenue and billing system for financial sustainability and maintenance.
- South Tarawa (main grid)
  - Electricity produced using diesel generators and transmitted to the main grid.
  - In 2019, 88 percent of households in South Tarawa used on-grid electricity; solar panel use was 2 percent (KNSO, 2021).
  - About 50 percent of the country’s total imported fuel in 2019 was used for main-grid power generation (GoK, 2021).
  - Kiribati Grid Connected Solar Photovoltaic (PV) Project (started 2012) increased share of renewable energy in the main grid to 9 percent upon completion in 2018.
  - South Tarawa Renewable Energy Project (STREP) funded by ADB, Strategic Climate Fund, and Government of New Zealand is expected to increase share to 44 percent in 2024 after completion.

### Non-price instruments and sectoral mitigation options
- Non-price instruments cited as alternatives include CO2 intensity standards for industries, fuel economy requirements (e.g., CO2 per kilometer), and emissions targets for new buildings.
- Kiribati NDC Investment Plan 2021 primary mitigation options:
  - Transport: promoting bicycle and electric vehicle initiatives; introducing low carbon mini-container and cargo ship.
  - Energy efficiency: increase capacity to design and construct low energy buildings through thermal insulation retrofits.
- Buildings and water infrastructure
  - Kiribati is constructing a “climate resilient and low carbon water supply infrastructure”—a desalination plan to provide fresh water for at least 95 percent of South Tarawa’s population.
  - The energy consumption of this desalination building will be self-supplied from a newly installed 2,500-kilowatt solar photovoltaic system.
- Recommendation: Ensure availability of renewable alternatives before applying price-based instruments so households and firms can switch from fossil fuels.

### Carbon tax design, impacts, and distributional effects
- Definition and administration
  - A carbon tax is defined as a fee imposed on the burning of fossil fuels based on how much carbon dioxide or carbon dioxide equivalent is released; it can be collected “upstream,” at the point of extraction or importation.
  - For Kiribati, upstream collection at point of importation is feasible.
- Illustrative carbon tax of US$25 per ton
  - Parry et al. (2021) advise a carbon tax of $25 per ton for low-income emerging market economies as part of an international carbon price floor.
  - Price impacts (Figure 3):
    - Gasoline price would increase by 9.7 percent.
    - Electricity price would increase by 8.6 percent.
    - Liquefied petroleum gas (LPG) price would rise by 7.3 percent.
    - Other carbon-intensive goods (e.g., transit) would become more expensive through pass-through.
- Distributional incidence (Figure 4)
  - Energy goods are disproportionately consumed by richest households:
    - Households in the richest quintile spend 6 times more on electricity than households in the poorest quintile (in percent of household consumption).
    - Households in the richest quintile spend 2.5 times more on gasoline than households in the poorest quintile (in percent of household consumption).
  - Consumption losses from the carbon tax illustrative scenarios:
    - Loss equivalent to 1.7 percent of household initial consumption for the richest quintile.
    - Loss equivalent to 1.1 percent of household initial consumption for the poorest quintile.
  - Loss of labor income for workers in the energy sector would be shouldered mostly by the richest but would be small due to lack of extractive activities in Kiribati.

### Fiscal revenues and compensatory measures
- Revenue magnitude and use
  - Resources raised by the carbon tax would be about 0.35 percent of GDP.
  - Example compensatory policy: Using proxy-means testing to target a uniform cash transfer to the poorest two quintiles would cost only a fifth of the resources raised by the carbon tax and ensure this group is no worse off on average.
  - Remaining resources could finance investments in education and health to achieve the 2030 Sustainable Development Goals (IMF, 2021) and continued climate adaptation (resilient infrastructure), supporting productivity and sustainable inclusive growth.

### Climate finance: needs, access challenges, and strategy
- Scale of financing needs
  - The scale of financing required for climate investments is described as very large and may exceed 11 percent of GDP annually in 2040.
- Institutional arrangements
  - In 2016, the Government of Kiribati (GoK) established the Climate Finance Division within the Ministry of Finance and Economic Development (MFED) to build infrastructure to access climate funds.
  - MFED is designated to manage climate projects co-funded with international Accredited Entities (AEs) and Climate Funds (CFs).
- Funding gaps and disbursement delays
  - Approved funding for climate projects has covered only a small fraction of estimated investment needs; actual disbursements are significantly lower.
  - The gap between approved and disbursed GCF funding for Kiribati is wide and similar to other Pacific island countries.
  - Example project: South Tarawa Water Supply Project with ADB Asian Development Fund as AE, the World Bank, and the GCF—first disbursement occurred in February 2021; project faced delays due to COVID-19 and border closures; delays in disbursements from the GCF continue as of the first quarter of 2023.
- Main challenges to access CFs
  - Direct Access (DA) status requires fulfilling hundreds of criteria on Fiduciary Standards, Transparency and Accountability, AML/CFT, Environmental and Social Safeguards (ESS), and Gender Policy.
  - High compliance costs and stringent PFM/PIM requirements can be overwhelmingly complicated and time-consuming for Pacific island countries (PICs) with limited institutional and human resource capacity.
  - Even after DA status is granted, each project requires extensive background work (cost-benefit analysis, quantitative indicators) and ongoing expenses to ensure implementation.
- Short-term and medium-term strategy recommendations
  - Short-term: Seek funding through bilateral donors or via Accredited Entities (AEs) working with multilateral development banks (MDBs) and regional institutions to navigate CF requirements and increase likelihood of approval and implementation.
  - Medium-term: Embed climate projects in a coherent national strategy to reduce time needed to produce concept notes and clarify roles and responsibilities across government; strengthen PFM/PIM capacity targeted at CFs’ PFM requirements (audit and control frameworks).
  - Coordinate with other PICs (SPREP and PIFS) to undertake joint regional projects and potentially achieve economies of scale in preparing concept notes and applications.
  - Continue leveraging bilateral support and AEs: Kiribati has received grants from Australia, the EU, Japan, and New Zealand, and multilateral support from ADB and World Bank.

