TARAWA, (ADB): The Asian Development Bank (ADB) has approved a $3 million grant which is expected to improve fiscal sustainability in Kiribati in line with the government’s fiscal framework and Kiribati economic reform plan (KERP).
“The Kiribati Strengthening Fiscal Stability Program identifies four priority policy reform areas that are expected to put the country on a path toward fiscal stability and stronger fiscal management,” said Malie Lototele an Senior Economics Officer at ADB’s Pacific Sub-Regional Office in Fiji.
“Building government capacity for fiscal stability is critical.”
“The Government of Kiribati is pleased to be working in partnership with the ADB to stabilize the value of our Trust Fund (Revenue Equalization Reserve Fund) and improve our long term economic resilience,” said Tom Murdoch, Minister for Finance and Economic Development.
Kiribati’s fragile economy is challenged by geographic isolation, limited human and financial resources, and a narrow economic base. It is vulnerable to external shocks due to import dependency and its exposure to climate change. The private sector is small and constrained by high transport costs. A large public sector crowds out entrepreneurial activity because state-owned enterprises (SOEs) operate in potentially competitive sectors.
Improving the quality of expenditure is a priority area of the program. The Government of Kiribati approved a move to merge the Kiribati Copra Mill and the Kiribati Copra Cooperative Society into a single SOE responsible for the entire sector.
The merger should prevent the leakage of subsidies and will improve efficiency and accountability.
Revenue administration is another key focus. With assistance from the Government of Australia and the Pacific Financial Technical Assistance Center, the Kiribati Government this year implemented the country’s first value-added tax. This was in response to declining revenues from personal income and company taxes. Sound implementation is expected to broaden the tax base in the long run and increase revenue yield.
Improved management of public assets and liabilities is another vital ingredient of fiscal sustainability in Kiribati. The program aims to improve structural reform implementation by helping the government to boost SOE efficiency and thereby reduce fiscal waste.
ADB financing and policy advice has been closely coordinated with the World Bank and the Governments of Australia and New Zealand.
Kiribati joined ADB in 1974. As of 31 December 2013, 8 loans amounting to $34.70 million and more than 40 technical assistance projects worth $17.40 million have been approved for the country. The loans and technical assistance projects largely support transport, water supply and municipal infrastructure services.