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IMF Warns Kiribati’s Fiscal Position at Risk Due to Unsustainable Spending

Kiribati, a small island nation in the Pacific, is facing a significant fiscal challenge that could have far-reaching consequences for its economy and citizens. According to a recent report by the International Monetary Fund (IMF), Kiribati’s recurrent deficit has worsened in recent years and is projected to remain wide in the baseline scenario.

Unsustainable Spending Threatens Fiscal Position

The IMF warned that the country’s fiscal position is at risk due to unsustainable spending, particularly in areas such as infrastructure development and climate adaptation. The authorities’ commitment to fiscal discipline needs to be reinforced by using the domestic recurrent balance as an operational target, according to the report.

  • Recurrent deficit worsened in recent years
  • Infrastructure gap and climate adaptation costs drive deficit
  • Fiscal framework needs strengthening to contain spending pressures

Cash Reserves Decrease Sharply

The report noted that the RERF (Reserve Fund) balance has reduced somewhat in reflection of the global equity market correction in late 2018, and large gaps in meeting basic needs remain. The cash reserves have decreased from 93% of GDP in 2018 to 50% in 2020.

Recommendations for Sustainable Growth

To address this issue, the IMF recommended that Kiribati focus on three key action areas:

  • Reinforcing the Fiscal Framework: Strengthening the fiscal framework would help contain spending pressures and ensure that any windfalls are allocated in a transparent and medium-term sustainable manner.
  • Creating an Environment for a Dynamic Private Sector: Implementing structural reforms to promote a dynamic private sector could boost economic growth and create new opportunities for employment and income generation.
  • Enhancing Governance: Improving governance would help ensure transparency, accountability, and effectiveness in the use of public resources.

Kiribati Vision 20: A Pathway to Sustainable Development

The report highlighted that implementing Kiribati Vision 20 (KV20), a 20-year development agenda aimed at promoting inclusive and sustainable development, is crucial for achieving sustainable growth. KV20 requires further progress in fiscal and structural reforms, as well as securing support from development partners.

Conclusion: Modest Consolidation Needed

The report concluded that modest current-based consolidation would be required to maintain the net financial worth at a safer level, which would provide an additional buffer over the forecast period. This could be achieved by reducing the domestic recurrent deficit by 1% of GDP each year until 2028.

Overall, the IMF’s report serves as a wake-up call for Kiribati to address its fiscal challenges and ensure a sustainable economic future for its citizens.