### Conclusion and policy priorities
- Climate vulnerability and impacts
  - Kiribati is among nations most exposed to risks posed by climate change: sea level rise has caused territory loss and forced relocation; fisheries and freshwater lenses are endangered.
  - Model-based projections have significant uncertainty and localized effects are hard to predict with confidence.
- Policy priorities
  - Scale up adaptation and mitigation projects to protect public infrastructure and natural resources.
  - Maintain and expand renewable energy measures (solar panels, centralized systems), environmental standards, regulatory requirements, and consider carbon taxes once low-carbon alternatives are widely available.
  - Leverage climate finance effectively: short-term focus on bilateral and AE channels; medium- to long-term focus on embedding projects in national strategy, improving PFM/PIM capacity, and coordinating regionally.
  - Advocate international cooperation and streamlined CF accreditation requirements to reduce high compliance costs for small and fragile countries and prioritize CF requirements where strong capacity meaningfully strengthens financial safeguards.

*Italic source: 1kirea2023001 - 23.8 percent against the 2030 BAU projection.*

### 1.      Geographic challenges pose great difficulties for Kiribati to achieve high economic

### 1.      Geographic challenges pose great difficulties for Kiribati to achieve high economic

### Major geographic and structural challenges
- Persistent constraints: remoteness, large geographical dispersion, small size, and environmental fragility.
- Consequences:
  - High cost of infrastructure and public service delivery.
  - High cost of production and underdevelopment of the private sector.
  - Economic growth has lagged other Pacific Islands and low-income countries.
  - Real GDP per capita stagnation: in 2019, real GDP per capita was almost unchanged at 99.5 percent of its level 30 years ago.

### Role of the public sector
- Dominant public sector presence: Kiribati had one of the highest government expenditure-to-GDP ratios in the world during 2015-19, significantly higher than most PICs and the global average.
- Funding sources for high public spending: fishing license fees, tax revenues, investment income, and development aid flows.
- Fiscal sustainability concern: the role of the public sector will need to be reduced after the pandemic to reduce fiscal risk.

### Long-term growth model and scenarios
- Modeling approach:
  - Based on Loayza and Pennings (2018) baseline, with additions: gender-differentiated labor participation; factor productivity growth path using innovation, education, efficiency, infrastructure, and institutions scores; and differentiation of public versus private capital and investments with public investment quality adjustments.
  - Baseline calibrated to current policies and macroeconomic conditions (2020 or latest available).
- Two scenarios:
  - Baseline scenario: no change from present data.
  - Comprehensive reform scenario: ambitious growth goals for human capital, labor market participation, public and private investments, and higher efficiency of public investments; Kiribati moves from close to the lowest tenth percentile of LMICs to the twenty-fifth percentile of LMICs.

### Quantitative findings and key statistics
- Growth outcomes:
  - Baseline long-term growth: will hover slightly above 2 percent.
  - Comprehensive reform scenario: growth could be pushed to 4 percent.
- Investment and labor assumptions in the comprehensive reform scenario:
  - Investment rate increases from 15 percent of GDP in 2020 to 20 percent by 2035.
  - Labor participation increases to 60 percent by 2050.
  - Allows for slightly higher external debt and FDI to finance policies.
- Poverty and distribution:
  - Baseline poverty headcount falls from 30 percent in 2020 to 20 percent by 2050 (on account of low inequality and rising per capita GDP).
  - Under full pro-development policies, poverty rate could fall below 10 percent.
  - Inequality falls slightly; income growth slightly higher for the bottom 40 percent than top incomes under reforms.
- Investment efficiency:
  - Private investment incremental capital to output ratio (ICOR): less than 1.4 percentage points of GDP of private investment is needed to increase growth by a percentage point.
  - Public investment ICOR (not shown in figure but reported): estimated to be 10.6 percentage points of GDP.
- Human capital and education:
  - 2019 education outcomes: 73 percent of eligible children enrolled in early care and education (target 50 percent); 96 percent of eligible children attended primary school; 94.1 percent completed primary school.
- Labor mobility targets:
  - MEHR targets for 2023: send 1,500 seasonal workers to Australia and 1,000 to New Zealand.
  - Actuals in 2022: 1,032 to Australia and 376 to New Zealand.
- Infrastructure and ICT:
  - South Tarawa Grid Connected Solar PV project increased renewable share in South Tarawa from non-existence to 9 percent; STREP expected to raise renewable energy grid penetration to 44 percent by 2024.
  - Pacific Regional Connectivity Program Project effects (when completed): triple the number of people with access to internet in Kiribati, reduce retail prices by 80 percent, and increase available bandwidth by 6 times.
- Public enterprise and governance reforms:
  - SOE footprint reduced: number of SOEs fell from twenty-five to sixteen in 2016.
  - Recent laws enacted: 2019 Company Act; 2021 Financial Supervisory Authority of Kiribati Act; 2021 Kiribati Financial Institutions Act.
  - Fiscal reporting improvements: publication of Fiscal Reporting Policy, including procurement reports.
  - Anti-corruption: Leaders Code of Conduct Act (2016) and establishment of the Leader Commission in 2018.
- Water and sanitation goals:
  - KDP 2020-2023 target: increase the number of desalination and distillation plants and installed water pumps by 80 percent.
  - Projects (e.g., South Tarawa Water Supply Project) financed by World Bank, ADB, and other donors support these goals.

### Policy recommendations and implications
- Execute the KDP 2020–2023 comprehensively to realize the modeled growth and poverty outcomes, given the KDP addresses key model elements:
  - Human capital development.
  - Infrastructure development.
  - Productivity enhancement via better governance and business climate.
- Priorities going forward:
  - Invest in basic infrastructure—electricity, water, and internet—to raise living standards and support private sector development.
  - Enhance investment in human capital—education and vocational training—with emphasis on English language skills and job-relevant working skills.
  - Stimulate private sector investment and improve business environment to leverage lower ICOR of private investment relative to public investment.
  - Continue reforms to reduce SOE footprint, improve access to credit and land, and strengthen fiscal reporting and anti-corruption institutions.
- Areas needing further analysis in policy design:
  - Gender equality implications.
  - Role of official development assistance (captured in the model by FDI).

