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KIRIBATI: ECONOMIC FRAGMENTATION THREATENS INFLATION AND FISCAL STABILITY

A prolonged period of global financial market volatility could have a devastating impact on Kiribati’s economy, according to a new report from the International Monetary Fund (IMF). The country’s economic outlook is marred by concerns over supply disruptions, climate change, and fiscal challenges.

Economic Risks

The IMF warns that economic fragmentation, fueled by global uncertainty, could lead to:

  • Supply chain disruptions
  • Increased inflation in Kiribati

This, combined with the impact of climate change on fishing revenues, poses a significant risk to the country’s economic growth.

Government Response

The government has introduced several measures to mitigate these risks, including:

  • An economic relief package worth AUD30 million
  • A new unemployment support scheme

However, the fiscal deficit is expected to widen further in 2022 before narrowing in 2023, putting pressure on public finances.

IMF Recommendations

To address these challenges, the IMF recommends:

  • Scaling back recurrent spending
  • Pursuing fiscal consolidation by:
    • Rationalizing the copra subsidy program
    • Unwinding some social protection spending

Government Position

The authorities agree with the assessment of Kiribati’s economic outlook and risks, but do not plan to roll back recurrent spending for the time being. They view the copra subsidy program and unemployment benefit scheme as crucial to supporting livelihoods, particularly in the outer islands.

Key Findings

  • Economic fragmentation could lead to supply chain disruptions and increased inflation in Kiribati.
  • Climate change poses a significant risk to fishing revenues and economic growth.
  • Fiscal deficit expected to widen further in 2022 before narrowing in 2023.
  • IMF recommends scaling back recurrent spending and pursuing fiscal consolidation.
  • Authorities agree with assessment, but do not plan to roll back recurrent spending.

Implications

The Kiribati government must take immediate action to address these challenges. By implementing fiscal consolidation measures and increasing revenue mobilization, the country can raise much-needed resources to finance its development goals.

The IMF report highlights the importance of:

  • Targeted and efficient spending
  • Improved design and delivery of social protection payments

The authorities have set up a Social Protection Unit to strengthen the administration of social protection payments, but more needs to be done to ensure eligible beneficiaries receive payments on time.

Conclusion

Kiribati’s economic outlook is marred by significant risks, including supply disruptions, climate change, and fiscal challenges. Immediate action is required to address these challenges and ensure the country’s economic stability and growth.