Economy Of Kiribati

In 2010, the Republic of Kiribati recorded a per capita Gross National Product (GNP) of US$1,420, positioning it as the poorest nation within the Oceania region. This relatively low level of national income per person reflected the country’s limited economic diversification and the challenges it faced in generating sustainable domestic revenue streams. Historically, the economy of Kiribati had benefited from the export of phosphates, particularly those mined from Banaba Island. The phosphate deposits on Banaba had been exploited profitably since the early 20th century, providing a significant source of income and economic activity for the country. However, by 1979, these phosphate reserves were fully depleted, effectively ending this once vital sector and leaving Kiribati without a comparable natural resource base to support its economic needs. Following the exhaustion of phosphate resources, Kiribati’s economy underwent a significant transformation, increasingly relying on alternative sources of revenue and external support. The current economic framework is heavily dependent on foreign assistance, which plays a critical role in funding the government’s development programs and public services. This aid comes from various international donors and multilateral organizations, reflecting Kiribati’s status as a low-income country with limited domestic revenue generation capabilities. In addition to foreign aid, the government generates essential revenue through the licensing of fishing rights within its exclusive economic zone (EEZ). Kiribati’s vast maritime territory is rich in tuna and other fish species, making fishing licenses a crucial source of income that helps finance imports and supports the national budget. Despite these income sources, the Asian Development Bank (ADB) has identified several constraints that limit Kiribati’s growth potential and economic development. Among these challenges are the country’s geographic isolation and dispersed population across numerous small atolls and islands, which complicate infrastructure development and increase the costs of providing public services. The limited land area and poor soil quality restrict agricultural productivity, thereby reducing opportunities for food self-sufficiency and export diversification. Furthermore, Kiribati’s vulnerability to climate change and rising sea levels poses significant risks to its economic stability and long-term development prospects. The combination of these factors creates structural impediments that hinder sustained economic growth and necessitate continued reliance on external assistance and resource management strategies, such as the sustainable exploitation of fisheries, to support the country’s development objectives.

The expiration of phosphate deposits in 1979 had a devastating impact on Kiribati’s economy, marking a pivotal turning point in the nation’s fiscal stability. Prior to this, phosphate revenues had accounted for approximately 80% of the country’s export earnings and contributed around 50% of government revenue, underscoring the heavy reliance on this finite natural resource. The depletion of these deposits abruptly eliminated a primary source of income, triggering a severe contraction in economic activity and government finances. Between 1979 and 1981, the loss of phosphate income caused Kiribati’s per capita GDP to more than halve, reflecting the magnitude of the economic shock and the challenges faced in transitioning to alternative revenue streams. In anticipation of the eventual exhaustion of phosphate resources, a sovereign wealth fund was established in 1956 to manage and preserve the revenues generated from phosphate mining. This fund, known as the Revenue Equalization Reserve Fund (RERF), was designed to provide a financial buffer and ensure long-term economic stability for Kiribati by investing phosphate earnings prudently. By 2008, the RERF had grown substantially, with a valuation of approximately US$400 million, highlighting its critical role in underpinning the country’s fiscal health and serving as a safeguard against economic volatility. The management of the RERF has been considered crucial for Kiribati’s future welfare, emphasizing the need for careful and prudent financial stewardship to maintain the fund’s value and support government expenditures in the absence of phosphate revenues. However, the RERF experienced fluctuations in value over time, reflecting both global economic conditions and domestic fiscal pressures. In 2009, the fund was valued at A$570.5 million, representing a decline from its peak of A$637 million in 2007. This decline corresponded to a reduction in the fund’s size relative to Kiribati’s GDP, from 420% in 2007 to 350% in 2009. The decrease in RERF assets was largely attributed to the global financial crisis of 2008, which inflicted losses on the fund through exposure to failed Icelandic banks