Regions and Countries

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

Country Strategy and Program Update 2005-2006: Republic of Marshall Islands

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III. Implementation of the Country Strategy and Program

A. Progress in Poverty Reduction

16. Progress toward the Millennium Development Goals (MDGs) in RMI is also slow. Education indicators have slightly improved, though retention rates, secondary enrollment, and learning outcomes are poor. One in four of the population is illiterate. The target of eliminating gender disparities in primary and secondary education has almost been achieved. Access to safe water and improved sanitation facilities has increased slightly but there are significant differences between urban and rural or outer islands areas. Child mortality rates (both under-5 and infant mortality rates) have fallen significantly and the country is likely to meet the target of reducing child mortality by two thirds by 2015. Almost one child in five is underweight, and almost one household in five does not have access to safe water. The disease profile is transitional, combining lifestyle diseases (which are usually associated with affluence) and infectious diseases (which are usually found in poor countries). 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. Poverty seems to have worsened over the last 5 years in both urban and rural areas. As recorded in the participatory poverty assessment financed by ADB, the poor of the Marshall Islands prioritize improved delivery of essential public goods and services, and more jobs and other income opportunities⁶.

17. The Government signed a poverty partnership with ADB on 15 June 2002. This commits both the Government and ADB to monitor progress in reducing poverty against the MDGs and other critical poverty reduction indicators. Progress is to be monitored annually. ADB has committed to help the RMI monitor and evaluate poverty reduction efforts and this will, in part, be provided by ADB TA 4199-RMI to strengthen the Economic Policy, Planning and Statistics Office (EPPSO). A significant development in the conduct of the poverty partnership was the meeting of the National Coordination Committee on 29 March 2004. This was the culmination of extensive consultations and participatory processes that focused on prioritizing the ADB CSPU in support of future efforts to reduce poverty, including the means to establish indicators and monitor progress.

B. Progress in the Country Strategy and Program Focus Areas

1. Governance and Public Service Productivity

18. In the mid-1990s, the Government determined that the size of the public sector was unsustainable. ADB Loan 1513: Public Sector Reform Program (PSRP), for $12 million,⁷ aimed to help the Government reduce the public sector by approximately 30% in cost terms, partly to address pressing fiscal issues. The program performance audit report⁸ rated the program as only partly successful; reforms were substantially incomplete, major reforms including downsizing were short-lived, and, in the absence of productivity gains, the quality and delivery of public services continued to decline.

19. ADB therefore assisted the Government with Loan 1828/29: Fiscal and Financial Management Program (FFMP),⁹ for $12 million, and with associated TA¹⁰ that was completed in late 2003. FFMP aimed to secure future public finances by, among other things, establishing a trust fund, strengthening public finance management, strengthening the Public Service Commission, negotiating the renewed Compact, and strengthening tax auditing. The recent FFMP program completion report also rates this program as only partly successful. Although future public finances have been secured and public financial management strengthened, the cost of the public sector has returned to earlier levels, and public sector performance, including that of the Public Service Commission, remains poor. Efforts at reforming the public sector appear to be short-lived as a result of a lack of ownership of, and demand by both the public servants and the public at large for, the more difficult, sensitive, but highly complementary reform of personnel organization and management.

20. The Youth Social Services project preparatory TA aims to address essential service delivery for young people. This will be designed and implemented in a fully participatory manner to raise ownership and demand for complete and sustained reform. EPPSO will help further strengthen participatory fiscal and economic management and broader policy formulation. TA 4199,¹¹ designed to help strengthen EPPSO, was approved in late 2003. TA commencement was delayed, awaiting appointment of Marshallese to the office. Further assistance to strengthen fiscal and economic governance, to formulate government policy, and to help people understand and participate in these processes will be required.

21. Under the renewed Compact, the Government is required to continue to introduce performance budgeting within a regularly updated medium-term budgetary framework. ADB provided assistance under TA 3668¹² to strengthen performance budgeting and the US Department of the Interior is now financing further consultancy to continue this activity over the longer term. Improved fiscal management, including performance budgeting, is unlikely to be sustained without both public demand for it and a well-performing civil service.

2. Poverty Reduction and Outer Island Development

22. The poverty situation of RMI remains undiminished. Although the 2002 Household Income and Expenditure Survey is still being analyzed, there is increasing incidence of squalor, while greater inequalities are apparent, most especially in urban areas and despite the relatively large levels of aid. Loan 1694: Ebeye Health and Infrastructure Project, addressed urgent health and sanitation issues in Ebeye. But the quality of primary preventative health care remains a persistent concern throughout the country. While Loan 1791: Skills Training and Vocational Education will address the more immediate skills training needs of young people, the delivery of high-quality primary education also remains a concern. ADB, as other international agencies, has tried to stem more immediate social and economic development problems, but again, without stronger ownership and demand for improved services among both the public and public servants, these efforts are unlikely to be sustained.