*Prepared by Anh Thi Ngoc Nguyen (APD) and Nico Valckx (AFR).*

### 15.      However, Kiribati’s development outcomes may face severe constraints on both

### 15.      However, Kiribati’s development outcomes may face severe constraints on both

### Constraints to diversification and development
- Kiribati’s economy is dependent on a narrow range of products, mainly tuna fishery and copra, and a small number of export markets—an obstacle to its development.
- Capacity constraints and significant delays in some ongoing projects due to COVID-19 further complicate Kiribati’s development and growth path.
- Key structural and geography-related constraints:
  - Remote location from potential export markets.
  - Lack of natural resources (mainly fishing and copra).
  - Steep learning curves and competition (e.g., in tourism).
  - Infrastructural constraints (slow internet connectivity for ICT services, a small population and a shortage of skilled workers).

### Horizontal and vertical diversification: opportunities and limits
- Definitions:
  - Horizontal diversification: diversifying into sectors with new opportunities.
  - Vertical diversification: upgrading quality within existing sectors.
- Historical/empirical context:
  - IMF (2014) found that increases in income per capita in low-income countries (LICs) are typically accompanied by transformation through diversification into new products and trading partners and increases in the quality of existing products.
  - Research cited: countries tend to diversify by moving into nearby and related products or those requiring similar knowhow.
- Diversification options cited (from past IMF Article IV staff reports and staff discussion):
  - Upgrading copra production (to higher value-added products).
  - Expanding tuna processing (processing and packaging tuna, instead of just selling tuna catch in foreign markets).
  - Expanding the ICT and tourism sectors.
  - Niche agriculture (e.g., fruit commodities for snack foods and juices).
  - Deep-sea mining is noted as promising but requiring in-depth cost-benefit analysis to assess economic benefits versus environmental costs (pollution, destruction of fishery habitats, loss of species, noise pollution).
- Most critical enabling factor: upgrading basic infrastructure such as transportation, electricity, water, and internet to facilitate improvement in economic activities and diversification.

### Export structure and diversification diagnostics (Figure 4 summaries)
- Kiribati’s exports are mainly in fisheries and exports are concentrated in East Asia.
- Complexity and distance-to-capabilities diagnostics:
  - Lower distance to existing capabilities (close to 0) signifies a product is “nearby” to existing knowhow.
  - More complex products tend to support higher wages.
  - Larger opportunity gain for future diversification (higher values) holds more linkages to other high-complexity products, opening more opportunities for continued diversification.
- Staff calculations based on UN Comtrade, Harvard Growth Lab.

### Model input parameters and long-term growth scenarios (2021–2050)
- Model: Cobb-Douglas production function Y=AK^α H(HL)^{1−α}; capital accumulation K_{t+1}=K_t(1−δ)+I_t. Long-term growth equation decomposes GDP growth into TFP, human capital, demographic factors (output per worker or labor productivity and growth in working age to population ratio), labor market participation, marginal productivity of capital, investment rate, and depreciation.
- Approach to inputs: when Kiribati data unavailable, input values selected as the lower tenth percentile of the World Bank’s low and middle-income country (LMIC) group in the baseline scenario. Comprehensive development scenario foresees growth of input factors to achieve the twenty-fifth LMIC percentile within a given horizon.
- Key parameter values (Baseline (No change) / Comprehensive Development where provided):
  - Capital-output ratio: 2.4 / 2.4
  - Depreciation rate: 4.2% / 4.2%
  - Labor share: 39.7% / 39.7%
  - Human capital growth: 0.75%, 1% by 2035 / 1.50% by 2035
  - Labor market participation:
    - Male: 45% / 60%
    - Female: 50% / 65% by 2050
  - External Debt/GDP: 40% / 55% by 2050
  - Net FDI/GDP: 21% / 25% by 2035
  - Population growth: 0.33% / 2.8% by 2040
  - Working age to population: 1.30% - 1.18% (2050) / same
  - Poverty rate (headcount): 60.3% - 63.5% (2050) / same
  - Threshold: 30% / 30%
  - Gini coefficient: 0.39 / 0.37 by 2035
  - Investment/GDP ratio: 15% (baseline implied in public/private split) / 20% by 2035 (in comprehensive scenario row)
  - Initial GDP per capita (2019): US$ 1,615 / same
- Total Factor Productivity:
  - Baseline: -0.25% - 0% by 2050
  - Comprehensive Development: -0.25% - 0.21% by 2050
  - Note: alternative TFP specification (using inputs on innovation, education, efficiency, infrastructure, and institutions) yields slightly higher TFP growth under baseline and similar under development scenario.
- Public vs Private Investments (selected parameters):
  - Public investment share: 75% / 75%
  - Public investment ratio: 11.25% / 15% by 2050
  - Public capital-output ratio: 1.8 / 1.8
  - Public depreciation rate: 4% / 4%
  - Private investment ratio: 3.75% / 5% by 2035
  - Private depreciation rate: 4.8% / 4.8%
  - Private capital-output ratio: 0.6 / 0.6
  - Elasticity output to public capital: 0.10 (low) / 0.17 (default)
  - Efficiency of new public capital: 60% / 70% by 2050

### Major infrastructure projects implemented (selected projects and amounts)
- Land transportation:
  - South Tarawa Road Rehabilitation: To rehabilitate 33 km of roads and 33km pipeline for drainage resolution in South Tarawa. WB, ADB and Australia, 33.7 million USD, 2011-15.
  - Reconstruction of Nippon Causeway: To rebuild the most congested causeway in South Tarawa connecting Beito and Bairiki. JICA, 3.8 billion JPY, 2016-19.
- Sea and air transportation:
  - Kiribati Aviation Investment Project: WB and Australia, 14.3 million USD, 2012-19.
  - Repair and Upgrade Bonriki International Airport Project: Taiwan Province of China, 14.7 million USD, 2016-19.
  - Kiribati Outer Islands Transport Infrastructure Investment Project: WB and ADB, 42 million USD, 2020-26 (on-going).
- Water and sanitation:
  - Kiribati Water and Sanitation in Outer Islands (KIRIWATSAN): European Union Phase I: 3.4 million EUR; Phase II: 3.2 million EUR, 2011-18.
  - South Tarawa Sanitation Improvement Sector Project: ADB, Australia, Multi-Donor Trust Fund, GoK, 26.1 million USD, 2012-19.
  - South Tarawa Sanitation Project: WB, 20 million USD, 2022-28 (on-going).
  - South Tarawa Water Supply Project: WB, ADB, Green Climate Fund, GoK, 61.8 million USD, 2020-27 (on-going).
- Energy:
  - Grid Connected Solar Photovoltaic (PV) Project: Global Environment Facility, Australia, 3.9 million USD, 2012-18.
  - South Tarawa Renewable Energy Project (STREP): ADB, New Zealand, Strategic Climate Fund, GoK, 14.7 million USD, 2021-24.
  - Promoting Outer Island Development through the Integrated Energy Roadmap (POIDIER): Global Environment Facility, 5.4 million USD, 2021-24.
- ICT:
  - Kiribati Telecommunication and ICT Development Project: WB, Australia, New Zealand, 5.1 million USD, 2012-17.
  - Pacific Regional Connectivity Program Project: WB, 20 million USD, 2017-22 (extended).