and necessitated government withdrawals to cover budget shortfalls. The International Monetary Fund’s (IMF) country report from May 2011 detailed the impact of the Global Financial Crisis (GFC) on Kiribati, noting a fall in remittances and a significant decline in the value of its wealth and pension funds, particularly the RERF and the Kiribati Provident Fund. These financial setbacks compounded the economic challenges faced by the country during this period. In addition to financial shocks, Kiribati’s economic activity was further strained by the 2008 spike in global food and fuel prices. The surge in prices adversely affected the cost of living and production inputs, exacerbating vulnerabilities already heightened by climate change-related issues such as coastline erosion. These environmental challenges posed ongoing threats to the livelihoods of Kiribati’s population, many of whom depend on subsistence agriculture and fishing. Given the limited domestic production capacity, Kiribati relies heavily on imports for essential foodstuffs and manufactured goods, making external income sources vital for sustaining the economy and meeting the population’s basic needs. Kiribati derives a substantial portion of its income from abroad through various sources, including fishing licenses, development assistance, worker remittances, and tourism. Fishing license fees constitute a significant revenue stream, with fleets from countries such as South Korea, Japan, China, Taiwan, and the United States paying for access to Kiribati’s exclusive economic zone (EEZ). These fees generated A$25.4 million in 2007, increased to A$32.2 million in 2008, and amounted to A$29.5 million in 2009. The revenue from fishing licenses was temporarily boosted by El Niño climatic conditions, which improved local fish catches and thereby enhanced the value of fishing rights. Despite these gains, Kiribati loses significant income annually due to illegal, unlicensed fishing within its EEZ. The country’s small size and the dispersed nature of its islands complicate enforcement efforts, allowing unauthorized fishing activities to persist and erode potential government revenue. Tourism also contributes to Kiribati’s government revenue, though on a relatively modest scale. Visitor arrivals, primarily for business purposes, totaled 3,380 in 2008 and rose to 3,915 in 2009, generating between $5 million and $10 million in revenue. The tourism sector capitalizes on several unique attractions, including World War II battle sites, game fishing opportunities, ecotourism ventures, and Caroline Island, which is notable for being the first place on Earth to celebrate the New Year due to its position just inside the International Date Line. Despite these draws, tourism remains limited by the country’s remote location and infrastructural constraints. The majority of Kiribati’s population engages in subsistence activities such as fishing and cultivating food crops including bananas, breadfruit, and papaya. These traditional livelihoods form the backbone of local food security and cultural practices but contribute minimally to formal government revenue. The leading export commodity is copra, a coconut product that accounts for about two-thirds of export revenue. Other exports include pet fish, shark fins, and seaweed, which provide supplementary income but are less significant in scale. Australia stands as Kiribati’s principal trading partner, reflecting longstanding historical and economic ties. Remittances from Kiribati seamen working on foreign-flagged ships constitute another important source of external income, amounting to A$11.6 million in 2009. These remittances help support household consumption and contribute to foreign exchange inflows, thereby underpinning domestic economic stability. According to the IMF report from May 2011, after experiencing two years of economic contraction, Kiribati’s economy showed signs of recovery in the second half of 2010, with estimated growth of 1¾ percent for the year. This recovery was supported by a rebound in private sector activity, particularly in retail trade, despite a weather-related decrease in copra production. Tourist arrivals increased by 20 percent in 2010 compared to 2009, though this growth was from a very low base, indicating a nascent but improving tourism sector. Inflation, which had peaked during the 2008 crisis, declined into negative territory as a result of the appreciation of the Australian dollar, which Kiribati uses as its domestic currency, and a decrease in the global price of rice. Credit growth in Kiribati’s economy had slowed in 2009 amid stalled economic activity but began to recover in the latter half of 2010 as economic conditions improved. This gradual restoration of credit availability and economic confidence marked an important step toward stabilizing government revenues and supporting sustainable development in the post-crisis period.

