Growth in small island economies like Kiribati is driven largely by government spending on infrastructure projects, while threats come from climate change.
|Selected economic indicators (%)||2015||2016|
|ADO 2015||Update||ADO 2015||Update|
|Current Account Balance (share of GDP)||-53.0||-4.5||-48.4||-9.7|
Source: ADB estimates.
In Kiribati, stimulus from ongoing infrastructure projects appears to have been greater than previously forecast, and low energy prices encouraged more consumption. Lending to households expanded by 26.0% in 2014 as the Kiribati Provident Fund and the Development Bank of Kiribati introduced personal lending schemes.
Higher public expenditures, notably on wages and salaries, and the inclusion of a budget for contingency and infrastructure maintenance, also support output growth.
For Kiribati, the annual inflation forecast is unchanged for 2015, reflecting global food and energy price trends and low inflation reported so far this year.
Recent higher public expenditures prompt a doubling of the growth forecast for 2015. Although infrastructure projects are scheduled to wind down next year, their positive influence on economic activity is expected to persist.
The 2016 growth forecast for Kiribati is also revised upward. The contribution of fishing license fees to GDP is seen to remain high in 2015 but lower than in 2014.
Inflation is still seen to rise modestly in 2016, as forecast in Asian Development Outlook (ADO) 2015.
Current account deficit forecasts for Kiribati are cut substantially, reflecting new data that show much smaller historical imbalances than previously estimated.
Risks to growth in small island economies include volatility in fishing license revenues stemming from uncertainty over the future terms and enforcement of the Nauru Agreement, as well as changes to the migratory patterns of tuna linked to El Niño. Small island economies are also vulnerable to disasters. Following the destruction caused by Cyclone Pam, the Kiribati Adaptation Program has begun to integrate climate risk management with national economic planning. The program’s current phase aims to improve communities’ capacity to store fresh water, ensure water quality, and protect coastal areas from storm surges and flooding.
Excerpted from the Asian Development Outlook 2015 Update.