Regions and Countries

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p. 3 of 5 BACK | NEXT I. Country Strategy II. Current Development Trends and Issues III. Implementation of the Country Strategy and Program IV. Portfolio Management Issues V. Country Performance and Lending Levels

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

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III. Implementation of the Country Strategy and Program

A. Progress Under the Poverty Partnership Agreement

16. Poverty reduction requires a comprehensive strategy, tackling both essential pro-poor service delivery and the creation of jobs. The Government has been invited to participate in a poverty partnership agreement that seeks the Government’s commitment to analyze the concept of poverty and design appropriate strategies to reduce poverty; to implement these strategies through a country-owned poverty reduction strategy; and to monitor the implementation of the strategy against the achievement of relevant Millennium Development Goals (MDGs). Through regional TA (footnote 6), ADB is assisting 4 PDMCs, including the RMI, to prepare a country-owned national poverty assessment and poverty reduction strategy involving all stakeholders through a participatory process.

17. Assessment of the RMI’s progress in achieving the MDGs targeted in the poverty partnership is made difficult by the lack of available data on MDG poverty indicators for the RMI. However, a national household income and expenditure survey is presently being conducted. The results of this should enable poverty line and inequality indicators to be compiled during 2002. This work will be undertaken through a regional TA (footnote 6). Progress toward the MDGs and targets are detailed in Appendix 2, Table A2.1.

B. Progress in the Country Strategy and Program Focus Areas

1. Governance and Public Service Delivery

18. By the mid-1990s, the size of the public sector was obviously unsustainable. With the assistance of the ADB Public Sector Reform Program loan, the Government was able to reduce the size of the public sector by around 30%. This reduction helped address pressing fiscal issues. However, in the absence of productivity gains, the quality and delivery of public services continued to decline. Low efficiency levels persisted, and government financial management and policy development capacity needed to be strengthened. ADB therefore assisted the Government with the FFMP loan, which is still under implementation and includes the establishment of the MIITF. The MIITF will help to secure future public revenues. The FFMP also includes strengthening public sector financial and economic management, stabilizing the fiscal position, enhancing the policy environment for the private sector, and increasing the effectiveness of the public service. The Government is expected to comply with the second tranche conditions within the 9- to 12-month period. The fiscal position has been stabilized, and the Government has been able to set aside almost $18.5 million in the MIITF.

19. Public sector financial management is being improved through the introduction of the medium-term budget framework (MTBF) and improved budgetary and accounting systems. The policy environment for the private sector is improving with passage of land legislation. Further progress is needed in the areas of economic policy planning and management, improvement of the effectiveness of the public service, and greater commitment to private sector development. The framework will need to be supported through leadership and management training, and in ensuring linkages are established between financial and human resource inputs and outputs (delivery and service levels) for each ministry. A separate TA to improve public sector productivity and effectiveness is included in the 2002 program as resources under the current program may not be adequate.

2. Poverty Reduction and Outer Island Development

20. The 1999 Pacific Human Development Report ranks the RMI 8th (down from 5th in 1994) in terms of poverty among the 12 PDMCs, with a human development index of 0.563 and real gross domestic product per capita of $1,882 (United Nations Development Programme, 1999), although a substantial proportion of this income has been accounted for by externally supplied grants (the RMI’s country economic indicators are in Appendix 2, Table A2.2). A human poverty index of 18.7 reflects the reality that one in four of the population is illiterate, almost one child in five is underweight, and almost one household in five does not have access to safe water. The country’s poverty and social indicators are found in Appendix 2, Table A2.3.

21. The disease profile of the RMI combines lifestyle diseases that are usually associated with affluence together with infectious diseases that are usually found in poor countries. Malnutrition associated with excessive consumption of junk food is a problem. The number of diabetics is increasing, corresponding closely with the high incidence of obesity. At the same time, infectious diseases such as tuberculosis and dysentery are prevalent. However, life expectancy at birth increased from 60 to 65 years, and the gross primary school enrollment ratio rose from 54% to 72% during 1980–2000. Gender inequalities are also significant, with lower female literacy rates and lower educational enrollment ratios. Efforts and outcomes in relation to empowerment and participation are assessed as relatively low. This will be addressed under the health education component of the Ebeye Health and Infrastructure (EHI) Project as well as the OIBSS. The latter is expected to promote community participation in the social sector.

22. The RMI’s different communities experience substantial differences in quality of life. Those who have access to nuclear compensation payments, own land, or are in paid employment may enjoy a moderate standard of living. Those who do not have great difficulty sustaining even a basic standard of living. Many Marshallese living on the outer islands are disadvantaged by poor access to essential services and markets. The EHI Project has recently (2002) helped in providing safe water, sanitation, and power to about 20% of the population.

23. In addition to declining pro-poor public services and increasing inequalities, lack of job opportunities is a major concern. Private sector employment creation needs to be given high priority. However, one advantage the Marshallese have is the right to enter and work in the US. The Skills Training and Vocational Education (STVE) Project⁸ is assessing market needs and opportunities, and providing training for work in both the RMI and the US.

