## Kiribati: Staff Concluding Statement of the 2023 Article IV Mission _IMF News, February 8, 2023_ ## Source details **Canonical URL:** [Kiribati: Staff Concluding Statement of the 2023 Article IV Mission](https://www.imf.org/en/news/articles/2023/02/08/kiribati-staff-concluding-statement-of-the-2023-article-iv-mission) ## Other formats - [Markdown version](/en/news/articles/2023/02/08/kiribati-staff-concluding-statement-of-the-2023-article-iv-mission/index.md) - [Structured JSON version](/en/news/articles/2023/02/08/kiribati-staff-concluding-statement-of-the-2023-article-iv-mission/index.json) - [Bundle manifest](/en/news/articles/2023/02/08/kiribati-staff-concluding-statement-of-the-2023-article-iv-mission/bundle-manifest.json) ## Bibliographic details - Published: February 8, 2023 --- ### Economic outlook and risks - Recent performance and drivers - Real GDP grew 7.9 percent in 2021 after a contraction of 1.4 percent in 2020, supported by fiscal stimulus and recovery from COVID-19. - COVID-19 lockdowns in the first half of 2022 delayed large infrastructure projects and limited mobility; subsequent removal of restrictions and border reopening in August 2022 boosted activity. - A severe drought negatively affected the agricultural sector in 2022. - Real GDP growth in 2022 is estimated at 1.2 percent. - Inflation averaged 5.3 percent in 2022, driven by recovery in domestic demand, supply shortages, and a surge in global commodity prices. - The current account surplus is expected to turn into a deficit of 4 percent of GDP in 2022 because of higher import prices and lower fishing revenues. - Projections - Real GDP is projected at 2.5 percent in 2023 as activity normalizes with resumption of large infrastructure projects and improved weather. - Medium-term real GDP growth is projected to converge to the historical average of 2 percent. - Headline inflation is expected to remain elevated at 8.6 percent in 2023 due to a low base in the first half of 2022 and delayed pass-through from normalizing global prices. - The current account is expected to return to a surplus of 9 percent of GDP in 2023, though below the historical average because of increased imports for infrastructure. - Risks (mainly downside) - External: intensified Russia–Ukraine war causing food and fuel shocks; global economic slowdown; deepening geo-economic fragmentation and supply disruptions; prolonged global financial market volatility affecting returns on the Revenue Equalization Reserve Fund (RERF) and the Kiribati Provident Fund (KPF). - Climate change: ongoing threat to fishing revenues and economic growth; increased frequency and severity of climate events over time. - Domestic opportunity: reopening of the Phoenix Islands Protected Area (PIPA), if managed sustainably, could boost the fishery sector medium-term. ### Fiscal policies - Current situation and projections - The fiscal balance switched to a deficit in 2020 and widened to an estimated deficit of 20 percent in 2022 as recurrent spending rose while fishing revenues declined. - The 2023 budget maintains existing social protection spending and introduces new leave grants for private sector employees. - Under the staff baseline which assumes a gradual recovery in fishing revenues in 2023, the deficit is projected to be about 13 percent of GDP. - Recommended consolidation and revenue measures - Rationalize the copra subsidy. - Improve targeting of social protection by identifying those eligible for unemployment benefits. - Improve efficiency of social protection delivery systems. - Implement the recently introduced new Income Tax Bill. - Eliminate tax exemptions for some SOEs. - Increase excise tax on tobacco and alcoholic beverages. - Medium-term fiscal framework and RERF governance - Formulate a sustainable medium-term fiscal framework to better manage volatile budget components and promote recurrent expenditure stability. - Framework should integrate rules-based withdrawals from the RERF and include an explicit provision to cover costs of climate change adaptation. - Authorities should finalize drafting of the Sovereign Wealth Fund Act to strengthen governance and accountability of the RERF. - Public financial management (PFM) - Continue implementation of the Integrated Financial Management Information System (IFMIS) for budget execution and strengthen cashflow management. - Continue publication of the Fiscal Reporting Policy and expand regular public reporting on main fiscal items. - Staff recommend: - Finalize drafting of an updated Public Financial Management Act. - Develop more credible budget projections by improving fishing revenue forecasts. - Publish fiscal reports more regularly. - Execute effective controls over cash balances. - Improve procurement controls. - State-owned enterprises (SOEs) - Elevated global energy prices have worsened SOE financial difficulties; recalibrate tariffs and review tradeoffs in improving SOE financial viability while protecting vulnerable populations. - Strengthen SOE oversight: continue capacity building of the SOE monitoring unit to analyze and monitor SOE activities, risks, and performance. - Progress needed for SOEs to improve financial management and publish audited financial statements timely to enable medium-term subsidy reform. - Finalize a formal dividend policy to ensure SOE compliance with dividend payment obligations. - Explore divestment and outsourcing of SOE activities where feasible. ### Structural reforms - Objectives: boost export competitiveness, private sector investment, and inclusive growth to raise living standards and achieve the Kiribati 20-year vision. - Priority reform areas and next steps - Financial sector: - Promulgation of the Financial Supervisory Authority of Kiribati Act (2021) and Kiribati Financial Institutions Act (2021) are important milestones. - Next step: establish an independent supervisor of financial institutions with adequate resources for effective regulation and supervision. - Export quality and diversification: - Potential to upgrade within existing export sectors: expand tuna processing, establish “tuna hubs”, package and upgrade copra production to coconut oil. - Rationalize or reform the copra subsidy/support scheme in outer islands to incentivize diversification to seaweed and aquaculture. - Continue investments in internet connectivity and infrastructure to boost ICT and tourism and improve government service delivery. - Environment and fishing: - Passage of the Environment Act and the new Fisheries Act in 2021 helps preserve environment while allowing sustainable resource use. - Next steps: develop regulations and strengthen monitoring capacity to enforce legislation. - Reopening PIPA to commercial fishing should be carefully designed with a fully developed marine spatial plan to ensure sustainability and preserve marine biodiversity. - Human capital: - Despite progress in primary and early childhood education, the share of young population completing upper secondary education remains low. - Expand technical vocational education and training to provide skills for future employment and overseas employment. - Anti-corruption: - Government established a Leadership Commission and an anti-corruption unit within the Public Service Office; progress made in investigating abuse of power. - Need more capacity and enforcement powers to enhance these agencies’ roles. ### Capacity development - Statistics and data - Priority: improve quality, timeliness, and coverage of statistics. - Strengthen institutional capacity to produce high-quality national accounts, government finance statistics, and financial sector data in a timely manner to support policy management. - Authorities plan to implement the IMF’s Enhanced General Data Dissemination System (e-GDDS) by publishing economic data on a National Summary Data Page to improve availability of timely statistics. - IMF engagement - Kiribati is engaged with the IMF and development partners on economic reforms. - The IMF stands ready to continue supporting the government’s reform efforts through policy advice and capacity development. The mission thanks the authorities and stakeholders for hospitality, cooperation, and constructive discussions. *Staff Concluding Statement of the 2023 Article IV Mission to Kiribati (February 8, 2023).* --- ## References - [Kiribati and the IMF](http://www.imf.org/external/country/KIR/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [Mission Concluding Statements](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2023/02/08/kiribati-staff-concluding-statement-of-the-2023-article-iv-mission_