Countries and Regions

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Country Strategy and Program Update 2002-2004: Kiribati

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I. Development Situation

1. The Republic of Kiribati, which is in the Central Pacific, consists of 33 islands with a total land area of 717 square kilometers (km2) dispersed over 3.5 million km2 of ocean. Around 43 percent of the total population (84,500) is in South Tarawa and the other half is scattered in the outer islands. Most of the islands are low-lying coral atolls, consisting of a narrow band of coral sand overlying hard coral pans, fringed by coral reef on the ocean side and often surrounding a lagoon. The domestic production base is very limited and with copra, fisheries, and seaweed as the main cash-earning products.

A. Recent Political and Social Developments

2. In October 2000, the Government of Kiribati approved the National Development Strategy¹ (NDS) 2000-2003, which is titled Working Together for Prosperity and Peace. The NDS was prepared with Asian Development Bank (ADB) assistance and approved after a broadly based consultation process that included ministries, public enterprises, government agencies, and nongovernment and private sector stakeholders. The NDS recognizes the following unique advantages of Kiribati: (i) large and well-managed foreign reserves in the Revenue Equalization Reserve Fund (RERF), (ii) a history of sound fiscal management, and (iii) a strong traditional culture that promotes social stability and family welfare.

3. However, the NDS also identifies several development constraints: (i) limited natural resources, especially land and fresh water; (ii) a small domestic market with little potential for economies of scale; (iii) widely scattered and sparsely populated islands; (iv) access to major international markets that are expensive and access being hard to arrange; (v) increasingly competitive international markets for tourism and investment; (vi) a population that has limited understanding and experience with business concepts and practices; (vii) a labor force lacking in education and job skills; and (viii) social and cultural constraints to the development of land and capital markets.

B. Economic Assessment and Outlook

4. With a per capita gross domestic product (GDP) of US$600 in 2000, Kiribati has the lowest per capita GDP among ADB’s Pacific developing member countries (PDMCs) and there is no evidence of significant growth for the next two years. In 2000, the real GDP contracted by 4 percent and in the last five years its growth averaged 2.2 percent per annum. Over the same period, real per capita GDP rose by less than 1 percent per annum. The opportunities, mainly in the outer islands, are limited. However, despite the narrow productive base, the financial situation of Kiribati is sound due to external assistance, fishing licenses, remittances, and the earnings of the RERF, which supplement the income.

5. The RERF (A$675 million in 2000) provides 15–20 percent of the Government’s recurrent expenditures and finances as part of its development expenditures (A$8.8 million in 2000, most of which was used to pay for the new parliament building). However, in 2000 no disbursement was made from the RERF for these purposes. The RERF is the cornerstone of the Kiribati economy and has provided the country with a degree of security that would have been considered virtually impossible a decade ago. The combination of cautious management and sound investment strategy has ensured that the RERF has performed well.² However, several assistance agencies criticized the Government for not making more use of the RERF. They contend that there are many areas in the Kiribati economy where at least part of the funds invested in the RERF could be wisely used.

C. Implications for Country Strategy and Program

6. The frugality and fiscal discipline of the country are commendable but more could be done to improve the economic and social conditions of the poor, improve the efficiency and effectiveness of the public service, and foster private sector development. Key issues are (i) rapid population growth outstripping capacity to provide employment, (ii) risk to health and safety from pollution in South Tarawa, and (iii) access to social services in the outer islands. ADB’s Pacific strategy envisages two main priorities for development of the remote resource-poor islands: (i) exploring the potential for labor market exports, and (ii) supporting the establishment and expansion of trust funds to provide sustainable financing of needed services. ADB’s strategy for assisting Kiribati is summarized in Appendix 1.

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