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 Assistance Levels

Country Strategy and Program Update 2007-2011: Republic of Marshall Islands

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III. Implementation of the Country Strategy and Program

A. Progress in Poverty Reduction

19. Progress toward the Millennium Development Goals in RMI continues to be slow. Recent education indicators suggest some slight improvements, though retention rates, secondary enrollment, and learning outcomes remain poor. One in four of the population is illiterate. Gender disparities in primary and secondary education almost have been eliminated. Access to safe water and improved sanitation facilities has increased slightly, though significant differences remain between urban and rural or outer islands areas. Child mortality rates (under- 5 and infant mortality) have fallen significantly, and the country is likely to meet the target of reducing child mortality by two thirds by 2015. However, one child in four is still underweight, and almost one household in five does not have access to safe water. The disease profile is transitional, combining lifestyle diseases (usually associated with affluence) and infectious diseases (usually found in poor countries). Life expectancy at birth increased from 60 to 65 years, and the gross primary school enrollment ratio rose from 62% to 67% during 1980–2000. Poverty seems to have worsened over the past 5 years in urban and rural areas.

B. Progress in the Country Strategy and Program Focus Areas

1. Public Service Delivery and Improved Governance

20. In the mid-1990s, the size of the public sector was determined to be unsustainable. At the Government’s request, ADB approved a program loan and associated TA to help

• reduce public sector costs by approximately 30%
• reform the public sector
• restructure the economy.²⁰

21. Some modest improvements in public services and public enterprises can be identified. The qualified successes include

• the transformation of the Marshall Islands Social Security Administration
• Ports Authority²⁶,
• fisheries management²⁷,
• privatization of the Marshall Islands Resort Hotel,
• establishment of the Land Registration Authority²⁸,
• support for at-risk youths by outsourcing service delivery to NGOs and businesses.²⁹

22. Achieving capacity development in the public sector would appear to be an issue of assisting particular departments or agencies, particular staff and particular timing. In general weak public sector personnel management is undermining potential gains from improved public administration and other reforms and the size and cost of public sector employment have increased again to record levels. Public sector performance, including that of PSC, remains poor. Overall fiscal and economic management, and policy formulation, also remain weak.

23. Under the renewed Compact, the Government is required to continue to introduce and strengthen performance budgeting within a regularly updated medium-term budgetary framework. The US Department of the Interior and the RMI Government have financed further consulting to strengthen performance budgeting. ADB is providing additional support to strengthen budgetary systems under a regional TA.³² But the experiences in RMI and elsewhere in the region suggest that many years will be needed to embed effective performance budgeting. Budgetary improvements, as well as any improvement to the environment for private sector development, likely will unravel without public sector personnel committed to performance. Continuing assistance to strengthen public service delivery and governance—with the participation, understanding, and support of civil society—is needed. This has led to the formulation and approval of TA 4794 (footnote 19) to audit the performance of public sector personnel in the Ministry of Education. This TA commenced July 2006. The collaborative approach to this TA that aims to draw support from civil society for better public sector personnel management is supported by positive response to earlier ADB funded participatory processes.

2. Enhanced Private Sector Environment

24. The labor force is expected to continue to grow much faster than jobs are created, highlighting the need for private sector development and a strengthened emigration policy. Meto 2000 and Juumemej 2005³³ document the potential for private sector growth in tourism and other natural resource development, such as fisheries processing and cultivation of black pearls. However, as the ADB-financed Private Sector Assessment, the 2003 road map, and the regional TA to examine administrative barriers³⁴ demonstrated, much greater efforts are needed to foster a more conducive climate for expanded private sector investment³⁵.

25. An ADB TA to mobilize land helped establish the Land Registration Authority.³⁶ However, society and traditional land tenure practices will take a long time to adapt to the requirements of a modern economy. The land mobilization TA was followed by another ADB TA to help strengthen the environment for private sector development (footnote 12). Although the latter TA only started in November 2005, the response to initial activities to further strengthen land registration, establish a secure transactions regime, and ease administrative barriers has been most encouraging. This includes a substantial initial increase in recording of existing land ownership (though not the new registration of land), a draft bill for secured transactions to go to the August 2006 session of Nitijela, and action already taken by the Attorney General to ease some barriers to business.

26. SOE reform should lead to the reduction of subsidies and create room for private sector participation. However, earlier governments have been reluctant to release control of the SOEs. The privatization of the government-owned hotel is noteworthy, though earlier ADB TA to help rationalize SOEs³⁷ achieved very little. ADB should await proof of greater commitment to SOE reform before providing additional TA.

27. Government-to-business public policy dialogue has improved significantly in 2006 through a series of meetings. The attorney general, the chief secretary, the Majuro mayor, and more recently the President, cabinet, secretaries, and other government officials, have met with increasing numbers of members of the business community and the public sector. The Nitijela had also recently commenced its own series of forum with civil society. Some in the RMI see this improvement as a result of ADB’s country strategy. Successful engagement of domestic consultants in all TAs also has helped build capacity for development outside of a weakly performing state.

