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Growth and the Environment ReprtNo. 11351-EAP PacificIsland Economies:- TowardEfficient and SustainableGrowth (In Nine Volumes) Volume3: Kiribati- CountryEconomic Memorandum Public Disclosure Authorized March8,, 1993 CountryDepartmnent III EastAsia and Pacific Region FOROFFICIAL USE ONLY 75.. Public Disclosure Authorized 0Q .~~~- .'~ ~ ~~Q J~ c CZ Public Disclosure Authorized 'Do'coneouofthe -WorlB Da Public Disclosure Authorized this documhent.hasa uwstritedisrbution #Wan ay beased by recipients m#-ithe petfoivancei of theirofficial duties. ts contentsmay not otherise be4icfoedWthOtWoidBankrz~m KIRIBATI CURRENCYEQUIVALEN ANUAL AVRAGES 1981 $A 1.0$ - US$1.15 1985 $A 1.00 - US$0.70 1989 $A 1.00 - US$0.79 1990 $A 1.00 - US$0.78 1991 $A 1.00- US$0.78 (The Ausualiandollar is the officialcurrency and the mainmedium of exchange) FISCAL YEAR Jamuary1 - December31 MAh ..BRVl47IONS AND ACRONYMS ADB - Asian DevelopmentBank BOK - Bank of Kiribati DBK - DevelopmentBank of Kiribati EEC - European Economic Community EEZ - Exclusive EconomicZone EIA - EnvironmentalImpact Assessment FFA - Forum Fisheries Agemy FTC - Foreign InvestmentCommission GDP - Gross DomesticProduct ICAO - Ienaional CivilAviation Ornizaton IRB - Internal Revenue Board KCCS - KiribatiCopra Cooperative Society KIC - Kiribati Insurance Corporation KPF - Kinbati Provident Fund MA - Medical Assistant MCH - Maternal and Child Health MED - Marine Export Division MFA - Ministry of Foreign Affairs MFEP - Ministryof Financeand EconomicPlanning MTC - Marine Traiing Centre NEMS - NationalEnviromnental Management Saeg NGO - Non-governmentOrganiation NPO - National PlanmingOffice PHN - Public Health Nurse PUB - Public Utilities Board RERF - RevenueEqualizaion Reserve Fund SPMS - South Pacific Marine Service SPREP - SouthPacific Regional Environment Programme STABEX - ExportEarnings Stabilization System TML - Te Mautari Limited(National FishingCompany) iTT - Tarawa TechnicalIstiute UNCED - UnitedNations Conference on Enviroment and Development UNDP - UnitedNations Development Programme UNFPA - UnitedNations Family Planning Agency WHO - World Health Organizaion Couny Data LandArea 810 sq. kn. Sea Area: 3,5S0,000sq. mn. Populadon: 75,000(1992) GNPper capita: US$750(1991) CapitalCity: Betic Populatonof Capital: 24,328(South Tarawa) CONTENTS Page No. Executive Summary . .................................. I Reviw of Recent Economic Development .. 1 A. Introduction .................................... 1 B. Recent EconomicDevelopments . 1 2 Sectond Growth Strtegies ............................ 11 A. Introduction ..................................... 11 B. Fisheries ....................................... 11 C. Tourism ....................................... 13 D. Agriculture ..................................... 14 E. Other ......................................... 15 3 PrivateSector Deveopment ........................... 19 A. Introduction: Profile and Issues ........................ 19 B. BusinessEnvironment. 1 C. RegulatoryPolicy and IncentivePrograms.20 D. FinancialSystem .................................. 22 4 Inproving PublicSector Management.................... 27 A. Introduction: Scope of Activities ....................... 27 B. Issues Related to Public Enterprises ...................... 27 C. Civil Service Reform . ..................... 28 D. Priorities for the Public Investment....................... 29 E. Strategy for Fiscal Reform ........................... 32 Thisreport was prepared by a WorldBank mission that visited Kiribati in July 1992. The missionmembers were LloydKenward (Chief of Mission),Sandy Lieberman, Peter Osei, Ron Hood (consultant), Ian Morris (consultant), DavidDunlop (consultant), and PeterJohnston (consultant). i Vo.w,. 3: KWb S Hwman ResourceDevelopment . ....................... 35 A. HumanResource Requirements for Growth ................. 35 B. The Populationand LaborForce: Outlookand Issues .......... 35 C. HealthSector .................................... 36 D. The EducationSector ............................... 40 E. TheRole of Womenin Developmentof Kiribati .... .......... 42 6 Growthand the Environment.......................... 47 A. Environmental ssues ............................... 47 B. EnvironmentalPlanning and InstitutionalDevelopment .... ...... 49 7 Prospects andExternal Fnancing Requirements............. 51 TABLES IN TEXT 1.1 Growthof GDP, 1981-92. 3 1.2 SavingsInvestment Balances, 1987-92. 3 1.3 Monetary and Price Developments,1987-92. 4 1.4 Summaryof Central GovernmentFinances, 1987-92 .5 1.5 Summary of Balanceof Payments, 1980-92. 6 5.1 Social Indicators, 1978/80-1991.36 5.2 Active Workforce by Gender and EconomicActivity, 1985-90 43 7.1 Medium-TermProjections, 1992-2001.52 7.2 External Financing Requirementsand Sources, 1992-2001 53 FIGURES IN TExT 1.1 Real GDP Growth, 1980-92. 