24. Several of the outer island communities continue to rely on copra to provide their cash incomes and have no real alternatives. Fluctuations in the price of copra can have severe economic and social impacts in these communities. To mitigate the adverse impact of copra price changes, successive governments have subsidized copra prices. The continuing depressed international price for copra has put pressure on the Government’s ability to sustain this subsidy. While in general terms no alternatives to copra production are available as a basic source of cash income, the Government needs to support the development of alternative supplemental income-generation activities in the outer islands. The ongoing STVE Project has a significant outer island component and outreach program to promote entrepreneurship to supplement household incomes.

25. The proposed OITI Project will improve the extent and quality of infrastructure to the most disadvantaged communities. Improved transport infrastructure will ease constraints to outer island development and will improve the movement of goods and services. It will therefore underpin other efforts to strengthen the delivery of essential, pro-poor services to the most disadvantaged, as well as expansion of the private sector.

26. The OIBSS Project is proposed to concentrate on strengthening the delivery of priority, essential pro-poor services to the outer islands. The loan will focus on improved performance and service delivery through the construction or rehabilitation of on-island facilities such as health and education infrastructure, including staff accommodation; water supply and sanitation facilities; and a community health, nutrition, and environmental awareness program. This loan could eventually lead to an outer island trust fund to empower community determination of island development.

27. The RMI faces environmental hazards related to waste disposal and the risk of sea level rise. While the Government recognizes the risk of rising sea levels and supports all related international conventions on climate change, its environmental priorities focus on industrial (fish processing) and urban pollution, and the quality of outer island water. The Environmental Protection Agency was reinvigorated in 2001 with the establishment of a new board, new staff, passage of new bylaws and regulations, and relocation directly under the Office of the President. Environmental regulations in relation to dredging, coral sand harvesting, and lagoon and coastal water quality are being enforced in Majuro. However, further assistance may be required for the outer islands, most especially for managing water lenses. Support in this area will be provided through OIBSS. The Government is also seeking other funding assistance. The RMI’s country environment indicators are found in Appendix 2, Table A2.4.

3. Private Sector Expansion

28. Although the scope may be limited, Meto 2000 records the potential for private sector growth in tourism and in other natural resource development, such as fisheries processing and the cultivation of black pearls. Greater efforts are needed to foster a more conducive climate for expanded private sector investment. However, wage levels are high and productivity is low (for both the public and private sectors) and need to be made more competitive. An improved tax regime (being developed under TA attached to the FFMP) also requires support in implementation, especially in improving tax collection. ADB is also examining the requirement of the private sector for skills training under the STVE Project. More privatization would lead to the reduction of subsidies and create room for private sector participation.

29. Competition in the financial sector is minimal, and the Marshall Islands Development Bank continues to be plagued by the impact of political interference and bad lending decisions. Low levels of literacy and numeracy, poor motivation, and high absenteeism characterize the workforce. As a result , the country’s people and other resources are underutilized and the commercial banks have large, unlent reserves awaiting investment opportunities. As in many other PDMCs, property rights with respect to land are a constraint, but in 2001 legislation was passed to facilitate the use of land as collateral. Through the current STVE Project, the public sector management component of the FFMP TA, and the TA pipeline, many of these issues are being addressed. Improving the environment for private sector development will require consistent and consolidated attention, possibly across all areas mentioned (land, wages, taxes, skills, privatization, and regulation).

C. Highlights in Coordination of External Funding and Partnership Arrangements

30. The Government receives direct US assistance currently averaging about $35 million per annum. The assistance includes direct budget support under the Compact to the national Government, direct payments to the Kwajalein landowners, as well as other forms of assistance provided through US Federal Government programs. Renegotiation of the economic provisions of the Compact commenced in October 2001. During the transition period (2 years), the RMI is receiving assistance at a rate higher than that in the last 5 years. The Compact is expected to be renewed, possibly at a slightly lower level. Monitoring of implementation of the new Compact will be undertaken by a joint economic review board. ADB has contributed constructively to the development of options for delivery modalities, including the establishment of the MIITF. As the only multilateral development bank with an active program of assistance, ADB is playing an important role in helping to formulate overall development strategy, reform, policy, and institutional development. ADB is also playing a crucial role in supporting the current Compact negotiations.

31. The International Monetary Fund undertakes Article IV consultations, but the World Bank does not have a program in the RMI. The Government receives significant assistance from Japan in the road transport and fisheries sectors. Japan’s program is complementary to the ADB program and focuses on small infrastructure projects in the outer islands. A project for rehabilitating and equipping the hospital in Majuro is also under consideration. There is scope for further coordination with the Japan program. Taipei,China, the other major bilateral source of funds, has provided project assistance as well as direct budget support. It has shown interest in contributing to the MIITF. The Taipei,China program is somewhat different and is based on project submissions from the RMI. The European Union has recently established an assistance program to the RMI under the Cotonou Agreement. Funding assistance is summarized in the matrix provided in Appendix 2, Table A2.5.

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