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IMF Country Report No. 16/292
KIRIBATI
2016 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR KIRIBATI
September 2016
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 2016 Article IV consultation with Kiribati, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its September 7, 2016 consideration of the staff report that concluded the Article IV consultation with Kiribati.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on September 7, 2016, following discussions that ended on May 18, 2016, 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 August 23, 2016.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the International Development Association.
A Statement by the Executive Director for Kiribati.
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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© 2016 International Monetary Fund
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KIRIBATI
STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION
August 23, 2016
Key Issues
Context. Kiribati is a small and fragile state vulnerable to climate change. Record high fishing revenue in recent years has boosted growth, improved the current account, and strengthened the balance of the sovereign wealth fund, the primary vehicle for intergenerational saving. However, fishing revenue has declined in the early months of 2016 and is projected to remain at more modest levels over the medium term. Building fiscal buffers to enhance resilience and continued support from development partners are essential to mitigate downside risks to growth.
Key policy recommendations.
Fiscal policy. Accommodating Kiribati’s considerable public spending needs in a fiscally sustainable way calls for a strengthened fiscal framework. This should include committing to a balanced structural budget over the medium term in light of the declining fishing revenue, strengthening the role of the sovereign wealth fund as an anchor for long run fiscal sustainability, and maintaining an appropriately-sized cash reserve buffer to cope with revenue volatility and external shocks.
Climate change. Continued efforts are needed to enhance resilience to climate change and mitigate its negative impact on long run growth. Budget provision should explicitly recognize climate change adaption costs and infrastructure maintenance needs.
Structural reforms. Achieving more sustained and inclusive growth depends on creating conditions for private sector growth and employment. Key elements in this area include further strengthening of the SOEs’ commercial mandate, continued investment in business climate and infrastructure and enhancing human capital to better harness Kiribati’s marine resources.
Financial deepening. Public financial institutions have a critical role in enhancing financial deepening. Ensuring their long-term sustainability calls for strengthened risk monitoring, addressing deficiencies in financial supervision and better aligning operations with their institutional roles.
Approved By
Patrizia Tumbarello (APD) and Peter Allum (SPR)
Discussions were held in South Tarawa during May 9–18, 2016. The staff team included Ding Ding (head) and Shi Piao (both APD), Arti Devi (IMF Regional Resident Office in Fiji) and Janne Hukka (FIN). Barry Sterland and Chris Stewart (OED) participated in the discussions. Mizuho Kida (the World Bank) and Lai Tora (Asian Development Bank) also joined part of the mission. Seble Abebe and Anh Van Le (both APD) assisted in preparing this report.
Contents
CONTEXT
RECENT DEVELOPMENTS, OUTLOOK AND RISKS
ENHANCING SUSTAINABILITY AND RESILIENCE
A. Strengthening the Fiscal Framework
B. Enhancing Resilience to Climate Change
PROMOTING PRIVATE SECTOR DEVELOPMENT
A. Maintaining the Momentum of SOE Reforms
B. Enhancing Infrastructure and Human Capital
C. Fostering Sustainable Financial Deepening
STAFF APPRAISAL
BOXES
1. External Competitiveness and Exchange Rate Assessment
2. Fishing Revenue and the Impact on the RERF
3. The Growth Impact of Climate Change
4. Progress in SOE Reforms and Future Priorities
5. Addressing the Financing Deficit of the Kiribati Provident Fund
FIGURES
1. The Cross Country Setting
2. Recent Developments
3. Labor Market Indicators
TABLES
1. Selected Economic Indicators, 2012–18
2. Summary of Central Government Operations, 2014–21
3. Medium-Term Projections, 2014–21
4. Balance of Payments, 2014–21
5. Key Priority Area and SDGs
ANNEXES
I. Risk Assessment Matrix
II. Main Recommendations of the 2015 Article IV Consultation
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KIRIBATI
STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
August 23, 2016
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
RELATIONS WITH THE ASIAN DEVELOPMENT BANK
STATISTICAL ISSUES
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KIRIBATI
STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS
August 23, 2016
Approved By
Patrizia Tumbarello and Peter Allum (IMF) and Mathew Verghis (IDA)
Prepared by the Staff of the International Monetary Fund and the World Bank
This update of the Debt Sustainability Analysis (DSA) indicates that Kiribati remains at high risk of debt distress. While the fiscal position has improved, underpinned by robust fisheries sector revenue, containing the risk of debt distress will require continued fiscal sustainability through further progress in structural and fiscal reforms; securing grants to finance the country’s large development needs will also be needed.
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Release No. 16/400
FOR IMMEDIATE RELEASE
September 9, 2016
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