Climate Change Impact and Structural Reforms in Kiribati
KIRIBATI
UNLOCKING GROWTH POTENTIAL IN KIRIBATI:
TAKING STOCK OF STRUCTURAL REFORMS¹
With great geographical challenges and high climate change risks, implementing structural reforms is
critical for Kiribati to boost growth and income in the near future. Based on a growth model, the paper
estimates that comprehensive structural reforms could help increase the long-term growth of the
country from slightly above 2 percent to 4 percent and significantly reduce poverty. It has also taken
stock of the government's recent structural reform efforts to provide an insight on the government's key
focus areas, and what more could have been done to help further promote growth and income in
Kiribati.
A. Introduction
1. Geographic challenges pose great difficulties for Kiribati to achieve high economic
growth. The country faces persistent challenges due to its remoteness, large geographical
dispersion, small size, and environmental fragility. They have resulted not only in high cost of
infrastructure and public service delivery, but also in high cost of production and thus
underdevelopment of the private sector. Economic growth in Kiribati has increased over time but has
significantly lagged other Pacific Islands and low-income countries (Figure 1, upper left panel).
Economic growth could barely keep in pace with the increase of the population, resulting in a
stagnant growth of real GDP per capita (Figure 1, upper right panel). In 2019, before the onset of the
COVID-19 pandemic, Kiribati's real GDP per capita was almost unchanged at 99.5 percent of its level
30 years ago.
2.
The other key feature of Kiribati is the dominant role of the public sector. In fact,
Kiribati has one of the highest government expenditure-to-GDP ratio in the world during 2015-19,
significantly higher than most of the PICs as well as the global average (Figure 1, lower left panel).
This high public spending is backed by government revenues from fishing license fees, tax revenues,
investment income, and development aid flows.
3.
To boost growth and incomes, Kiribati will need to embark on a comprehensive
structural reform agenda with focus on diversification, private sector, and inclusive
development. Especially, structural reforms to stimulate private sector development will be key
since the role of the public sector will need to be reduced after the pandemic to reduce fiscal risk
(Figure 1, lower right panel). Against this backdrop, a holistic reform agenda to revamp the private
sector, including economic diversification through new product lines and quality upgrades―
especially for relatively comparatively advantage products such as copra production and tuna
processing and improvement in business environment, is crucial for sustainable economic
development going forward. Above all, upgrading basic infrastructure such as transportation,
electricity, water, and internet will be crucial to facilitate improvement in economic activities and
diversification.
1 Prepared by Anh Thi Ngoc Nguyen (APD) and Nico Valckx (AFR).
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