The financial sector of Kiribati is characterized by a limited number of institutions, primarily dominated by government-owned entities that play a crucial role in the country’s economic development and social welfare. Among these, the Development Bank of Kiribati (DBK) stands out as a key financial institution wholly owned by the government. Established to support economic growth and infrastructure projects, the DBK provides essential financing services to various sectors, including agriculture, fisheries, and small to medium enterprises. Its government ownership ensures that it aligns closely with national development priorities, facilitating access to credit in an economy where private banking options are scarce. In terms of commercial banking, Kiribati hosts only one such institution: ANZ Bank (Kiribati) Limited. This bank was formerly known as the Bank of Kiribati before it was acquired by the Australia and New Zealand Banking Group (ANZ). As the sole commercial bank operating within the country, ANZ Bank (Kiribati) Limited serves as the primary provider of retail and corporate banking services, including deposit accounts, loans, and foreign exchange transactions. Its presence is vital for the financial inclusion of Kiribati’s population, enabling both individuals and businesses to engage in formal financial activities despite the country’s remote location and limited economic diversification. Insurance services in Kiribati are also predominantly provided by a government-owned entity, the Kiribati Insurance Corporation. This corporation offers a range of insurance products tailored to the needs of the local population and businesses, including life, health, property, and marine insurance. Given the country’s vulnerability to natural disasters such as cyclones and rising sea levels, the availability of insurance coverage plays a significant role in mitigating financial risks and promoting economic resilience. The Kiribati Insurance Corporation’s government ownership underscores the state’s commitment to ensuring that insurance services remain accessible and affordable to its citizens. Another critical component of Kiribati’s financial sector is the Kiribati Provident Fund (KPF), which manages the assets of the national pension system. The KPF is also wholly owned by the government and is responsible for administering retirement savings for the country’s workforce. It collects contributions from employees and employers, invests these funds, and disburses pensions upon retirement, thereby providing financial security to retired individuals. The fund’s management is an essential aspect of Kiribati’s social protection framework, especially given the limited availability of private pension schemes within the country. As of 2010, the assets managed by the Kiribati Provident Fund were substantial, amounting to approximately 60 percent of the nation’s Gross Domestic Product (GDP). This significant proportion highlights the fund’s importance not only as a social security mechanism but also as a major institutional investor within the country. The accumulation of such assets reflects the steady growth of the pension system and the fund’s role in mobilizing domestic savings. Moreover, the size of the KPF’s assets relative to GDP indicates its potential influence on the broader financial markets and the economy of Kiribati, particularly in terms of investment capacity and fiscal stability.

The economy of Kiribati has historically relied heavily on international development assistance programs provided by a diverse range of bilateral and multilateral donors. This external support has played a crucial role in supplementing the limited domestic resources of the island nation, enabling investments in critical sectors such as education, health, infrastructure, and economic governance. The inflows of aid have been instrumental in addressing Kiribati’s unique challenges, including its geographic isolation, vulnerability to climate change, and limited economic diversification. In 2009, multilateral donors contributed significant development assistance to Kiribati, reflecting a broad international commitment to the country’s development needs. The European Union (EU) was a prominent contributor, providing approximately A$9 million in aid aimed at supporting various development initiatives. The United Nations Development Programme (UNDP) also played an important role, delivering around A$3.7 million in assistance focused on capacity building and sustainable development projects. Additionally, the World Health Organization (WHO) contributed a smaller yet vital amount of A$100,000, primarily targeting health sector improvements and disease prevention efforts. During the same year, bilateral donors further augmented Kiribati’s development funding. Australia emerged as the largest bilateral donor, allocating A$11 million to support a range of programs designed to enhance social and economic outcomes. Japan provided A$2 million, focusing on technical cooperation and infrastructure development. New Zealand contributed A$6.6 million, channeling funds into education, workforce skills development, and social services. Taiwan was another significant partner, offering A$10.6 million to assist in areas such as health, education, and economic development. Beyond