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INTERNATIONAL MONETARY FUND
IMF Country Report No. 19/26
KIRIBATI
2018 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR KIRIBATI
January 24, 2019
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 2018 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 January 11, 2019, following discussions that ended on October 31, 2018, 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 December 19, 2018.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA).
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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© 2019 International Monetary Fund
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INTERNATIONAL MONETARY FUND
KIRIBATI
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION
December 19, 201 8
Key Issues
Context. 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.
Key policy recommendations. Kiribati should leverage its recent gains to ensure inclusive, sustainable growth in the long run. This requires further progress in reforms, as well as securing support from development partners.
Reinforcing the fiscal framework. Focusing on the controllable portion of the budget by abstracting from volatile, exogenous components (fishing revenue and grants, plus their associated capital spending) would promote expenditure stability and medium-term planning. A rules-based, transparent mechanism that reflects social preferences and adjusts to structural changes should govern withdrawals from the sovereign wealth fund. There should be an explicit provision for climate change adaptation in the medium-term budget.
Creating an environment for a dynamic private sector. Strengthening the commercial mandate of SOEs and divesting and outsourcing their activities should continue. Infrastructure investment should further improve connectivity. Human capital should be enhanced with training opportunities and employment possibilities through diversification of the economy into infrastructure maintenance, renewable energy, and tourism. Access to credit should be facilitated by improving land registration and dispute resolution, while strengthening supervision and risk management in public financial institutions.
Enhancing governance. Addressing governance deficiencies would help improve efficiency, reduce vulnerabilities to corruption, and catalyze donor support. Public investment should be prioritized based on expected economic and social returns. Implementation of the PIMA recommendations should be a prerequisite for approving a surge in public investment projects. Transparency on fisheries management needs to be improved. Regulatory practices and trade facilitation efforts should be streamlined, and the rulemaking process should be made more transparent and consultative.
Approved By
James Daniel (APD) and Kevin Fletcher (SPR)
Discussions were held in South Tarawa during October 22-31, 2018. The staff team included Deniz Igan (head, RES), Luigi Briamonte (SEC), and Mareta Kaiteie (APD). Anna Park (OED) also joined the mission. Tijs de Bie (MCM short-term expert) and staff from the World Bank participated in many of the discussions. Antoinette Kanyabutembo, Chau Nguyen, and Simon Paroutzoglou (all APD) assisted in preparing this report.
Contents
CONTEXT
RECENT DEVELOPMENTS, OUTLOOK, AND RISKS
POLICY DISCUSSIONS
A. Reinforcing the Fiscal Framework
B. Creating an Environment for a Dynamic Private Sector
C. Enhancing Governance
STAFF APPRAISAL
BOXES
1. Air Connectivity: Risky Business
2. Fisheries Management: Risks and Actions
3. Economic Diversification: Possible Directions
FIGURES
1. Cross-Country Setting: Economic Fundamentals
2. Cross-Country Setting: Structural Indicators
3. Recent Developments
TABLES
1. Selected Economic Indicators, 2013–19
2. Medium-Term Projections, 2015–23
3a. Summary of Government Operations (in millions of AUD), 2015–23
3b. Summary of Government Operations (in percent of GDP), 2015–23
4. Balance of Payments, 2015–23
APPENDICES
I. External Sector Assessment
II. Risk Assessment Matrix
III. Main Recommendations of the 2017 Article IV Consultation
IV. SDG and Strategic Surveillance Matrix
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INTERNATIONAL MONETARY FUND
KIRIBATI
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
December 19, 2018
Prepared By
Asia and Pacific Department
(in consultation with other departments)
Contents
FUND RELATIONS
RELATIONS WITH OTHER IFIS
STATISTICAL ISSUES
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INTERNATIONAL MONETARY FUND
KIRIBATI
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS
December 19, 2018
Approved By
James Daniel (IMF) and John Panzer (IDA)
Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA)1
The 2018 Debt Sustainability Analysis (DSA) indicates that Kiribati remains at high risk of debt distress, although the debt burden indicators improved somewhat thanks to the improved fiscal position and associated increase in fiscal buffers over the last few years.2 Further progress in structural and fiscal reforms is needed to improve debt trajectories. The ratios of the present value (PV) of external public and publicly-guaranteed (PPG) debt to GDP and to exports are currently below their respective policy dependent indicative thresholds. However, these ratios are increasing and expected to exceed their indicative thresholds in the medium to the long term. Stress tests confirm the vulnerability of the debt position to plausible shocks. Although Kiribati does not currently face debt servicing risks, helped by historically high revenue from fishing license fees and large cash buffers, risks from a possible reversal of favorable weather or global market conditions and from contingent liabilities call for continued fiscal prudence. Containing the risk of debt distress requires continuation of grants to support the country’s large development needs, and implementation of fiscal and structural reforms to promote fiscal sustainability and inclusive growth.
Kiribati: Joint Bank-Fund Debt Sustainability Analysis
Kiribati: Joint Bank-Fund Debt Sustainability Analysis
| Risk of external debt distress | High |
| Overall risk of debt distress | High |
| Application of Judgment | N.A. |
Kiribati: Joint Bank-Fund Debt Sustainability Analysis
| Risk of external debt distress | High |
| Overall risk of debt distress | High |
| Application of Judgment | N.A. |
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Press Release No. 19/14
FOR IMMEDIATE RELEASE
January 25, 2019
International Monetary Fund
Washington, D.C. 20431 USA
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January 11, 2019
