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- GDP (PPP):
- $0.6 billion
- 1.8% growth
- -0.3% 5-year compound annual growth
- $5,722 per capita
- Inflation (CPI):
- FDI Inflow:
Kiribati’s economic freedom score is 45.9, making its economy the 163rd freest in the 2013 Index. Its score is 1.0 point lower this year due to declines in labor freedom, business freedom, fiscal freedom, and freedom from corruption. Kiribati is ranked 36th out of 41 countries in the Asia–Pacific region, and its overall score is below the world and regional averages.
Poor institutional practices have undermined economic freedom in Kiribati. The public sector continues to dominate economic activity, accounting for two-thirds of employment and over 80 percent of GDP. Budgetary pressure has undermined economic growth, and the economy is dependent on foreign assistance, remittances, and an increasingly important tourism sector. Though public debt remains low, the combination of large budget deficits and the international financial crisis has reduced the value of the country’s sovereign wealth fund.
Economic dynamism is also hindered by poor public administration. The failure to develop public goods like infrastructure properly has limited economic growth. An inefficient regulatory framework has pushed much of the workforce into the informal economy. Trade and investment flows continue to be limited by high tariffs, reducing benefits from integration into the global economy.
The Pacific archipelago of Kiribati gained its independence from Britain in 1979 and enjoys democratic government under a national constitution. President Anote Tong was elected to a third and final term in January 2012. Kiribati was once rich in phosphates and highly dependent on mining, but deposits were exhausted in 1979. Today, it depends on a $500 million Revenue Equalization Reserve Fund created with the profits from phosphates earnings, as well as foreign assistance, remittances from overseas, sale of fishing licenses, exports of fish and coconuts, and tourism. Crippling algae in the corals surrounding Kiribati seriously threaten the fishing industry, and preservation of the coral ecosystem, the South Pacific’s largest marine reserve, continues to be a priority.
The judicial system is ineffective, and the rule of law remains uneven across the country. In the absence of a well-functioning legal framework, contracts are weakly enforced, and courts are relatively inexperienced in commercial litigation. The government lacks the capacity to enforce intellectual property rights laws. Corruption remains widespread, further undermining the foundations of economic freedom.
The top income and corporate tax rates are 35 percent. Taxation remains erratic and poorly administered. The total tax burden is estimated to be 20.7 percent of total domestic income, while government spending equals 85.9 percent of GDP. The chronic budget deficit has increased substantially to 22 percent of GDP. Large reserves held under Kiribati’s sovereign wealth fund have helped to cushion the effects of the global downturn.
The rudimentary regulatory framework lacks the capacity to spur dynamic entrepreneurial growth. The costs of launching a business and completing licensing requirements remain high, further discouraging new investment. A small share of the labor force participates in the formal economy, and the public sector is the major source of employment. Monetary instability is mitigated by use of the Australian dollar as the official currency.
The trade-weighted average tariff rate is prohibitively high at 17.3 percent, and import and export licensing and limited infrastructure further add to the cost of trade. A modern investment framework is not in place. With a large part of the population remaining outside the formal banking system, constrained access to financing severely impedes entrepreneurial activity and development of the private sector.