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Kiribati’s Financial Sector Urged to Strengthen Compliance Measures Amid Recovery Efforts

A recent International Monetary Fund (IMF) team visit to Kiribati has highlighted the need for the financial sector to strengthen its compliance measures as the country’s economy gradually recovers from the COVID-19 pandemic.

Economic Recovery

According to the IMF team, led by Ms. Sarwat Jahan, the country’s economy is showing signs of recovery, with real GDP growth projected at 1.5 percent in 2021 following a contraction of 0.5 percent in 2020. Strong fishing revenues and supportive fiscal policies have boosted government and household financial balances.

Challenges Ahead

However, the team warned that inflationary pressures have risen substantially in 2021 due to supply disruptions and high domestic demand, and are expected to continue in 2022 partially due to the passthrough effect of higher energy prices.

Recommendations for Fiscal Policy

To support the nascent recovery, the IMF recommended that fiscal measures remain in place until the recovery is firmly underway, but should be well-targeted. The team noted that half of the allocated funds from an economic relief package approved by the authorities in 2020-21 are still undisbursed, providing room for continued support if needed.

Structural Reforms

Once the recovery gains steam, fiscal consolidation will be necessary to ensure sustainability, with a focus on revenue and expenditure measures. Maintaining wage and social spending increases would result in continued fiscal deficit, and the sustainability of other spending such as the copra subsidy will need to be reexamined.

Priorities for Financial Sector

The IMF also emphasized the importance of accelerating structural reforms in the financial sector, environment, and social protection to support a sustainable, inclusive, and green recovery. Effective implementation of these reforms is critical to achieving the country’s development goals outlined in its Development Plan 2020-2023.

Conclusion

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In conclusion, the IMF team urged Kiribati to prioritize strengthening compliance measures in the financial sector, improve public financial management, and enhance fiscal discipline to support a robust and sustainable economic recovery.