23. Implementation of Loan 1948: Outer Island Transport Infrastructure and the associated TA 4004¹³ has been delayed due to the slow recruitment of the project implementation consultants. With Marshallese moving to the urban population centers of Majuro and Ebeye, as the road maps suggest (Appendix 7), the electoral emphasis on assistance to the outer islands needs to be reassessed. The Government also needs to assess to what extent the remaining outer island economies are viable. Loan 1948 allows for flexible implementation and individual projects can be reprioritized.

3. Enhanced Private Sector Environment

24. The most recent RMI economic report (Meto 2000)¹⁴ indicates the potential for some private sector growth; however, as revealed in the strategic analysis (Appendix 5), and as is currently being revealed under the regional TA to examine administrative barriers,¹⁵ much greater, longer-term, efforts are needed to foster a more conducive climate for expanded and competitive private investment for this growth to be realized. The private sector road map lists the following as the main issues influencing private sector development (PSD) in RMI: (i) a stagnant macroeconomy, (ii) concentrated economic power and unnecessarily high-cost business environment, (iii) undeveloped financial markets, and (iv) limited consultations between government and private sector businesses.

25. SOE reform would lead to the reduction of subsidies, help reduce private transaction costs, improve service delivery, and create room for private sector participation. However, all earlier governments have proven most reluctant to relinquish control of the SOEs. The very recent privatization of the government-owned hotel is noteworthy, although the urgency with which it was carried out is of concern. The earlier 1997 TA 2757: Support to the Private Sector Unit¹⁶ achieved very little in rationalizing SOEs, and ADB should await proof of further commitment from the Government to SOE reform before providing further TA in this area. The National Telecommunications Authority, which is majority-owned by the Government, is negotiating with the Government of the Federated States of Micronesia and the US military base on Kwajalein for installation of a fiber optic cable that will vastly improve international communications. RMI’s share of the investment is estimated at $22 million. The project could present an opportunity to secure future competition in the provision of domestic telecommunications services.

26. A key factor in undeveloped financial markets is the lack of adequate collateral security arrangements. This is initially being addressed under TA 3941: Land Mobilization¹⁷. This TA is proceeding well, with the LRA now operational. Another advisory TA¹⁸ is being processed in 2004 to continue the work of the LRA over the longer term, to establish an effective framework for secured lending on movable property, further revise relevant commercial laws, improve the codification of law, and further study land market development. The design of this TA will be supported by earlier regional TA¹⁹. There is much that the Government can do to improve the environment for PSD, provided that society understands and supports this—hence the need for greater community consultation.

C. Highlights in Coordination of External Funding and Partnership Arrangements

27. The revised compact with the US Government was signed in January 2004. The International Monetary Fund undertook Article IV consultations in October 2003. The relevant public information notice refers to recent economic growth, a stagnant private commercial sector, and a weakened fiscal position. The last observation may be revised by more recent fiscal data. The Government also receives significant assistance from Japan and Taipei,China. Japan is financing a project to rehabilitate and equip the hospital in Majuro to Japanese specifications, though some of this assistance may raise recurrent cost concerns. The European Union also recently established a 5-year assistance program to the RMI starting in late 2004, consisting of $4.6 million and covering grant assistance to renewable energy, outer island education, nongovernment organization capacity building, and disaster management funding.

28. ADB is not, comparatively, a major financer of development; but as the only multilateral development bank with an active program of assistance in the country, ADB has an important role to play in helping formulate overall development strategy, economic reform, policy, and institutional development, in timely efforts aimed at structural adjustment. A future focus by ADB on helping improve public and private sector productivity complements other external assistance well. An external agency and government retreat is planned for August 2004, possibly to be followed by a more formal consultative group meeting later in the year. The retreat will likely focus on the constraints to improved public and private sector performance, and related policy and institutional reforms.

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6. ADB. 2003. Priorities of the People. Hardship in the Marshall Islands. Manila.
7. ADB. 1997. Report and Recommendation of the President on Public Sector Reform Program for the Republic of Marshall Islands. Manila.
8. ADB. 2003. Program Performance Audit Report on the Public Sector Reform Program in Marshall Islands. Manila.
9. ADB. 2001. Report and Recommendation of the President on Fiscal and Financial Management Program for the Republic of Marshall Islands. Manila.
10. ADB. 2001. Republic of the Marshall Islands. Meto 2000 Economic Report and Statement of Development Strategies. Manila.
11. ADB. 2001. Technical Assistance to the Republic of Marshall Islands for Fiscal, Financial, and Economy Advisory Services. Manila.
12. ADB. 2003. Technical Assistance to the Republic of Marshall Islands for Strengthening the Economic Policy, Planning, and Statistics Office. Manila.
13. Footnote 10.
14. ADB. 2002. Technical Assistance to the Republic of Marshall Islands for Improving the Delivery of Sea and Air Transport Services. Manila.
15. ADB. 2000. Regional Technical Assistance on Private Sector Development in the Pacific. Manila.
16. Approved on 30 January 1997 for $760,000.
17. Approved on 16 October 2002 for $420,000.
18. Improving the Environment for Private Sector Development in the Marshall Islands.
19. ADB. 2003. Improving the Legal Business Environment in the Pacific Region. Manila.

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