September 21, 2017

• Economic fundamentals have strengthened and the outlook is broadly favorable. Real GDP growth is projected to pick up to about 3 percent this year.
• The authorities have made commendable progress on structural reforms.
• Promoting long-term growth while managing public resources prudently remains the top policy priority.

An International Monetary Fund (IMF) team led by Mr. Ding Ding visited Kiribati during September 11–20 to conduct the 2017 Article IV Consultation discussions. At the end of the visit, Mr. Ding issued the following statement:

“Kiribati’s economic fundamentals have strengthened in recent years. Strong fishing revenue improved the fiscal position, strengthened the current account, and boosted business confidence. After registering a double-digit rate in 2015, real GDP growth declined to 1.1 percent in 2016, but is projected to pick up to about 3 percent this year driven by construction and wholesale and retail trade. Inflation has remained subdued in line with the prices of imported goods. With several donor-financed infrastructure projects in the pipeline and fishing revenue projected to remain robust over the medium term, economic prospects are broadly favorable.

“The authorities have made commendable progress on structural reforms. Concrete steps have been taken to address the funding gap of the Kiribati Provident Fund (KPF), enhance tax administration, and improve connectivity and transportation services. Kiribati’s participation in overseas labor mobility schemes also increased, albeit from a low base.

“Despite a favorable economic outlook, risks to near-term growth are substantial and skewed to the downside. A change of the climate cycle could imply large uncertainties for fishing revenue. Global financial market turmoil can feed into the domestic economy through the exposure of the Revenue Equalization Reserve Fund and the KPF, the country’s two major savings vehicles. Given Kiribati’s high reliance on imported goods, commodity price shocks and exchange rate volatility could swing imports in ways hard to accommodate. Support from development partners is essential to mitigate these downside risks. There are also upside risks to the long-run outlook, if the planned infrastructure investment has stronger-than-expected impact on potential growth.

“Promoting long-term growth while managing public resources prudently remains the top policy priority. The government’s Kiribati Vision 20 identifies fishing and tourism as the two priority sectors for long run economic growth. To support this development agenda, budget decisions need to be taken in the context of a strengthened medium-term fiscal framework with a view to safeguard long-run sustainability and intergenerational equity. Further improvement in public financial management and the institutional framework for public investment are critical for the effective implementation of the government’s development plan. Achieving sustained and inclusive economic prosperity also depends on private sector development, particularly through continued investment in human capital and improvement in the business environment.

“The team would like to thank the Kiribati authorities for their warm hospitality and close cooperation. The IMF Executive Board is expected to discuss the 2017 Article IV Consultation in December 2017.”