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IMF Country Report No. 15/207
KIRIBATI
2015 ARTICLE IV CONSULTATION—PRESS RELEASE; AND STAFF REPORT
July 2015
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2015 Article IV consultation with Kiribati, the following documents have been released and are included in this package:
A Press Release.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on lapse of time basis, following discussions that ended on May 14, 2015, with the officials of Kiribati on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 9, 2015.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2015 International Monetary Fund
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KIRIBATI: STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION
July 9, 2015
Key Issues
Context. Donor-financed large infrastructure projects, increased public spending, and a pick-up in credit to households have boosted real GDP growth to close to 4 percent in 2014 and to about 3 percent in 2015. Inflation remains low, underpinned by lower food and commodity prices. Steps are being taken to reduce the many hurdles to private growth that Kiribati faces, among which are high transportation and communication costs and an increasing impact of climate change.
Fiscal policy. The fiscal outlook has improved, but further efforts are needed to ensure sustainability. The recurrent balance was in large surplus in 2014 and is expected to remain positive in 2015, reflecting high revenue from license fees, and notwithstanding a large increase in expenditures. But under the historic pace of spending the sovereign wealth fund (Revenue Equalization Reserve Fund—RERF) would be depleted in about 20 years. Ensuring sustainability requires containing nominal expenditure growth to around 1½ per annum over the next five years (after accommodating climate-change-related costs), with transparent and symmetric transfers and withdrawals from the RERF around this path.
Structural reforms. There is a consensus among donors that significant progress has been achieved. The State-Owned Enterprise (SOE) Reform Act is being implemented in a satisfactory way, as illustrated by the recent successful privatization of the telecommunication company. Key outstanding issues include further reforming the energy and copra sectors and improving the investment climate.
Approved By
Hoe Ee Khor (APD) and Peter Allum (SPR)
The IMF team included Mr. Maliszewski (Head), Mr. Poulain (FIN), Ms. Zhang (APD) and Ms. Rahman-Garrett (ICD). Mr. Choi (OED) joined the team for the last three days of the consultation. Discussions were held in Kiribati during May 4–14, 2015. The team reviewed recent developments and the outlook, and discussed the main policy issues. Staff met with Vice-President Ms. Onorio, Minister of Finance Mr. Murdoch, Secretary of the Cabinet Ms. Tira, Secretary of Finance Mr. Manaima, and other government officials, donors and private sector. The mission benefitted from the coordination of Mr. Reynolds, Director of National Economic Planning Office.
Contents
BACKGROUND
RECENT DEVELOPMENTS AND OUTLOOK
RESTORING SUSTAINABILITY AND IMPROVING RESILIENCE TO SHOCKS
PROMOTING GROWTH AND REDUCING POVERTY
A. Removing Barriers to Private Sector Growth
B. Implementing SOE Reforms
C. Fostering Financial Deepening
D. Improving Social Outcomes
STAFF APPRAISAL
BOXES
1. External Competiveness and Exchange Rate Assessment
2. The Key Challenge of Adapting to Climate Change
3. Managing Volatility of Fishing License Fees and Ensuring Fiscal Sustainability
4. Growth and Investment Climate
5. Improving the Efficiency of State-Owned Enterprises
FIGURES
1. The Setting in a Cross-Country Context
2. Macroeconomic Prospects
3. Health, Education Expenditure, and Selected Human Development Indicators
TABLES
1. Selected Economic Indicators, 2009–17
2. Summary of Central Government Operations, 2009–20
3. Medium-Term Projections, 2009–20
4. Outstanding Banking Loans, 2007–14
5. Balance of Payments, 2009–20
ANNEX
1. Risk Assessment Matrix
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KIRIBATI
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
July 9, 2015
Prepared By
The Asia and Pacific Department
(In Consultation with Other Departments)
Contents
FUND RELATIONS
RELATIONS WITH THE PACIFIC FINANCIAL TECHNICAL ASSISTANCE CENTRE
BANK-FUND COLLABORATION
A. World Bank-IMF Collaboration
B. Relations with the World Bank Group
RELATIONS WITH THE ASIAN DEVELOPMENT BANK
STATISTICAL ISSUES
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KIRIBATI
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION–DEBT SUSTAINABILITY ANALYSIS 1
July 9, 2015
Approved By
Hoe Ee Khor and Peter Allum (IMF) and Satu Kahkonen and Mark Thomas, (IDA)
Prepared by the Staff of the International Monetary Fund and the World Bank
The Debt Sustainability Analysis (DSA) indicates that Kiribati remains at high risk of debt distress. Despite the improvement in the fiscal position in recent years from the high fishing license fees, containing the risk of debt distress requires continuation of grants to support the country’s large development needs, and implementation of fiscal and further structural reforms to promote fiscal sustainability and growth.
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Press Release No. 15/361
FOR IMMEDIATE RELEASE
July 29, 2015
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