## IMF Staff Completes 2024 Article IV Consultation to Kiribati

_IMF News, February 23, 2024_

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## Bibliographic details
- Published: February 23, 2024

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### Mission visit and context
- 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.

### Recent developments and macroeconomic outlook
- 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 developments and outlook
- 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.

### Risks to the outlook
- Risks are tilted to the downside and include:
  - an escalation or spread of regional conflicts,
  - deepening geo-economic fragmentation,
  - an abrupt global slowdown,
  - commodity price volatility,
  - risks from climate change.

### Policy recommendations — fiscal consolidation and revenue measures
- 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.

### Policy recommendations — public financial management and institutions
- 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.

### Policy recommendations — structural reforms and climate resilience
- 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.

### Closing
- 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*

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## References

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_Source: https://www.imf.org/en/news/articles/2024/02/23/pr2458-kiribati-imf-staff-completes-2024-article-iv-consultation_