Regions and Countries

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Marshall Islands

Economic performance

Real GDP in the Marshall Islands declined by about 2.3 percent in FY2000 (ending 30 September). While government expenditure grew marginally, trade and transportation, primary production, and manufacturing contracted. Because of a stronger US dollar and low domestic demand, inflation was about negative 2 percent despite a rise in fuel prices. Exports in FY2000 increased by 10 percent, while imports declined slightly, leading to a trade deficit of 53 percent of GDP. However, the current account in FY2000 was in surplus of 7.6 percent of GDP. On the capital account, the main item was loan repayments, which absorbed most of the current account surplus.

Domestic policies: The budget in FY2000 was in surplus of 5.2 percent of GDP. Total government revenue of $62.1 million was lower than the FY1999 figure, mainly because of reduced import taxes. Fishing license fee collections increased by 50 percent. Government expenditure in FY2000 increased slightly. Total external debt was 72 percent of GDP. The Marshall Islands had to overcome three important structural obstacles: lack of secure leasehold title to develop land, a complex taxation system, and governance problems. A bill to establish registration of development land that would be available for lease to investors under government-guaranteed title was tabled. Tax reform was on the policy agenda, and a review of the taxation policy may be conducted in 2001. The Government has also started developing a public finance management reform program to establish clear and robust systems of annual and medium-term budgeting, financial control, accounting, internal audit, and reporting to Parliament. About 600–700 new jobs per year are needed to keep up with population growth. The Marshall Islands thus needs to increase foreign direct investment inflows and expand existing enterprises.

ADB operations

Operational strategy: ADB’s operational strategy for the Marshall Islands aims at assisting the Government in its economic and financial reforms, and supporting essential services in education, health, and water supply. Assistance will be directed to disadvantaged women and children in the outer islands and toward creating income-generating skills and an enabling environment for small business development. ADB’s medium-term program will be directed toward skills training and vocational education with poverty reduction as a primary objective; support for sound financial management by strengthening public finance, and promoting the use of trust funds for long-term financial stability; and continued assistance to the private sector. In addition, a new country economic report will include a development strategy for the Government, confirm the strategic focus, and form the basis for determining ADB operations in the Marshall Islands.

Policy dialogue: Policy dialogue with the Government focused on enhancing economic activity and improving financial management through fiscal discipline and responsibility. Improving governance—especially transparency in government decision making and increased accountability—was an ongoing dialogue. The use of trust funds for attaining a self-reliant economy with decreased dependence on external transfers is an important part of the overall objective.

Loans and technical assistance: In 2000, ADB approved a $6.8 million loan for a skills training and vocational education project. ADB also approved four technical assistance grants totaling $888,000: three advisory technical assistance grants for developing coastal marine resources, strengthening the Ministry of Finance, and reviewing the health management information system; and one project preparatory technical assistance for outer island infrastructure development.

Project implementation: Since joining ADB in 1990, the Marshall Islands has received nine loans, of which five were active at the end of 2000. Contract awards totaled $9.7 million, bringing the cumulative figure to $41.7 million. The contract award ratio was 49.4 percent, higher than the ADB-wide average of 21 percent. Disbursements during the year totaled $9.8 million, bringing cumulative disbursements to $39.8 million. The disbursement ratio was 56.4 percent, higher than the ADB-wide average of 20.5 percent.

Although delays were encountered, all five ongoing projects were generally meeting their development objectives. Minor changes in scope were made on two projects, and a minor change in implementation arrangements was made on one. While sufficient counterpart funds were available, lack of qualified counterpart staff remained a constraint. All ongoing loan projects and technical assistance have capacity-building components, including project management and training. The third and last tranche under the program loan was released in June 2000. Compliance with the submission of audited project accounts and financial statements continued to be an issue, and external auditors were appointed. The environmental and social covenants were either met or being implemented. A hands-on approach among ministers and heads of executing agencies has helped expedite implementation and disbursement.

   

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