these key bilateral donors, other contributors collectively provided A$16.2 million, which included technical assistance grants from the Asian Development Bank (AsDB), underscoring the importance of multilateral financial institutions in Kiribati’s development landscape. The subsequent fiscal year of 2010/2011 saw a continuation and expansion of donor commitments. Australia increased its assistance to A$15 million, reaffirming its position as Kiribati’s principal development partner. Taiwan maintained substantial support with A$11 million in aid, while New Zealand contributed slightly less than the previous year at A$6 million, continuing its focus on human capital and economic resilience. The World Bank emerged as a more prominent actor during this period, committing approximately A$4 million in development assistance aimed at addressing Kiribati’s long-term challenges. The Asian Development Bank also remained an active partner, providing both financial resources and technical expertise to support sustainable development projects. Kiribati’s engagement with the Asian Development Bank dates back to 1974 when it became a member of the institution. Since joining, Kiribati has benefited from a total of US$27.14 million in project loans sourced from the Asian Development Fund (ADF), the concessional lending arm of the AsDB designed to assist low-income countries. These seven project loans have been directed toward critical infrastructure, water and sanitation, and climate resilience initiatives. In addition to loan financing, the AsDB has extended US$13.9 million in technical assistance funding, supporting 41 distinct projects aimed at capacity building, policy development, and institutional strengthening. This technical assistance has been vital in enabling Kiribati to design and implement effective development strategies tailored to its specific needs. Australia has consistently remained Kiribati’s largest donor, exemplified by its commitment of A$28.2 million in development assistance for the fiscal year 2011-12. This substantial funding reflects Australia’s strategic interest in promoting stability and sustainable development within the Pacific region. The Australia-Kiribati Partnership for Development, signed in January 2009, serves as the framework guiding Australian aid efforts. This partnership focuses on improving basic education standards, enhancing workforce skills, and strengthening economic governance to foster a more resilient and self-sufficient Kiribati. The partnership emphasizes collaboration and alignment with Kiribati’s national development priorities, ensuring that aid is both effective and sustainable. Australian development assistance for 2011-12 was allocated through two main channels. Approximately A$18.3 million was designated for the AusAID country program, which directly supports Kiribati’s national development programs and projects. An additional A$9.9 million was earmarked for regional assistance, reflecting Australia’s commitment to addressing broader Pacific regional challenges that also impact Kiribati, such as climate change adaptation, disaster risk management, and regional economic integration. New Zealand also played a significant role in Kiribati’s development assistance landscape during 2011-12, committing NZ$14.3 million primarily through its bilateral aid program managed by the New Zealand Agency for International Development (NZAID). New Zealand’s aid focused on promoting economic development, improving education systems, developing workforce skills, and addressing vulnerabilities related to health, environment, and social welfare. The New Zealand program emphasized capacity building and community-driven development approaches, aiming to empower local institutions and populations to manage their development trajectories more effectively. Kiribati became a member of the World Bank in 1986, marking its formal integration into the global development finance system. Over the years, the World Bank has supported Kiribati through various projects and advisory services. On 1 March 2011, the World Bank announced a new Country Assistance Strategy (CAS) for Kiribati, outlining its development priorities and financial commitments for the period 2011 to 2014. The CAS was structured around two overarching themes that address Kiribati’s most pressing challenges: first, confronting the existential threat posed by climate change, which threatens the very habitability of the low-lying atolls; and second, mitigating the adverse effects of geographic isolation, which hampers economic growth and access to services. The CAS aimed to mobilize grants and trust fund investments totaling up to US$50 million over the three-year period. These funds were intended to support climate resilience projects, infrastructure improvements, and initiatives designed to enhance economic opportunities despite Kiribati’s remoteness. The strategy emphasized building adaptive capacity, promoting sustainable resource management, and strengthening institutional frameworks to ensure long-term development gains. Through this comprehensive approach, the World Bank sought to align its assistance with Kiribati’s national development plans and the priorities of other development partners, fostering coordinated and effective international support.

