IMF Wraps Up 2025 Article IV Talks With Kiribati

• The Kiribati economy has rebounded following the COVID-19 pandemic and continues to grow steadily, despite shocks. Downside risks have increased but can be addressed with well-calibrated countercyclical fiscal policy and structural reforms.
• A credible fiscal consolidation over the medium term, accompanied by improved public investment efficiency, is needed to anchor debt and support higher investment in climate adaptation.
• Establishing a debt management framework, with enhanced capacity to analyze new borrowing and assess sources of risk, as well as strong governance, transparency and accountability, is vital for continued long-term growth.

Washington, DC: On July 9, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Kiribati, and considered and endorsed the staff appraisal without a meeting.

Real GDP grew by an estimated 5.3 percent in 2024 and is now close to its pre-COVID trend. Recent growth has largely been supported by an expansion of the public sector amid relatively subdued private production. Inflation moderated in 2024, in line with global commodity prices, but has started to rise in 2025Q1 due to long-overdue increases in fuel prices and electricity tariffs. Fiscal policy was expansionary in 2024, with an increase in current expenditures to support a wage bill increase and a slight decline in fishing revenues as a share of GDP. The sovereign wealth fund (RERF) withdrawal rule was relaxed in 2024 to support government priority spending.

Real GDP growth is expected to moderate to around 3.9 percent in 2025 and to gradually decline to around 2 percent over the medium term. Economic activity in 2025 is expected to be driven largely by public consumption and the continuation of infrastructure projects. Productivity and population growth are expected to remain subdued and weigh on medium-term growth. Inflation is expected to increase to 7.8 percent in 2025, due to the one-off increase in fuel and electricity prices, and then moderate over the medium term, in line with trading partners' inflation. The current account deficit is expected to narrow to 0.6 percent of GDP in 2025, mostly owing to lower global commodity prices. The fiscal deficit is projected to narrow in 2025, thanks to efforts to contain current expenditures.

Executive Board Assessment

In concluding the 2025 Article IV consultation with Kiribati, Executive Directors endorsed staff's appraisal, as follows:

The Kiribati economy has been resilient, despite repeated shocks. Kiribati is pursuing an ambitious long-term development agenda, focused on infrastructure, social benefits, financial inclusion, and small businesses, including copra famers. Global trade policy changes in 2025 are expected to have only a small impact on GDP growth in the baseline, given Kiribati's limited exports of goods and services. Significant increases in the electricity tariff and fuel price in 2025 were needed to align them with market prices and are projected to temporarily increase inflation. The fiscal deficit narrowed in 2025, but a trend decline in fishing revenues and higher government spending have weighed on fiscal and current account balances relative to pre-COVID. The external position in 2024 is assessed to be weaker than the level implied by fundamentals and desirable policies, with government spending contributing to high demand for imports.

Risks have increased and are tilted to the downside. On the domestic side, under the current return-based withdrawal rule, weak financial market returns in 2025 could jeopardize the sovereign wealth fund withdrawal budgeted for 2026. This could lead to an unplanned fiscal consolidation, with a decline in public investment. External risks include commodity price volatility, intensification of conflicts that could raise shipping costs, and systemic financial instability, which could all increase risks to fiscal and external sustainability through their effects on the import bill, the sovereign wealth fund interest revenues, remittances, and growth. Kiribati remains highly vulnerable to the effects of climate change and natural disasters.

Countercyclical fiscal policy, integrated with a balance-based RERF withdrawal rule, could help to more consistently meet development needs and provide social benefits. Kiribati's revenues are highly volatile and fiscal policy has become procyclical in recent years, with potentially inefficient spending when revenues are above expectations and cuts when they are below expectations. To improve macroeconomic planning and management, RERF withdrawals and deposits could be integrated into a more developed medium-term fiscal framework, designed to offset revenue volatility and support macroeconomic stabilization. Adjusting the RERF withdrawal rule so that annual withdrawals are capped at 3 to 5 percent of the RERF balance would preserve RERF's long-term value and ensure that withdrawals are possible, if needed, even when RERF returns are low.

Over the medium term, a credible fiscal consolidation accompanied by improved public investment efficiency is needed to anchor debt and support higher investment in climate adaptation. Consolidation measures already implemented in 2025, including freezing nominal wages, reforming VAT, and streamlining subsidies, are welcome. Going forward, additional efforts are needed, including gradually reducing SOE and other tax exemptions, increasing the excise tax rate, enhancing fishing revenue, further rationalizing copra subsidies and streamlining SOE subsidies. To improve investment efficiency over the medium term, Kiribati could supplement the prioritized list of infrastructure projects with detailed costing, timeline and transparent criteria for project selection, and plan to integrate the recurrent budget with the development budget. Enhanced oversight and procurement procedures, as well as maintaining a fixed asset register, could help further improve quality and efficiency of public investment.

Establishing a debt management framework with strong governance, transparency and accountability is vital for continued long-term growth. In that regard, the priority is to strengthen the capacity to analyze and manage potential new debt and assess sources of risk. In addition, it would help to clarify the purposes of new borrowing or issuing guarantees and ensure that new borrowing is consistent with debt sustainability and the government's development priorities, with a requirement of detailed annual reporting. Maintaining or expanding access to grants and highly concessional loans to finance infrastructure investment remains the preferred way to preserve debt sustainability.

Strengthening institutional capacity and raising human capital are crucial for sustaining development. Fiscal structural reforms that continue to focus on strengthening public financial management and revenue administration are welcome. Ongoing progress in building monetary and financial sector regulatory and supervisory institutions and making the new Kiribati Financial Supervisory Authorities fully operational, are important. Continued efforts to improve the quality of education and health are expected to strengthen the labor force and increase public health. Policies to enhance financial inclusion, the business regulatory environment and the quality of infrastructure will continue to promote private sector development.

Continued capacity building to enhance the quality of national statistics is welcome. While the quality of statistics has significantly improved over time, shortcomings that continue to somewhat hamper surveillance should be addressed, particularly in real and external sector statistics and government finance statistics. New challenges related to the recording of Joint Venture activities could be gradually addressed through ongoing capacity development by the PFTAC and other development partners.