IMF Staff Completes 2024 Article IV Consultation to Kiribati

IMF News, February 23, 2024

Source details

IMF team led by Ms. Yinqiu Lu visited Tarawa, Kiribati during February 9–21, 2024 for the 2024 Article IV Consultation.
Discussions covered recent developments, the economic outlook, and future policy priorities.
End-of-mission statement issued by Ms. Lu; mission will not result in a Board discussion.

Growth:
- Economic growth is estimated to have reached 4.2 percent in 2023 after the removal of all COVID-19 restrictions in the second half of 2022.
- Growth is expected to accelerate to 5.8 percent in 2024, primarily driven by higher consumption following a 38 percent increase in civil service wages.
Inflation:
- Inflation decelerated from its recent peak to -2.1 percent year-on-year in December 2023, driven by the moderation of global commodity prices, improved supply-side conditions, and base effects.
- Average inflation is projected to be 4.5 percent in 2024.
External position and sovereign wealth:
- The current account is estimated to have switched back to a surplus of 10.2 percent of GDP in 2023, buoyed by a resurgence of fishing license fees.
- The balance of the Revenue Equalization Reserve Fund (RERF) reached 330 percent of GDP at end-2023 after posting a strong annual return of 16.4 percent.

Fiscal balance:
- The fiscal deficit is expected to widen to 22 percent of GDP in 2024 (accounting for RERF withdrawals as a financing item) from 1 percent in 2023, largely due to the wage increase and a decline in budget support from development partners largely due to the operation cycles of some development partners.
Fiscal framework and vulnerabilities:
- Volatility of exogenous budget components (fishing revenues and grants) presents risks to fiscal discipline and sustainability.
- Prompt reform of the withdrawal rule of the RERF is recommended to preserve its value for future generations.

Fiscal consolidation measures:
- Promptly initiate fiscal consolidation and strengthen the fiscal policy framework to help safeguard sustainability.
- Rationalize recurrent spending and improve the targeting and efficiency of social protection payments.
Revenue and tax policy measures:
- While the new Income Tax Act is a welcome effort, reassessing tax exemptions for state-owned enterprises is recommended.
- Increase the excise tax rates on tobacco products, alcoholic beverages, and sugary drinks.
- Introduce excise taxes on kava to raise resources for development goals.
Fiscal framework:
- Formulate a sustainable fiscal framework to better manage volatile, exogenous components of the budget (fishing revenues and grants) to promote fiscal discipline and create space to support climate change adaptation efforts.

Institutional and administrative capacity:
- Enhance institutional and administrative capacity to reinforce fiscal sustainability.
- Continue implementation of the Integrated Financial Management Information System (IFMIS) for budget execution.
- Improve processes for tax administration, registration, and compliance to maximize benefits from recent tax policy reforms.
Public financial management reforms:
- Finalize the PFM roadmap, update the PFM Act and RERF Act, publish the fisheries report on a more regular basis, and execute effective controls over cash balances.
State-owned enterprises:
- Strengthen accountability, governance, and oversight of SOEs, enhance their commercial mandate, and put their finances on a sustainable footing.

Structural reform priorities:
- Accelerate structural reforms to support a sustainable, inclusive, and green economy.
- Effective implementation of new legislation related to the financial sector, environment, and fishing is important.
- Continue efforts to raise private sector employment and investment, upgrade export quality and diversification, improve infrastructure, and nurture human capital.
Climate and statistics:
- Investments in adaptation and leveraging climate finance are critical to tackling climate risks.
- Improve the quality, timeliness, and coverage of statistics to support sound policy management.

The IMF thanked the authorities and stakeholders for productive discussions and engagement.
The IMF stands ready to continue to support the government’s reform efforts through policy advice and capacity development.

IMF Staff Completes 2024 Article IV Consultation to Kiribati — Press Release No. 24/58, February 23, 2024