Kiribati’s economic growth in 2014 was fueled by public spending on projects financed by development partners, and subsequent spillover effects on wholesale and retail sales. Further, the steady pace of reform to state-owned enterprises is expected to spur private sector growth. A value-added tax was introduced on 1 April to help enhance revenue mobilization. Growth is still expected to moderate in 2015. Kiribati relies heavily on fishing revenue and remittances from citizens employed abroad, mainly seafarers.
Inflation forecasts remain unchanged despite a weakening Australian dollar (the official currency).Higher spending related to construction is expected to drive inflation to 2.5% in 2014 and 2015 following 2 years of deflation (revised to -1.5% for 2013).
High revenues from fishing license fees enabled Kiribati to achieve budget surpluses equal to 10% of gross domestic product (GDP) in 2013. These unexpectedly high revenues helped the Government of Kiribati to shore up its Revenue Equalization Reserve Fund with deposits totaling A$10 million. In 2012, Kiribati cleared its expensive commercial debt, which had restrained expenditure. However, despite this fiscal consolidation, stabilizing the reserve fund balance in per capita terms remains a challenge.
Kiribati’s current account deficit is now projected to soar to 53.2% of GDP in 2014 and 53.0% in 2015, well above ADO 2014 forecasts, because of unforeseen imports of capital equipment and construction materials for infrastructure projects funded by development partners. (Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.)
The IMF Article IV of 2014 states that Kiribati’s key economic challenges are: to reduce large structural fiscal imbalances and to increase growth and employment opportunities.