- The IMF team had productive discussions with the Kiribati authorities on economic performance and policies as part of the 2025 Article IV consultation.
- The Kiribati economy has recovered post-COVID and continues to grow steadily, despite shocks. Risks have increased but can be addressed with well-calibrated countercyclical fiscal policy and structural reforms.
- Strengthening public financial management would improve the efficiency of public investment. Building capacity to analyze new borrowing will be vital to meeting development and climate adaptation goals, while maintaining debt sustainability.
Washington, DC: An International Monetary Fund (IMF) team, led by Ms. Natalija Novta, visited Tarawa, Kiribati for the 2025 Article IV Consultation during April 21-30, 2025, and concluded virtually on May 19, 2025. The discussions with the authorities covered recent developments, the economic outlook, and policy priorities. At the end of the visit, Ms. Novta issued the following statement:
"The Kiribati economy has remained resilient amid repeated shocks. In 2024, real GDP grew by an estimated 5.3 percent and is now close to its pre-COVID-19 trend. Inflation has moderated significantly, to 2.5 percent in 2024, in line with global commodity prices and an improvement in supply-side conditions. Fiscal policy was expansionary in 2024 and has become increasingly procyclical. The current account is estimated to have remained in deficit in 2024, at around 2 percent of GDP, as elevated public spending in recent years continues to fuel demand for imports.
"Real GDP growth is projected to moderate to 3.9 and 3.2 percent in 2025 and 2026, driven by strong public consumption and infrastructure projects. Recent trade policy disruptions are expected to have only a mild impact to the staff's baseline scenario. Inflation is projected to rise temporarily to 7.8 percent in 2025, due to a one-off increase in fuel and electricity prices. This adjustment, though overdue, was necessary to align with market prices. In 2026, inflation is projected to decline to 3.5 percent. The current account deficit is projected at 2 percent of GDP in 2025, amid continued strength in import demand and relatively subdued fishing revenues. The fiscal deficit is expected to narrow from 22 percent in 2024 to 15 percent of GDP in 2025, primarily thanks to the freeze on nominal wages and streamlining of subsidies, with withdrawals from the Revenue Equalization and Reserve Fund (RERF) recorded as a financing item. Risks to the outlook are tilted to the downside and include lower-than-budgeted RERF withdrawals if financial market volatility leads to low RERF returns, disruptions to global trade due to escalating tariffs, greater commodity price volatility, potential decline in international aid, and climate-related natural disasters.
"Kiribati's remoteness, exposure to floods, scarce freshwater, and limited and infertile soil have contributed to reliance on volatile fishing license revenues and international aid, and low resilience to shocks. Overcoming these challenges requires a multi-pronged approach, including (1) building infrastructure that is resilient to natural disasters, enhances connectivity, and supports private sector development; (2) calibrating fiscal policy to enable long-term development despite volatility in revenues and RERF returns; and (3) strengthening institutional capacity through structural reforms that increase public investment efficiency and raise human capital is key to achieving sustainable growth.
"Calibrating fiscal policy to counter volatility from fishing revenues and grants would help support macroeconomic stability. To that end, RERF withdrawals and deposits could be integrated into a more developed medium-term fiscal framework, with larger withdrawals made when fishing revenues and grants fall below expectations. Amending the RERF withdrawal rule to a balance-based rule would help ensure that withdrawals can be made, if needed, even when annual returns are low, while also preserving RERF's long-term value. Debt sustainability can be maintained through a gradual fiscal consolidation based on increased revenues, streamlined subsidies, and greater efficiency of spending. This would in turn create room for more efficient climate adaptation investment to build resilience to natural disasters amid gradually rising sea levels.
"Strengthening public financial management would help increase the efficiency of public spending and investment, which, in turn, would raise output and improve the debt trajectory. Reform priorities include further developing the medium-term expenditure and investment framework, improving cash management, and enhancing internal and external audits. Building revenue administration capacity and improving tax compliance should continue to be priorities. Establishing a sound debt management framework and developing capacity to analyze new borrowing and assess sources of risk are central to maintaining debt sustainability. Ongoing efforts to build monetary and financial regulatory and supervisory institutions and enhance financial inclusion are welcome and should continue. Raising human capital by enhancing education and health services is critical for continued growth and private sector development. Improving the quality and timeliness of statistics would help support policy design.
"We would like to thank the authorities and other stakeholders for their warm welcome and for productive discussions and engagement. The IMF stands ready to continue to support the government's development goals through macroeconomic policy advice and capacity development."