### Gender equality: achievements, gaps, and policy implications
- Summary finding: Kiribati has made significant progress in health and access to education for females, but gender inequalities persist in labor force participation, living standards, and legal equity. Improvements in gender equality, including female legal equity, could help support growth.
- Key gender indicators (male / female):
  - Adjusted net enrollment rate, primary: 96 / 95
  - Adjusted net enrollment rate, lower secondary: 77 / 82
  - Adjusted net enrollment rate, upper secondary: 48 / 57
  - Difficulty in writing (% of population 12+): 18.9 / 15.9
  - Difficulty in reading (% of population 12+): 18.7 / 15.9
  - Life expectancy at birth (years): 64.3 / 72.3
  - Mortality rate, under 5 (per 1,000 live births, child): 53.9 / 45.0
  - Labor force participation rate: 54.4 / 40.5
  - Formality rate: 41.4 / 49.3
  - Unemployment rate: 10.5 / 12.4
  - Proportion in Managerial Position: 62.8 / 37.2
  - Proportion in National Parliament: 93.5 / 6.5
  - Average annual per capita income (AUD): 3,627 / 1,881
  - Average annual per capita expenditure (AUD): 3,095 / 1,652
- Observations:
  - Females have higher secondary enrollment and better health outcomes (e.g., life expectancy 72.3 years for females vs 64.3 for males).
  - Female labor force participation rate is approximately 14 percentage points lower than male rate.
  - Females spend three to eight hours per day on domestic work compared to “infrequent” assistance from men.
  - Women are under-represented in managerial positions (37.2 percent) and in National Parliament seats (6.5 percent).
  - Female-head households earned half of what male-head households earned in average per capita income (2019-2020 KNSO).
  - Male-head households have 57 percent higher annual expenditure per capita and 13 percent higher total savings than female-head households.
  - One in four female-head households is in the poorest quintile in South Tarawa and the rural Gilbert Islands (AusAID, 2012).
  - During COVID-19, female-owned businesses were more negatively affected: 71 percent of female-owned businesses reported having experienced a very negative effect (compared to 57 percent of male-owned businesses); 41 percent had to be temporarily closed (compared to 29 percent of male-owned businesses).
- Suggested policy measures to address gender gaps:
  - Strengthening gender equality in the legal framework.
  - Introducing gender budgeting and fiscal policy reforms.
  - Developing gender-disaggregated data collection for better monitoring.
  - Addressing barriers to female labor participation including parenthood constraints and access to credit and property.
  - Eradicating worst forms of child labor for boys to improve male education outcomes (note: 8.6 percent of boys aged 5-17 engaged in child labor in 2019, higher than 5.5 percent of girls).

*Source: IMF staff analysis and staff calculations as presented in the Kiribati country chapter.*

### 4.      This section conducts a growth decomposition exercise to provide illustrative insights

### 4. Growth decomposition exercise — illustrative insights into the impact of gender inequality on growth

### Methodology and variables
- Follows the approach in Hakura et al. (2016) using a growth regression controlling for: initial income, investment, education, infrastructure, terms of trade, institutional quality, population, and inflation.
- Variable definitions and construction:
  - Initial income per capita: log of GDP per capita in the first year of each five year period.
  - Investment: fixed capital formation as a percentage of GDP.
  - Education: total average years of schooling.
  - Infrastructure: index of mobile phones, internet per 100 people, access to water and electricity, and total air transportation per year.
  - Terms of trade: ratio between export prices and import prices.
  - Institutional quality: International Country Risk Guide index.
  - Population: rate of dependent population growth.
  - Inflation: dummy capturing periods of average inflation of 15 percent and above.
  - Each variable constructed as the five-year average except initial income per capita.

### Indices included: gender, legal institutions, income inequality
- Gender inequality indices (Box 1) and a female legal equity index are included:
  - Female legal equity index: sum of six dummy variables from World Bank Women, Business, and the Law; values range from 0 to 6 (higher values indicate higher legal rights for women). The six dummies are:
    1) unmarried women have equal property rights for immovable property;
    2) married women have equal inheritance rights;
    3) joint titling of property is default for married couples;
    4) married women can get a job or pursue a profession;
    5) adult married woman can open a bank account;
    6) married woman can sign contracts (without permission from another family member).
- Income inequality: ratio of income held by the richest 20 percent relative to the poorest 40 percent.
- The female legal equity index captures legal-framework gender inequality; the GII captures gender inequality in health, education, and economic empowerment.