2 1.2 Structure of Production, 1992. 2 1.3 Trends in ExchangeRate, 1983-92. 7 4.1 Kiribati: Major Sources of External Aid, 1991/92 .30 StatisticalAppendix ................................... 55 Map ............................................ Ve"w 3: KfLad ii Kiribati EXCVTrrIVESUMMARY i. Kiribatiis a small, remote countryof 33 iii. Promo.ng Private Sector Development. low-lyingcoral atolls widelydispersed across the Kiribati'sprivate sector, whichis at an embryonic central PacificOcean. With a GDP that is among stage, will need to play an important role in the smallest of World Bank members, it is a developmentof the economy. As assets in this county extemely small in landmass(some 810 regard, Kiribatihas a strongtradition of responsible square kldometers)but coveringa sea-areaof 3.5 financialmanagement, which has laid a solid basis millionsquare kilometers, roughly equal to the land for a soundbusiness environment. Also, Kiribati area of India. The populationof some 75,000 is appearsto be relativelycompetitive as regardslabor heavily concentrated in the western islands, and some ancillarycosts such as telecommunica- especiallyin the overcrowdedcapital of Tarawa. tions, although the cost of electricity is Most of the population is employed in the e-ceptionallyhigh. The most importantbarniers to subsistence sector with formal employment private sector development stem from the dominaedby the public sector. The privatesector egalitariannature of the society,the tax and trade is small and underdeveloped. policyregimes, certain incentive programs, and the traditionalland tenure system. i'. Since independencein 1979,Kiribati has assembled a solid track record of financial iv. The single most importantstep that could stability,deqnite a limitedrange of economicassets. be taken to developKiribati's private sector would However, vver the same tine period incomeper be steadfastpursuit of the Govemnment'spolicy of capita has been on the decline, notwithstnding comnerialization and privaization (see below). generousamounts of donorassistance. Basicpublic Otherimportant steps include: eliminationof those services-especialy healthand education-havenot exnpsionsfrom import tariffs and corporatetax been extended in an adequate way to the great currently granted to public enterprises and to majorityof the out-lyingislands. The numberof governmentdepartments engaged in commercial graduatesfrom the educationsystem has not risen activities; for those exemptionsthat cannot be in line with the nadon's needs. New job eliminatedfor socialor politicalreasons, exemption opportunitieshave been largely restricted to the should be extended to competingprivate sector pjblic sector in overcrowdedSouth Tarawa. The operations;and removalof the tax (of 15 percent) gap between living standardsin urban and rural on exportof aluminumcans andother scrapmetals. areas has widenedstrikingly, and there has been Concerningthe land tenuresystem, the long-term considerablerural-to-urban drift. To be sure, this strategyshould be to eliminatethe backlogof court situationis partly attrbutable to factors that are disputesand to survey all rral lands, with the beyond control of the Kiribad authorities. But objective of elimnating ownership disputes. domesdc economic and social policies have Priority should be accordedthose lands that are contributedto this outcome,and it is vitalthat those most likelyto be put to productiveeconomic use. policy instrumentsunder control of the authorities are fuly exploitedto improvesignificantly upon the v. Some changes would also be useful to economic record of the first decade of Kiribati's foreign investment approval system, idependec. which is too heavilyoriented towards negotiating iii Volum 3: abeg terms on a case-by-casebasis. The srategy for a substantialproportion of IML to a reliable, reform in ths area should stress promotion,not private sector partner, and reducingthe downtime control, beginningwith the publicationof a clear of shis (e.g. by negotiatingwith more neighbos set of investment eligibility criteria and the for accessto other EEZs whenthe fishcath drops- introductionof more automaticityinto the granting off at home). Also, the use of cultivatedmuilklsh, of licenses. Also,the needfor performancecriteria which appears to have been an expensive. shouldbe re-assessed. unsuccessfulexperiment, should be requred to demonstrateimmediate results, or be abandoned. vi. Kiribati'sJinmrdal sector occupiesa key role in nationaldevelopment. The strategyfor this viii. As a sttegy for breaking into new sector should focus upon nurturing an effective markes, regular, reliable air service must be domesticdemand for creditwhich, in turn, depends establishedbetween supply sources (Tarawa and upon the
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