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Kiribati Needs Stronger Regulatory Framework for Financial Institutions

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In order to boost financial deepening and promote economic growth, Kiribati needs to strengthen its regulatory framework for financial institutions.

Vulnerability to External Shocks

Kiribati is heavily reliant on foreign aid, revenue from its trust fund, remittances, and fishing license fees. This makes the country vulnerable to external shocks.

Limited Finance Sector

According to the Asian Development Bank (ADB), Kiribati’s finance sector is limited in size and scope of operations, with only one commercial bank, ANZ Kiribati, and two public financial institutions. However, private sector credit is expanding, aided by the two public financial institutions.

Challenges in Accessing Credit

Despite progress, access to credit remains constrained due to problems with obtaining collateral and loan recovery. The International Monetary Fund (IMF) has recommended comprehensive supervisory and regulatory framework reforms to address these issues.

Improving Financial Statistics and Institutional Capacity

A key challenge facing Kiribati’s finance sector is the lack of regular reporting and system-wide data, which hinders analysis and targeted interventions. Improving financial statistics and institutional capacity for timely reporting should be a priority, according to the IMF.

Implementing Financial Deepening in a Sustainable Way

To achieve sustainable growth and employment in Kiribati, it is crucial to implement financial deepening in a sustainable way. This can be achieved by:

  • Strengthening the long-term sustainability of public financial institutions
  • Improving financial education
  • Enhancing dispute resolution mechanisms

A Stronger Regulatory Framework for Financial Stability

The ADB has emphasized the need for comprehensive supervisory and regulatory framework reforms, providing legal powers for bank authorization and supervision via prudential standards. These reforms should address weaknesses in balance sheets and enhance risk monitoring.

Conclusion

Kiribati’s finance sector faces significant challenges, but with a stronger regulatory framework and institutional capacity, it can promote growth, employment, and financial stability.