Catalog

Kiribati

This economy is dominated by the public sector, with the general government subsector accounting for 47% of GDP in 2006 (up from 30% in 2000), and the public service and 25 public enterprises providing over two thirds of paid employment. In 2007, economic growth slowed to an estimated 0.5% (Figure 3.34.5). The slight expansion was supported by a 1% increase in government recurrent expenditures. Workers returning from employment overseas provided some demand-side stimulus. Remittances of ships' crews working overseas, tuna-fishing access fees, and earnings of the Revenue Equalization Reserve Fund (RERF)—an offshore investment fund established with royalties from a now-closed phosphate mine— contributed about 45% of gross national product (Figure 3.34.6).

Merchandise exports, mainly copra and seaweed, fell in 2007, and their earnings were dwarfed by merchandise imports, including fuel. Deficits in trade and services were substantially offset by external earnings from the RERF, fishing license fees, remittances, and donor assistance. The use of the Australian dollar as domestic currency helped maintain inflation at a modest rate of 3–4%.

The overall budget deficit in 2007 was kept moderate by increased RERF earnings from investments on the Australian stock exchange (Figures 3.34.7 and 3.34.8). Non-RERF revenue collections fell short of original budget estimates because of declines in fishing license fees and import duties, while current expenditures came in slightly below budget estimates, largely because of lower than expected debt service payments. The civil service wage bill fell slightly, but subsidies to public enterprises rose. Little was budgeted for infrastructure maintenance.

Last year the Government sharply increased its drawdowns from the RERF to A$45.0 million, in order to help fund expenditures and repay loans from the Bank of Kiribati. While the RERF balance remained above an informal benchmark of the real per capita level in 1996, the increase in drawdowns since 2003 could undermine the fund's capacity to fulfill its role as a permanent source of budget support. Weaker global equity market returns will necessitate much lower drawdowns, likely requiring a more prudent approach to government expenditures in 2008 and 2009.

Kiribati, a low-lying atoll nation, faces numerous development challenges, including adaptation to the impact of climate change. Areas of risk over which the authorities have some policy control include rapid population growth, a narrow economic base, unplanned and poorly managed urban growth, and weak public sector performance. The Government has begun addressing these issues through a National Sustainable Development Plan that emphasizes the pursuit of economic growth through development of tourism and fisheries by the private sector. Special emphasis is placed on the relatively large but remote and lightly developed Kiritimati island. Achieving private sectorled growth will require considerable political will, in particular to address inadequacies in the public sector, notably loss-incurring public enterprises. Economic growth in the short and medium term is likely to remain low, as fiscal constraints are expected to tighten.