The economic data and analysis presented on Kiribati draw extensively from public domain material published by the Central Intelligence Agency’s The World Factbook, which provides foundational information on the country’s economic indicators and general statistics. Supplementing this, detailed insights are derived from the International Monetary Fund’s (IMF) comprehensive reports, notably the “Kiribati: 2011 Article IV Consultation—Staff Report, Informational Annexes, Debt Sustainability Analysis, Public Information Notice on the Executive Board Discussion, and Statement by the Executive Director for Kiribati,” published as IMF Country Report No. 11/113 on 24 May 2011. This report, retrieved on 10 September 2011, offers an extensive evaluation of Kiribati’s economic performance, fiscal sustainability, and policy recommendations. Complementary statistical data are provided in the “Kiribati: Statistical Appendix,” contained within IMF Country Report No. 11/114, also dated 24 May 2011 and accessed on the same retrieval date, which presents quantitative assessments of economic indicators and sectoral statistics. In 2010, Kiribati’s Gross Domestic Product (GDP) measured on a purchasing power parity (PPP) basis was estimated at approximately US$618 million. This figure reflects the total value of all goods and services produced within the country, adjusted for differences in price levels relative to the United States, offering a more accurate comparison of living standards and economic productivity. By contrast, the GDP calculated at official exchange rates was significantly lower, standing at around US$147 million in the same year. This discrepancy underscores the difference between nominal exchange rates and the relative purchasing power within Kiribati’s economy. The real GDP growth rate experienced a contraction of 0.7% in 2009, indicative of economic challenges during that period, but rebounded to an estimated growth of 1.8% in 2010. Projections for 2011 anticipated a further acceleration to a 3% growth rate, suggesting a gradual recovery and strengthening of economic activity. The GDP per capita, which divides the total GDP by the population to provide an average economic output per person, was recorded at US$1,420 in 2010. This metric serves as an indicator of the average income and economic well-being of individuals within Kiribati. The sectoral composition of GDP, based on data from 2002, revealed that agriculture contributed 8.9% to the economy, reflecting the importance of subsistence and small-scale farming activities. Industry accounted for 24.2%, encompassing manufacturing, construction, and mining activities, while the services sector dominated with 66.8%, highlighting the significant role of government services, trade, and other service-related industries in the national economy. Inflation, as measured by changes in consumer prices, exhibited notable fluctuations during the period under review. In 2009, the inflation rate was relatively high at 8.8%, indicating rising prices and potential cost-of-living pressures for consumers. However, by 2010, inflation had turned negative, with a deflationary rate of -2.8%, suggesting a general decline in consumer prices that could reflect weakening demand or other economic adjustments. Population estimates as of July 2011 placed the total number of inhabitants at approximately 103,280, a figure critical for planning and economic forecasting. The labor force statistics, based on 2001 estimates and excluding subsistence farmers who form a significant portion of the population engaged in informal agricultural activities, identified about 7,870 economically active individuals. This figure represents those participating in the formal labor market or seeking employment. Notably, the unemployment rate for Kiribati was not available (N/A), reflecting challenges in data collection or the informal nature of much economic activity. Fiscal data for 2010 indicated that the government’s total budget revenues and grants amounted to A$124.4 million, with an estimated updated figure of A$136.9 million, reflecting the inflows available to finance public expenditures. Expenditures for the same year were reported at A$143.3 million, with a revised estimate of A$150.1 million, indicating a budget deficit that required financing through borrowing or other means. Electricity production in Kiribati was entirely reliant on fossil fuels as of 1998, accounting for 100% of the energy generated, with no reported contribution from renewable sources such as solar or wind power at that time. By 2007, electricity production reached approximately 14 million kilowatt-hours (kWh), while consumption was slightly lower at about 13.02 million kWh, suggesting a modest surplus in generation capacity or losses in transmission and distribution. The country’s key agricultural products include copra, derived from coconuts and a traditional export commodity, as well as staple foods such as taro, breadfruit, sweet potatoes, and various vegetables. Fish also represents an important resource, both for local consumption and export, given Kiribati’s extensive maritime territory. The official currency of Kiribati is the Australian dollar (A$), which is subdivided into 100 cents. This currency arrangement facilitates trade and financial transactions, given Australia’s economic influence in the region. Exchange rates for the Australian dollar against the United States dollar have varied over recent years, with rates recorded at 1.0902 A$ per US$ in 2010, 1.2822 in 2009, 1.2059 in 2008, 1.2137 in 2007, and 1.3285 in 2006. These fluctuations reflect changes in international currency markets and have implications for Kiribati’s trade competitiveness and purchasing power. The use of the Australian dollar as the official currency underscores Kiribati’s economic ties with Australia and provides a stable monetary framework for the country’s financial system.