Press Release No. 21/388

IMF Staff Completes 2021 Virtual Staff Visit to Kiribati

December 20, 2021

• Kiribati’s economy is gradually recovering, and a swift vaccination of the eligible population is key to safeguard the nascent growth and reopen the borders.
• Fiscal policy in the near term should remain supportive and well-targeted. Once a firm recovery is underway, fiscal consolidation will be necessary with enhanced fiscal discipline and improved public financial management.
• Kiribati will benefit from continuing to advance critical structural reforms—including those outlined in the new Kiribati Development Plan (2020-23) — to support more sustainable, greener, and inclusive growth.

Washington, DC: An International Monetary Fund (IMF) team, led by Ms. Sarwat Jahan, held virtual staff-level discussions with the authorities in Kiribati during December 6–16, 2021. The discussions covered recent developments, the economic outlook, and policy priorities ahead. At the end of the visit, Ms. Jahan issued the following statement:

“Kiribati’s economy is showing signs of recovery with real GDP growth projected at 1.5 percent in 2021 following a contraction of 0.5 percent in 2020. Strong fishing revenues and supportive fiscal policies boosted government and household financial balances. Inflationary pressures appear to have risen substantially in 2021 due to a combination of supply disruptions and high domestic demand. The nascent recovery is expected to gain steam as the vaccination drive continues, and real GDP growth is projected at 2.4 percent in 2022. Inflationary pressures are expected to continue in 2022, partially due to the passthrough effect of higher energy prices. Risks to the outlook are substantial and predominantly tilted to the downside, primarily stemming from COVID-19 developments potentially delaying the global recovery.

“Supportive fiscal measures should remain in place until the recovery is firmly underway, but measures should be well-targeted. During 2020-21, the authorities approved an economic relief package of about AUD 30 million (11.5 percent of 2020 GDP), partly financed by reallocating donor grants. The relief focused on health spending, unemployment benefits, financial aid for cargo deliveries, support for private firms and state-owned enterprises (SOEs), and repatriation of stranded nationals. With half of the allocated funds still undisbursed, the authorities have room to continue to cushion the economic impact of the pandemic, if needed. All pandemic related spending should be well-targeted and focused on the most vulnerable, with proper safeguards in place.

“Fiscal consolidation will be necessary once the recovery is on a firm footing, underpinned by both revenue and expenditure measures. Maintaining the wage and social spending increases of 2021 in the 2022 budget would result in continued fiscal deficit. The sustainability of these and other spending such as the copra subsidy will need to be reexamined. Fiscal discipline could be further reinforced by adhering to the rules-based policy regarding withdrawals from the sovereign wealth fund, strengthening the medium-term fiscal framework, and making explicit budget provisions for climate change adaptation for a greener post-COVID recovery.

“Accelerating structural reforms remains critical to Kiribati’s overall development. Several new pieces of legislation have been passed to forge ahead with structural reforms in the financial sector, environment, and social protection. Effective implementation of these reforms will support a sustainable, inclusive, and green recovery as envisioned in the recently approved Kiribati Development Plan 2020-2023. Continued efforts are needed to strengthen the governance and oversight of SOEs, enhance their commercial mandate, and ensure timely publication of their audited reports. The authorities’ plans to reopen Phoenix Islands Protected Area (PIPA) to commercial fishing should be designed to ensure sustainability of fishing and preserve marine biodiversity.

“We would like to thank our counterparts for productive discussions and engagement. We look forward to continue the dialogue during the Article IV Consultation in the first half of 2022.”