Economy of Kiribati - Government Revenue

Government Revenue

The expiration of phosphate deposits in 1979 had a devastating impact on the economy. Receipts from phosphates had accounted for roughly 80% of export earnings and 50% of government revenue. Per capita GDP was more than cut in half between 1979 and 1981. A sovereign wealth fund financed by phosphate earnings was established in 1956. In 2008, the Revenue Equalization Reserve Fund was valued at US$ 400 million. Prudent management of the Reserve Fund will be vital for the long-term welfare of the country.

In 2009 the RERF was valued at A$570.5 million. The RERF assets declined from A$637 million (420 percent of GDP) in 2007 to A$570.5 million (350 percent of GDP) in 2009. As the result of the Global Financial Crisis (GFC) the RERF was reduced due to failed Icelandic banks, as well as withdrawals made by the government of Kiribati to finance budgetary shortfalls.

In May 2011 the IMF country report described the impact of the GFC as being that “Kiribati has been affected by the global crisis through a fall in remittances and large decline in the value of its wealth and pension funds—the Revenue Equalization Reserve Fund (RERF) and the Kiribati Provident Fund. The spike in food and fuel prices in 2008 has already taken a toll on economic activity. Vulnerabilities to climate change, including coastline erosion, have also worsened.”

In one form or another, Kiribati gets a large portion of its income from abroad. Examples include fishing licenses, development assistance, worker remittances, and tourism. Given Kiribati's limited domestic production ability, it must import nearly all of its essential foodstuffs and manufactured items; it depends on these external sources of income for financing.

Fishing fleets from South Korea, Japan, People's Republic of China, Taiwan, and the United States pay a licensing fee in order to operate in Kiribati's territorial waters. These licenses produced A$25.4 million in 2007, A$32.2 million in 2008 and A$29.5 million in 2009. The existence of El Niño climatic conditions boosted the local catch. Due to its small size and spread-out nature, however, Kiribati also loses untold millions of income per year from illegal, unlicensed fishing in its exclusive economic zone.

Visitor arrivals are predominantly business related with total visitor arrivals of 3,380 in 2008 and 3,915 in 2009. These visitors provide $$5–$10 million in revenue. Tourism attractions include World War II battle sites, game fishing, ecotourism, and the Millennium Islands, situated just inside the International Date Line and the first place on earth to celebrate every New Year.

Most islanders engage in subsistence activities ranging from fishing to the growing of food crops like bananas, breadfruit, and papaya. The leading export is the coconut product copra, which accounts for about two-thirds of export revenue. Other exports include pet fish, shark fins, and seaweed. Kiribati's principal trading partner is Australia.

Remittances from Kiribati seaman working on foreign flagged ships provided A$11.6 million in 2009.

In May 2011 the IMF country report assessment of the Economy of Kiribati is that: “After two years of contraction, the economy recovered in the second half of 2010 and inflation pressure dissipated. It is estimated to have grown by 1¾ percent for the year. Despite a weather-related drop in copra production, private sector activity appears to have picked up, especially in retail. Tourist arrivals rebounded by 20 percent compared to 2009, although from a very low base. Despite the rise in world food and fuel prices, inflation has bounced from 2008 crisis-highs into negative territory, reflecting the strong appreciation of the Australian dollar, which is used as the domestic currency, and a decline in the world price of rice. Credit growth in the overall economy declined in 2009 as economic activity stalled. But it started to pick up in the second half of 2010 as the recovery gained traction.”