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Quick Facts
- Population:
- GDP (PPP):
- $0.2 billion
- 4.2% growth
- 4.0% 5-year compound annual growth
- $1,823 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Kiribati’s economic freedom score is 50.8, making its economy the 159th freest in the 2018 Index. Its overall score has decreased by 0.1 point, with lower scores for the property rights, tax burden, and fiscal health indicators exceeding improvements in judicial effectiveness, business freedom, and government integrity. Kiribati is ranked 40th among 43 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.
A shortage of skilled workers, weak infrastructure, and remoteness from international markets constrain development in Kiribati. The public sector dominates economic activity through ongoing infrastructure projects and inefficient state-owned enterprises. Economic growth is undermined by regulations that hinder private-sector development. Government efforts to decentralize economic activity from the main islands have yielded only limited progress. The financial sector remains underdeveloped, leaving much of the population without formal access to banking services.
Background
Comprised of 33 scattered coral atolls, Kiribati has few natural resources and is one of the least developed Pacific Island countries. Kiribati gained independence from the U.K. in 1979, and its government functions democratically. Taneti Maamau of the Tobwaan Kiribati Party was elected president in 2016 after 12 years of rule by Anote Tong of the Boutokaan Te Koaua. Economic activity once centered on the mining of phosphates, but deposits were exhausted in 1979. A $500 million fund created with mining revenues continues to provide significant budget support. Kiribati relies on foreign assistance, emigrants’ remittances, sales of fishing licenses, fish and coconut exports, and tourism. Crippling algae in the corals are a serious threat to the fishing industry.
Western concepts of property rights were introduced by British colonial administrators and are still not well developed. The judicial system is modeled on English common law and provides adequate due process rights, but the rule of law remains uneven across the country. Contracts are weakly enforced, and courts are relatively inexperienced in commercial litigation. Official corruption is a serious problem.
The top individual income and corporate tax rates are 35 percent. Taxation remains erratic and poorly administered. The overall tax burden equals 17.5 percent of total domestic income. Over the past three years, government spending has amounted to 117.6 percent of total output (GDP), and budget surpluses have averaged 18.5 percent of GDP. Public debt is equivalent to 26.8 percent of GDP.
Kiribati’s regulatory environment remains quite rudimentary. Laws or regulations covering insolvency were not used to resolve any insolvencies in 2016. The government is the main source of employment. Although monetary instability is mitigated by use of the Australian dollar as the official currency, the government maintains price-distorting subsidies for some agricultural products such as coconut oil.
Trade is extremely important to Kiribati’s economy; the combined value of exports and imports equals 113 percent of GDP. The average applied tariff rate is 15.9 percent. Nontariff barriers impede some trade. Government policies limit foreign investment. With much of the population remaining outside the formal banking system, constrained access to financing severely impedes entrepreneurial activity and private-sector development.