### Construction of the Gender Inequality Index (GII) for Kiribati (Box 1)
- GII ranges from 0 to 1, higher values indicate higher gender inequality.
- Five representative indicators used: (i) maternal mortality ratio, (ii) adolescent birth rates, (iii) proportion of parliamentary seats occupied by females, (iv) female and male labor market participation rates, (v) proportion of adult females and males aged 25 years and older with at least some secondary education.
- Data gaps for Kiribati in 2020 publication (missing indicators iv and v) prompted attempts to fill missing indicators using alternative sources and approximations:
  - Labor force participation rates (indicator iv) augmented using data from the 2020 Kiribati Census (published November 2021).
  - Education indicators (indicator v) approximated using the 2019 Household Income and Expenditure Survey (HIES).
    - HIES: 86.2 percent of the population aged 18 and older had attended secondary school.
    - Population aged 18-24 accounts for a quarter of total population aged 18+; excluding these younger cohorts likely lowers the proportion for the 25+ group.
    - Assumed proportion of population aged 25 and older having at least some secondary education could range between 70 percent to 80 percent.
    - HIES shows proportion having attended secondary school was 63.3 percent for men and 66.8 percent for women.
    - Assumed gender differences between men and women for the indicators could range between 3-5 ppts.
  - Six scenarios assessed: male proportion with at least some secondary education assumed to be 60 percent, 70 percent, and 80 percent; female assumed 3-5 ppts higher than male for each scenario.
  - Calculated GII ranged from 0.3919 to 0.3931 across scenarios.
  - Comparisons: Kiribati’s calculated GII is slightly higher than Fiji (0.37), Samoa (0.36), and Tonga (0.35), and significantly lower than Papua New Guinea (0.725).

### Regression sample, estimation, and decomposition approach
- Regression sample: 115 low-income and developing countries, emerging markets, and advanced economies covering 1995 to 2014.
- Estimated equation: y_i = β1 + β2,i X_i + ε_t, where y_i is GDP per capita growth, X_i captures explanatory variables defined above.
- Estimation method: robust two-step GMM to control for endogeneity.
- Decomposition application: uses estimated coefficients to decompose differences in average real GDP per capita growth rates between Kiribati and a benchmark group (bottom 30 percent of the global income distribution) based on data from 2010 through 2018.

### Results of growth decomposition
- Main illustrative findings:
  - Kiribati’s relatively higher level of schooling and overall lower level of gender inequality (GII) are positively associated with GDP growth relative to peers.
  - The level of female legal equity had a negative impact on Kiribati’s growth relative to peer countries (implying legal barriers reduce growth).
- Heterogeneity within GII sub-components:
  - Kiribati performs far better than peers on health indicators: both maternal mortality ratio and adolescent birth rate are much lower in Kiribati than in the benchmark group.
  - Women’s empowerment is relatively weak: lower parliamentary seats held by women and lower female labor force participation rate compared to peers.
- Figure 2 (described): shows decomposition contributions; a yellow bar illustrates a counterfactual scenario (see below).

### Counter-factual growth decomposition exercise (legal reforms)
- Motivation:
  - Kiribati introduced legal reforms to enhance women’s economic participation toward the end of the sample period (2018 reforms highlighted by WB, 2022).
  - Reforms include elimination in 2018 of restrictions on women’s employment (e.g., night work and mining sector restrictions).
  - Reforms likely not fully captured in the regression because:
    - They took place toward end of sample period (2018).
    - Legal reforms take time to influence gender-related outcomes.
- Counterfactual method:
  - Applies a counterfactual growth decomposition by taking the average of the legal rights index for the six benchmark group countries closest in ranking to Kiribati in 2021 (three countries higher and three lower).
  - This illustrates the potential impact on growth had those legal reforms been completed during the last regression period (yellow bar in Figure 2).
  - Counterfactual assumes no other countries in the benchmark group introduced legal reforms that could positively affect gender equality.

### Policies: progress to date and options forward
- Past reforms and policy framework:
  - National Policy for Gender Equality and Women’s Development (GEWD) 2019-2022 prioritized five areas: (i) gender mainstreaming, (ii) improving economic empowerment of women, (iii) supporting stronger and informed families, (iv) improving women’s leadership, (v) eliminating gender-based violence.
  - 2015 Amendment to Employment and Industrial Relations Code: addresses gender harassment, promotes equal pay for equal work, introduces maternity leave.
  - Family Peace Act and Implementation Plan (2014) and Eliminating Sexual and Gender Based Violence (ESGBV) Policy 2011–2021 adopted.
  - Legal framework improvements have markedly advanced Kiribati’s performance in legal gender equality compared to other Pacific Islands and the lower middle-income group.
- Remaining legal and policy gaps:
  - WBL dataset low score on Parenthood driven by:
    - No guarantee of paid paternity or parental leave.
    - Maternity leave length is 84 days (shorter than recommended 14 weeks).
    - Does not administer maternity leave benefits.
  - Legal framework does not grant spouses equal administrative authorities over assets during marriage.
  - Many women lack same ownership rights to immovable property as men (native land codes may favor sons).
  - Legal framework does not ban gender discrimination in access to credit.
- Policy options suggested:
  - Consider introducing paternity or parental leave and addressing gender discrimination in access to credit/assets to increase women’s ability and motivation to work.
  - Strengthen legal equality in areas of parenthood, asset ownership, and access to credit.
  - Introduce gender budgeting (GB):
    - Use gender impact assessments of investment projects and budget proposals.
    - Track budget allocations through execution.
    - Potential initial GB focus areas in Kiribati: investment in infrastructure (e.g., access to sanitation facilities and clean water) and childcare/elderly care facilities to reduce unpaid work burdens and support female labor force participation.
  - Analytical evidence from other low-income country work (Fabrizio et al., 2020):
    - Fiscal policies addressing gender inequality (infrastructure, education, sanitation, parental leave) can support female labor force participation, boost economic growth, reduce poverty and income inequality.
    - Many such measures pay for themselves in the long run via higher labor force participation, economic activity, growth, and tax revenues.
    - Example: investment in safe water infrastructure in Senegal estimated to increase female labor force participation by about 9 ppts and reduce poverty and income inequality.

### Data, monitoring, and institutional capacity
- Need to collect and analyze gender-disaggregated data for policy planning, monitoring, and evaluation.
  - MWYSSA has started collecting gender-disaggregated data.
  - As of December 2020, only 21.3 percent of indicators needed to monitor SDGs from a gender perspective were available (UN, 2021).
  - Key data gaps: poverty, wage payments, access to assets/credit.
  - Low institutional capacity implies significant efforts required to improve data collection and management in quality and frequency.

