The end of phosphate revenue 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 trust fund financed by phosphate earnings over the years--the Revenue Equalization Reserve Fund--still exists and contained more than U.S. $400 million in 2003. Kiribati has received high marks for its prudent management of the reserve fund, which is vital for the long-term welfare of the country.

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. In particular, about 2000 I-Kiribati work as sailors on foreign merchant ships. Given Kiribati's limited domestic production ability, it must import nearly all of its essential foodstuffs and manufactured items, and it depends on these external sources of income for financing.

Fishing fleets from South Korea, Japan, China, Taiwan, and the United States pay licensing fees to operate in Kiribati's territorial waters. These licenses produce revenue worth U.S. $20 million to $35 million annually. Due to its small land mass and huge maritime area, however, Kiribati also loses untold millions of dollars per year from illegal, unlicensed fishing in its exclusive economic zone.

Another U.S. $20 million to $25 million of external income takes the form of direct financial transfers. Official development assistance amounts to between U.S. $15 million and $20 million per year. The largest donors are Japan, the United Kingdom, Australia, and New Zealand. In addition, Taiwan is widely expected to become an important bilateral donor in the coming years. U.S. assistance is provided through multilateral institutions. Remittances from Kiribati workers living abroad provide more than $7.5 million annually.

Tourism is a relatively small, but important domestic sector. Between 3,000 and 4,000 visitors per year provide U.S. $5 million to $10 million in revenue. 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 New Year. The vast majority of American tourists only visit Christmas Island in the Line Islands on fishing and diving vacations via weekly charter flights from Honolulu.

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. Currently, copra is exported to Bangladesh for processing, but there are plans to process copra in Tarawa. Other exports include pet fish, shark fins, and seaweed. Kiribati's principal trading partners are Australia and Japan.

Transportation and communications are a challenge for Kiribati. International air links to the capital of Tarawa are provided only by the near-bankrupt Air Nauru. Air Kiribati provides service to most of the populated atolls in the Gilberts using small planes flying from Tarawa. Small ships serve outlying islands, including in the Line Islands, with irregular schedules. Hawaiian Air flies to Christmas Island once a week. It is not possible to travel from the Line Islands to the Gilbert Islands by air without traveling via Hawaii and either Fiji or the Marshall Islands.

Telecommunications are expensive, and service is mediocre. There is no broadband. The monopoly Internet provider on Tarawa is one of the most expensive in the world.