Regions and Countries

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Country Strategy and Program Update 2003-2005: Republic of Marshall Islands

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I. Country Strategy

1. The overall framework for the Asian Development Bank (ADB) country strategy for the Republic of the Marshall Islands (RMI) is set out in A Pacific Strategy for the New Millennium.¹ The specific strategies are derived from the ADB-sponsored Meto 2000² economic report and work done for the RMI under regional technical assistance (TA) to assess poverty in the Pacific developing member countries (PDMCs).³ In ADB's Pacific Strategy, the RMI is grouped with other countries that are severely disadvantaged by their small size, isolation, and weak resource base. The RMI is heavily reliant on external assistance and has limited potential for selfsustained economic growth.

2. To address the poor economic performance and other critical development issues facing the country, Meto 2000 recommends six long-term goals: (i) increased self-reliance, (ii) renewed economic growth on a long-term sustainable basis, (iii) equitable distribution of wealth to eliminate deprivation and poverty, (iv) improved public health to substantially reduce the incidence of lifestyle diseases, (v) increased international competitiveness, and (vi) promotion of environmental sustainability.

3. These goals are being pursued through ADB’s three-pronged strategy for the RMI:

4. Strengthen Public Sector Governance and Enhance Public Sector Productivity. The aim is to improve delivery of public services. The Marshall Islands Intergenerational Trust Fund (MIITF) established under the Fiscal and Financial Management Program (FFMP)⁴, and primarily funded by Compact of Free Association (Compact)⁵ resources, should help secure government finances in the long term. Once fully operational, the MIITF concept could be considered for replication in the outer islands. ADB is also helping the Government strengthen financial and fiscal management under the FFMP loan. This will be continued and extended to improve the tax regime (tax collection is of particular concern) and to improve budgetary management. The means to strengthening public sector management and institutional reform requires support in the areas of budgeting, accounting, and institutional strengthening, and will be supported by TA.

5. Support Poverty Reduction and the Creation of New Economic Opportunities, and Improve Access to Basic Social Services in the Outer Islands. Preliminary findings of the poverty assessment supported by TA 6002⁶ indicate that most of the disadvantaged people of the RMI live in the outer islands. Suffering from serious disadvantages in relation to access to basic social services, especially education, health, and safe water supply, they also have fewer employment and income-earning opportunities and are thus severely constrained in their lifestyle choices and have a lower standard of living. The strategy is therefore directed at the outer islands. The means to improving basic social services in the outer islands will require some infrastructure, e.g., port, wharf, and airstrip improvement; education and health facility upgrading; and environmental and water lens protection. This will be provided through the proposed Outer Island Transport Infrastructure (OITI) Project and Outer Island Basic Social Services (OIBSS) Project loans.

6. Enhance the Environment for Private Sector Investment, Job Creation, and Growth. New land laws and the establishment of the Land Registration Authority, initiated under the FFMP, need to be supported in their implementation. Public sector wage restraint will need to be continued in support of a more competitive environment for private investment. Improved access to land for development and as collateral for loans, together with a more competitive wage environment, should lead to an increase in private sector investment. The Marshall Islands Development Bank can play an important role in providing access to credit for small and medium businesses and for the investigation of more innovative financing modalities for private enterprises. ADB will support these developments through TA. The Government has improved state-owned enterprise (SOE) governance and reduced subsidies to the SOEs under the FFMP, but a more rigorous commitment to SOE privatization is still required. The perceived constraint to an improved investment environment is the lack of a consistent public sector commitment to developing the private sector.

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