### Conclusion: implications for growth and policy priorities
- Summary findings:
  - Kiribati has made significant achievements in health and education, contributing positively to growth relative to peers.
  - Gender gaps remain in labor force participation, unemployment, income, and poverty; legal barriers persist (parenthood, access to assets/credit).
  - Overall gender inequality (GII) is lower compared to the average of other countries in the same income group, but substantial heterogeneity across sub-components indicates room for improvement.
  - Closing gender gaps could support higher growth and help achieve the SDGs.
- Policy priorities highlighted:
  - Strengthen gender equality in the legal framework.
  - Adopt gender budgeting and gender-aware fiscal policy reforms.
  - Improve gender-disaggregated data collection for better monitoring and awareness.

_Italic: Source — Section 4, growth decomposition exercise, from the Kiribati Country Report content unit (1kirea2023001)._

### 1.      Kiribati is a small Pacific Island country in the Western and Central Pacific (WCP), but

### Kiribati

### Overview and economic reliance on tuna
- Kiribati has only 800 square kilometers of habitable land and an exclusive economic zone (EEZ) of 3.5 million square kilometers, which makes Kiribati the thirteenth largest country in the world if the EEZ is accounted for.
- Kiribati is one of the most productive tuna fishing grounds in the Western and Central Pacific (WCP) and receives a large share of fiscal revenues from selling access rights to its waters.
- Tuna is the largest source of revenue for Kiribati:
  - Tuna catch in the WCP grew 10-fold from 265,000 tons in 1960 to 2.7 million tons in 2020.
  - WCP share of global tuna catch increased from 38 to 54 percent.
  - Kiribati accounted for 7.6 percent (209,000 tons) of the total WCP catch.
  - Tuna fishing license and access fee revenue accounted for 70 percent of Kiribati's fiscal revenues in 2020.
- Onshore processing in Kiribati remains small: less than 1 percent of tuna caught in national waters in 2019.

### Developments in catch volumes and drivers of change
- Historical and recent drivers:
  - Purse seine fishing expanded since the 1980s (purse seine accounts for the majority of catch; longline catch has relatively higher value).
  - Total catch volumes in Kiribati’s EEZ remained broadly stable between the 1970s and early 1990s, then increased sharply in 1998 due to fish aggregating devices (FADs) and El Niño.
  - After 2007, tuna catch volumes and value rose exponentially following adoption of the Vessel Day Scheme (VDS).
- Notable changes and volatility:
  - Total catch dropped by 18 percent between 2015 and 2018, partly reflecting the closure of the Phoenix Islands Protected Area (PIPA) to commercial fishing.
  - Catch values surged in 2019, then declined during the global pandemic; tuna catch in the whole WCP declined by 17 percent between 2019 and 2021.
  - Kiribati-flagged fleet share of total catch rose from below 10 percent before 2010 to over 40 percent in 2021.
  - Year-to-year volatility is pronounced due to migratory behavior and climate variability (ENSO): La Niña tends to move tuna westwards (reducing Kiribati catch), with notable episodes in 1988-89, late 1990/early 1991, 1995, early 2000s, and 2021-2022.

### Regional cooperation, VDS, and institutional arrangements
- Pre-1980s: countries set their own rules, risking overfishing and undervaluation.
- 1982: Nauru Agreement entered into force among eight Parties to the Nauru Agreement (PNA) to coordinate purse seine fisheries management.
- 1992: Palau Arrangement limited effort (number of fishing days) by purse seine vessels in PNA waters plus Tokelau.
- 2006: Vessel Day Scheme (VDS) started, setting a total allowable effort in fishing days across PNA EEZs.
  - Kiribati is likely to account for roughly one quarter of VDS fishing days (reflecting high catch volumes and large biomass).
  - Allocated VDS days are relatively stable over time, but usage fluctuates: from a high of 93.3 percent in 2013 to a low of 78.3 percent in 2015 and increased to 82 percent in 2019.
- A similar system is under development for longline fishing.

### Phoenix Islands Protected Area (PIPA): history, closure, and reopening
- 2008: PIPA established through regulation; Phoenix Islands account for 11 percent of Kiribati's EEZ.
- 2010: PIPA became a UNESCO World Heritage site.
- 2015: Government fully closed PIPA to commercial fishing (previously only 3 percent of the reserve had been banned), with particular focus on protecting bigeye tuna.
- PIPA Trust Fund established via arrangements with international partners to provide long-term sustainable financing and explore compensatory income for foregone fisheries revenues and alternative income sources (high-end/low-volume tourism, scientific expeditions).
- November 2021: Kiribati Cabinet announced reopening of PIPA to commercial fishing, reversing the 2015 ban. Government rationale:
  - Claimed demand for Kiribati fishing permits declined by 8 percent between 2015 and 2021 and would negatively impact future VDS allocations.
  - Estimated total revenue loss between US$60 and US$140 million over 2015-2021 for purse-seine and around US$5.9 million for longline fisheries, translating into a loss of 720 days of fishing effort under the VDS.
  - Reopening aims to attract fishing companies that left after the closure and to sell more fishing days at a higher price under the VDS.
  - Reopening expected to take several years and involve designating areas for fishing, tourism, and conservation.

### Sustainability assessments, indicators, and species-specific status
- Key reference concepts and indicators (Box 1):
  - MSY: maximum sustainable yield.
  - F/FMSY: fishing mortality relative to that at MSY; F/FMSY > 1 indicates overfishing.
  - SB/SBF=0: spawning biomass relative to unfished level; a limit reference point of 20 percent SBF=0 adopted for key tuna stocks. For skipjack a higher limit reference point of 40-60 percent has been proposed (not adopted).
  - B/BMSY: biomass relative to biomass at MSY.
  - Trophic level (TL), Regional Marine Trophic Index (RMTI), and Fisheries in Balance (FIB) used to assess ecosystem-level impacts and geographic expansion.
- Species trajectories and assessments:
  - Skipjack (WCP): SB/SBF=0 fell from nearly 90 percent in early 1970s to around 45 percent in 2019—significantly above the official 20 percent limit reference point but close to the lower bound of the unofficial 40-60 percent range.
  - Bigeye tuna: SB/SBF=0 fell from 95 percent in 1960 to 40 percent in 2019.
  - Yellowfin and Albacore: SB/SBF=0 close to 60 percent in 2019, down from 90 percent in the 1960s.
  - International assessments:
    - International Seafood Sustainability Foundation: 65 percent of tuna stocks at a healthy level of abundance; 13 percent considered overfished.
    - NOAA (2019 assessment for WCP skipjack): F/FMSY equal to 0.44 and B/BMSY equal to 0.88 (sustainable fishing rate but low biomass).
    - NOAA (2014 assessment for WCP yellowfin): F/FMSY equal to 0.72 and B/BMSY equal to 1.24 (sustainable and biomass above target).
- Regional indices and spatial heterogeneity:
  - Region-based MTIs for the Gilbert Islands indicate concerns about decline in mean trophic level in initial (coastal) and surrounding regions while FIB indices increased, consistent with geographic expansion or increased catchability.
  - For the Phoenix Islands, MTI remained stable and FIB increases appear to coincide with establishment of PIPA in 2008, reflecting lighter exploitation and expansion of biomass inside PIPA.

