This 2009 Article IV Consultation highlights that inflation in Kiribati increased to about 19 percent by end-2008, largely reflecting higher food prices. The current account deficit was broadly unchanged in 2008. Structural reforms are under way, although the pace has been limited by capacity constraints. Executive Directors have welcomed the recent improvement in economic activity. They have also welcomed the planned review and reform of public enterprises as critical to promoting private sector development, and to boosting the growth potential.
than foreign financial institutions. At present, little use is made of domestic savings to finance investment and growth. The Government makes no recourse to domestic borrowing; opportunities for profitable lending to the public enterprises and the private sector are extremely small. Consequently, the commercial bank’s foreign assets are equivalent to more than 95 percent of deposit liabilities.
Developments in the 1970s
The sparsity of official statistics makes a detailed assessment of developments in the 1970s difficult. However, the Kiribatieconomy
International Monetary Fund. Asia and Pacific Dept
-term fundamentals and desirable policies ( Box 1 ). However, there is substantial uncertainty around this assessment, given the idiosyncratic features of the Kiribatieconomy. Given the large size of the RERF relative to external debt, there are no immediate risks to external stability. However, long-run sustainability risks are significant if reliance on grants is eventually reduced (see accompanying Debt Sustainability Analysis for details).
Box 1. External Sector Assessment
Kiribati’s external balances are largely driven by exogenous factors . Current account inflows are
Government employment is about 40 percent of formal sector and 16 percent of total employment.
39 percent (1999)
30 percent (1999)
23 percent (1999)
30 percent (1998)
KiribatiEconomy is dominated by public sector commercial enterprises.
AsDB has proposed as part of a loan to upgrade the water and sewage facilities in Tarawa, and to restructure the Public Utilities Board. Government decision is pending.
70 percent of formal sector is in the public sector.
22 percent (1999)
125 percent (1999)
24 percent (1999)
International Trade: Imports and Exports , October 1994 .
World Bank, Pacific Island Economies: Building a Resilient Economic Base for the Twenty-First Century , Report No. 13803-EAP , June 1995 .
World Bank, Pacific Island Economies: Toward Efficient and Sustainable Growth , Volume 3 , Kiribati—Country Economic Memorandum, Report No. 11351-EAP , March 1993 .
Other, Australian International Development Assistance Bureau, The KiribatiEconomy: Development Options and Prospects for Growth, No. 26 , June 1992 .
Other, HSBC Asset
Kiribati shares the common characteristics of most small island economies: small landmass, dispersion of the islands, and significant distance from international markets. These disadvantages make the cost of delivering government services expensive, hinder growth of domestic markets, and preclude economies of scale production. However, the Kiribatieconomy is also supported by several positive attributes. Firstly, Kiribati has a strong traditional culture which, to a large extent, has acted as a social safety net for I-Kiribati, and has also
the US dollar since early 2018 but remains within historical norms. Staff assesses the underlying external position in 2017 to be broadly in line with the level implied by medium-term fundamentals and desirable policies (Annex I). Given the idiosyncratic features of the Kiribatieconomy and data quality, the uncertainty around this assessment is substantial.
7. The near-term outlook is expected to feature some moderation of recent trends. Growth is estimated to grow at a slower pace of 2% percent in 2018, as fishing volumes normalize. Inflation is expected to
provided by the Kiribati authorities; and Fund staff estimates and projections.
1/ Projections assume an annual nominal portfolio rate of return of 6 percent.
Impact of the Global Financial Turmoil and Slowdown on Kiribati
The impacts of the global financial crisis and slowdown have been contained by the small role of tourism, exports and FDI in the Kiribatieconomy. The main impacts have thus far been through the sharp declines in government assets and the exchange rate :
The RERF and the KPF declined by respectively 12 percent and 20
Kiribati's economic policies reflect the country's communally oriented values that favor social cohesion over individual self-reliance and the rough and tumble of the market economy. Unfavorable external conditions, fiscal slippages, and the lack of structural reforms have led to a weakening in Kiribati's external and fiscal positions. To achieve sustainable medium-term growth, timely implementation of fiscal consolidation and structural reforms is critical. Public enterprise reform and privatization, along with civil service rationalization, should be at the top of the reform agenda.
International Monetary Fund. Asia and Pacific Dept
Growth has been strong in recent years and some moderation is expected, with risks skewed to the downside. High fishing revenues improved the fiscal position, but generated pressure to increase spending. There has been progress on fiscal and structural reforms. Yet, public spending needs are large, driven by an infrastructure gap and climate adaptation costs, and the country remains at high risk of debt distress.