International Monetary Fund. Asia and Pacific Dept
This 2017 Article IV Consultation highlights that 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 in 2017 driven by construction and wholesale and retail trade. The authorities have made commendable progress in structural reforms. They have implemented important reforms to improve the governance and management of the Revenue Equalization Reserve Fund and replenished the fund from the cash reserves. Despite a favorable economic outlook, risks to near-term growth are substantial and skewed to the downside.
Ms. Shari Boyce, Mr. Sergei Dodzin, Mr. Xuefei Bai, Ezequiel Cabezon, Mr. Fazurin Jamaludin, Mr. Yiqun Wu, and Ms. Rosanne Heller
The work on the small states is an important component of the IMF’s global policy agenda. Among the 36 member countries covered by the IMF Asia and Pacific Department (APD), 13 countries are developing small states—most of which are Pacific islands. As part of APD’s ongoing effort to increase its engagement with regional small states and their development partners and enhance information sharing within the IMF, this issue marks the launch of the APD Small States Monitor, a quarterly bulletin featuring the latest economic developments, country notes from the most recent Article IV staff reports, special topics, past and upcoming events, and forthcoming IMF research on small states. In future issues, we will also host contributions from the authorities of small states and their development partners on key policy topics. Our goal is to exchange knowledge and deepen our understanding of the policy challenges these economies face to better tailor our policy advice.
This note highlights the unique economic characteristics and constraints facing small developing states. It provides operational guidance on Fund engagement with such countries, including on how small country size might influence the use of Fund facilities and instruments, program design, capacity building activities, and collaboration with other institutions and donors. The guidance note draws on the March 2013 Board papers on small states and the associated Executive Board discussion. The findings of the paper and implications for Fund engagement with small states were presented to small states authorities during the 2013 Annual Meetings, as well as in regional IMF conferences with small states in the Bahamas (September 2013) and Vanuatu (November 2013).
International Monetary Fund. Asia and Pacific Dept
Kiribati is one of the poorest and most remote microstates in the Pacific. It is highly dependent on volatile fishing license fees, remittances, and donor assistance. The challenge is to implement fiscal and structural reforms to help ensure fiscal sustainability, promote private sector development, and increase its resilience to external shocks. Fully using its marine potential beyond fishing license fees will help to improve fiscal revenues and growth opportunities. More generally, private sector development is critical for both increasing growth and reducing fiscal pressures.
Ms. Patrizia Tumbarello, Ezequiel Cabezon, and Mr. Yiqun Wu
The small states of the Asia and Pacific region face unique challenges in raising their growth potential and living standards relative to other small states due to their small populations, geographical isolation and dispersion, narrow export and production bases, exposure to shocks, and heavy reliance on aid. Higher fixed government costs, low access to credit by the private sector, and capacity constraints are also key challenges. The econometric analysis confirms that the Pacific Island Countries (PICs) have underperformed relative to their peers over the last 20 years. Although these countries often face more limited policy tools, policies do matter and can further help build resilience and raise potential growth, as evidenced in the recent business cycle. The Asia and Pacific small states should continue rebuilding buffers and improve the composition of public spending in order to foster inclusive growth. Regional solutions should also continue to be pursued.
The staff report highlights that the economy of Kiribati showed resilience from the global crisis owing to infrastructure projects financed by foreign assistance. Executive Directors stressed the importance of preserving real per capita value of the Revenue Equalization Reserve Fund to ensure fiscal sustainability and intergenerational fairness. They appreciated the multiyear budget framework, which helped in designing realistic fiscal plans. Directors noted the joint IMF-World Bank debt sustainability analysis and encouraged authorities to secure grant financing to support the country’s development needs.
This Selected Issues paper focuses on recent developments with Kiribati’s Revenue Equalization Reserve Fund (RERF). The paper also examines fiscal aspects of climate change, and considers options for improving fishing license fees, which remain an important source of revenue. It also analyzes recent developments and the outlook for remittances to Kiribati, which is another important source of external revenue and brings important economic benefits, such as reducing poverty and stabilizing national income.