### Management gaps, high-seas issues, and climate risks
- Gaps and weaknesses:
  - Weak enforcement and non-cooperation by some distant-water fishing nations in the high seas, including systematic overfishing of high-seas limits in contravention of WCPFC measures (PNA Office 2021).
- Climate change risks:
  - Climate change is expected to alter tuna distribution, spawning, and interactions with ecosystem structures, increasing risks of spawning potential depletion.
  - Temperature warming is likely to be larger in the eastern Pacific than in the western Pacific, potentially negatively affecting Kiribati’s tuna fishery as distributions shift eastward.

### Analysis aims and policy orientation
- The paper analyzes fisheries income developments in Kiribati and the wider WCP using data back to the 1960s to gauge longer-term trends affecting fish stocks.
- It reviews literature on MPAs to evaluate how alternative fishery management arrangements may affect fishery revenues and stock sustainability.
- Based on the analysis, the paper draws tentative policies for managing the reopening of the PIPA.

*Prepared by IMF staff based on the source content provided.*

### 12.      Across the world's major fishing areas, the MPA coverage is generally low.  The MPAs

### 12.      Across the world's major fishing areas, the MPA coverage is generally low.  The MPAs

### MPA coverage and international targets
- MPAs can be used as a fisheries management tool to contribute to achieving conservation and sustainability objectives, while contributing to biodiversity and habitat conservation (FAO, 2011).
- The International Union for Conservation of Nature (IUCN) target: placing 30 percent of all marine waters in no-take marine reserves by 2030.
- Current status:
  - Only the Antarctic currently exceeds that target.
  - The Pacific Northeast (near Alaska) is at 24.7 percent and is close to the target.
- MPAs exist both within countries' EEZs and in the high seas (Arctic, Atlantic, Mediterranean, Antarctic and Indian Ocean) where state responsibilities are defined in international conventions and agreements.

### Potential short-run risks from creating new MPAs
- Creation of new MPAs to achieve the 30 percent global coverage may lead to temporarily higher fishing pressure and threaten sustainability (McDermott et al., 2019).
- The "Blue Paradox": a preemptive harvesting phase following new MPA announcements.
- Global projection cited: percentage of fisheries experiencing overfishing could increase from the currently estimated level of 65 percent to a level of 72 percent.
- Kiribati may not be directly affected by the global projection, but could be indirectly affected if neighboring countries partake, establish, or enlarge their MPAs.

### Impacts of different fishery management regimes
- Costello et al. (2016) simulated global fishery prospects under alternative management regimes from 2011 onwards, when biomass was estimated to be very low and catch levels too high.
- Key findings from simulations:
  - Business-as-usual scenarios, including with a conservation concern, would lead to continued stock collapse.
  - Sound reforms could regenerate biomass and lead to an increase in annual catch levels and substantially higher profits.
  - MSY-targeted fisheries management (F/FMSY reference limits) and rights-based fishery management (RBFM) regimes have distinct outcomes:
    - RBFM policies could achieve the highest levels of biomass.
    - MSY policies will ultimately generate the largest catch but will have lower fish biomass, lower profits, and slower recovery times.
  - With reform efforts in place:
    - The median time to recovery would be just 10 years.
    - By 2050, the vast majority (98 percent) of stocks could be biologically healthy.
- Baseline global metrics reported: global median fishing mortality F/FMSY equaled 1.5 (overfishing is occurring) and biomass B/BMSY equaled 0.78 (stocks are overfished).

### Transferable fishing rights and the VDS
- Fisheries management schemes with transferable fishing rights—such as the VDS—incentivize marine conservation.
- Villaseñor-Derbez, Lynham and Costello (2020): benefits from large-scale MPAs typically accrue to other countries than the one establishing the MPA or to the high seas.
- Conservation can be compatible with transferable rights if trading, vessel tracking, and biomass-based allocation rules are used; evidence cited from PIPA fishery sustainability data.
- A fisheries trading mechanism based on past catch would grant more fishing rights to countries that fish the most, causing substantial losses for countries with MPAs.
- If a conserving country can trade the rights of spillover of fish from its MPA to neighboring waters (as with the VDS scheme), 88 percent to 99 percent of revenue losses can be avoided.
- Such schemes displace, but do not reduce, overall fishing effort (Gruby et al., 2020).
- The studies support the VDS as a viable and well-designed fishery management scheme for countries with MPAs, such as Kiribati.

### Marine Spatial Planning (MSP): opportunities and challenges
- MSP is a process for developing a blueprint for area-based management that accounts for multiple management objectives and can support ecosystem-based management (EBM) (Foley et al., 2010).
- MSP benefits:
  - Can increase stability, transparency, and predictability of the investment climate.
  - Can reduce the riskiness of investment in ocean-based businesses (the "blue economy").
- Status: In 2021, over 45 countries worldwide are either implementing or approving marine spatial plans—and dozens more are laying the foundation—following guidance from UNESCO-European Commission's MSPglobal (2021) initiative.
- Key challenges and tradeoffs with MSP:
  - Ecosystem threats: pollution, marine litter, climate change, habitat destruction, invasive species.
  - Governance issues: lack of resources, lack of sectoral or transboundary collaboration, lack of governance integration.
  - Sectoral issues: fisheries overexploitation and IUU fishing, seabed mining/spatial use conflicts, environmental impacts of tourism, maritime transport and offshore renewable energy.
  - MSPs have broader objectives besides fishery management, increasing complexity in delivering a blue economy.
  - May prompt debate about diversification and reducing the weight of fisheries in the economy and replacing low value-added subsectors with high value-added ones.

### The PIPA — Kiribati’s Marine Protected Area
- PIPA history and characteristics:
  - Created in 2008; officially declared a marine protected area in 2015 and fully banned commercial fishing in 2015.
  - The Phoenix Islands area spans more than 400,000 square kilometers (about the size of California).
  - One of the world's largest marine protected areas; serves as a spawning ground for tuna and other fish, a refuge for migratory birds and for rare coral reef formations (Hernandez et al., 2019).
  - Kiribati's PIPA contributed to the 30-by-30 goal and was part of the "Because the Ocean Initiative" in 2015.
- Policy reversal and motivations:
  - In November 2021, the Kiribati Cabinet decided to re-open the PIPA to commercial fishing.
  - Re-opening may require de-registration from UNESCO's World Heritage List.
  - Official rationale: to generate more revenues from tuna fishing in the marine reserve and to more fully utilize natural resources while remaining committed to conservation in a different form.
- Fiscal and VDS implications cited by authorities:
  - Fishing revenues account for about 70 percent of total fiscal revenues in Kiribati in 2021, averaging about AUD185 million during 2015-2020 (about 70 percent of GDP).
  - PIPA accounts for about 11 percent of Kiribati's EEZs.
  - Government estimated the closure of PIPA led to a decline of fishing demand by 8 percent between 2015 and 2021 (720 fishing days), affecting future allocation of VDS days.
  - Villaseñor-Derbez, Lynham and Costello (2020): downward trend in VDS days for Kiribati from 12,617 in 2014 to 7,677 in 2018, with displaced vessels driving the decrease.
  - Revenues and catch levels rebounded in 2019 and have remained high since then, at or above 2014 levels, suggesting increases in the price of Kiribati fishing licenses may compensate for reduction in the number of VDS days.
- Environmental and regional implications of re-opening:
  - Short-run: fisheries sector may receive a boost and fiscal revenues are likely to increase as more licenses are sold (although price per VDS license could go down).
  - Long-run risks if not properly managed and monitored: economic and environmental costs for the region, since PIPA is a breeding and feeding ground for tuna that contributes to ocean health and global food security.
  - PIPA acted as an insurance policy for fishing effort in Kiribati and the region.
  - PIPA benefits beyond fisheries: contributed to restoration of atolls and coral reef affected by ocean warming during the 2015-2016 El Niño; Sala (2022) finds abundance of reef fish fully protected in PIPA helped coral recovery.
  - Financial sustainability of the PIPA conservation trust fund has proven difficult (Mallin et al., 2019).
  - Estimating losses due to closure is difficult due to confounding factors (El Niño, economic conditions, pre-MPA overfishing). McDermott et al. (2018) find extra pre-MPA fishing effort was equivalent to the fishing effort avoided during the first 1.5 years after PIPA designation.

### Legal, institutional, and coordination context in Kiribati
- Existing legal and regulatory measures:
  - Fisheries Ordinance (1979) with Line and Phoenix Islands Prohibited Fishing (Bonefish) Regulations to regulate and protect bonefish around Kiritimati Island.
  - Environment Act (1999) provided major biodiversity protection provisions; prescribed coral reefs, mangroves, and sea grass as protected ecosystems.
  - Phoenix Islands Protected Area (PIPA) Regulations (2007) under the Environment Act 1999 (as amended 2007 and 2021) provided the legal framework for PIPA designation.
  - 2021 amended Environment Act added the shoal ecosystem to the protected ecosystems list; management of biodiversity regulations to be finalized by end 2023.
  - Regulations for the Conservation and Management of Coastal Marine Resources adopted in 2019 established management plans for major coastal fish species and island-based management plans with restrictions on catching certain fish.
- Institutional observation:
  - Kiribati has made significant progress in mainstreaming the environment over the years.
  - Better inter-ministerial coordination (environment and fisheries) would be desirable to weigh trade-offs between conservation, sustainability, and enhanced fishing areas, particularly during a transition from an MPA to an MSP approach.

### Conclusions and policy recommendations
- Sustainability importance:
  - Fisheries sector sustainability is key for Kiribati's future and so far appears to have been well managed.
  - Kiribati depends on tuna fisheries for development; the sector is the main engine of economic growth.
- Regional trends and risks:
  - Broader WCP studies point to a decline of tuna sustainability metrics since the 1970s due to more intense exploitation, but depletion rates remain above critical thresholds.
  - Regional agencies have raised concerns about gaps and weaknesses in WCP fishery management and conservation measures, particularly on the high seas.
  - For Kiribati specifically, increases in the FIB indices suggest tuna stocks expanded; biomass increased over the years as fisheries expanded geographically. For the Gilbert Islands, there is some evidence of overexploitation to date, likely reflecting fishing-down closer inshore.
- Recommended approach:
  - The government should maintain conservation efforts by adopting a robust MSP approach.
  - MSP is expected to balance social, environmental and economic objectives specified through a political process (Unesco, 2017).
  - Authorities and stakeholders should agree on the underlying scientific evidence and assess how the transition from the fully protected regime of the PIPA to the MSP will affect biodiversity and fishery revenues.
  - Moving to an MSP framework requires many steps and time to define principles, goals and objectives, monitor and evaluate, regulate/enforce, and assess contingency plans (Unesco/European Commission, 2021).
  - Until the MSP plan is released and transparently discussed, adoption of an MSP approach to manage fishery stocks around the Phoenix Islands carries uncertainties about biodiversity, sustainability of ecosystems, cooperation with third countries and the likely impact on Kiribati's VDS fishing days allocation.
  - Effective coordination between all ministries and with external stakeholders (e.g., community-based management plans to restrict certain fish catch) will be essential to manage the trade-off between sustainability and fisheries revenue growth.

*Source: Excerpt from IMF chapter on Kiribati fisheries and marine protected areas.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1kirea2023001.pdf_