C. Highlights in Coordination of External Funding and Partnership Arrangements

28. In keeping with the Paris Declaration on Aid Effectiveness, ADB is committed to coordinating with other funding agencies on its program of assistance to RMI. In 2004 and 2005, ADB funded four informal retreats of leaders of Government, civil society, and funding agencies to discuss sensitive development issues. These appear to have succeeded to some degree in stimulating improved domestic policy dialogue between Government and civil society.

29. As the only multilateral development bank with an active assistance program in RMI, ADB has an important role to play in helping the Government formulate development strategy, economic reform policy, institutional development, and structural adjustment. ADB’s focus on helping to improve public and private sector productivity complements other external grant assistance. ADB will need to engage more closely with the Government and grant-funding aid agencies on the implementation of coherent, consistent development policy, as well as a coordinated development strategy and program. High-level consultations between ADB and the US Department of the Interior have been proposed in Manila in 2006.

30. In addition to US Compact grants, the Government also receives significant assistance from Japan (an average of approximately $6 million a year) and Taipei,China (estimated at $10 million per year). Japan is expected to fund a project to improve solid waste management in Majuro that will be guided by the ongoing RMI TA 4653 (footnote 11). The European Union (EU) assistance program to the RMI, which has not started, comprises a 5-year, $4.6 million program covering grant assistance for renewable energy, outer island education, NGO capacity building, and disaster management. Australian Agency for International Development (AusAID) recently agreed to fund a macroeconomist for 12–18 months. Other AusAID assistance is in the form of cofinancing of regional ADB TA (Demographic and Health Survey, Pacific Poverty Fund, and the Strengthening of Pro-Poor Policy).

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20. PSRP (footnote 14). ADB. 1994. Technical Assistance to the Republic of the Marshall Islands for Small Enterprise Development. Manila (TA 2205-RMI, for $297,000, approved on 23 November); ADB. 1995. Technical Assistance to the Republic Policy Advisory Team for Economic Management. Manila (TA 2295-RMI, for $2.3 million, approved on 31 January); ADB. 1996. Technical Assistance to the Republic of the Marshall Islands for Civil Service Reform Implementation. Manila (TA 2599-RMI, for $100,000, approved on 2 July); ADB. 1996. Technical Assistance to the Republic of the Marshall Islands for Improved Financial Management. Manila (TA 2710-RMI, for $600,000, approved on 13 December); and ADB. 1997. Technical Assistance to the Republic of the Marshall Islands for Support of the Private Sector Unit. Manila (TA 2757-RMI, for $696,596, approved on 30 January).
21. ADB. 2001. Report and Recommendation of the President to the Board of Directors on Proposed Loans and a Technical Assistance Grant to the Republic of the Marshall Islands for the Fiscal and Financial Management Program. Manila (Loans 1828-RMI and 1829-RMI, TA 3668-RMI, for a total of $12 million, approved on 7 June).
22. ADB. 1999. Technical Assistance to the Republic of the Marshall Islands for the Preparation of a Pacific Islands Economic Report. Manila (TA 3284-RMI, for $250,000, approved on 28 November); ADB. 2000. Technical Assistance to the Republic of the Marshall Islands for Strengthening the Capacity of the Ministry of Finance. Manila (TA 3418-RMI, for $150,000, approved on 21 March); ADB. 2001. Technical Assistance to the Republic of the Marshall Islands for Fiscal, Financial, and Economic Advisory Services. Manila (TA 3668-RMI, for $950,000, approved on 7 June). Technical Assistance to the Republic of the Marshall Islands for Strengthening of the Economic Policy, Planning, and Statistics Office. Manila (TA 4199-RMI, for $500,000, approved on 17 October).
23. Established under Loans 1828-RMI and 1829-RMI (footnote 21), the Trust Fund became a multi-funding agency facility and an important component of the renewed compact with the Government of the United States. 24
24. Financial Management Information System (FMIS)
25. TA-RMI 3668 (footnote 22).
26. Improvements in the Marshall Islands Social Security Administration and Ports Authority finances, and financial and general management were a condition of earlier ADB program loan, ADB. 2001. Report and Recommendation of the President to the Board of Directors on Proposed Loans and a Technical Assistance Grant to the Republic of the Marshall Islands for the Fiscal and Financial Management Program. Manila (Loans 1828-RMI and 1829-RMI, TA 3668-RMI, for a total of $12 million, approved on 7 June).
27. ADB TA 2854-RMI: Fisheries Management Project succeeded in helping government to reform commercial fisheries policy and to greatly improve the institution of fisheries management, the Marshall Islands Marine Resource Authority.
28. ADB TA 3941-RMI: Mobilizing Land succeeded in helping government to establish the Land Registration Authority. Although the new authority has only registered a few new land titles it has become the accepted authority for registration of existing land records.
29. This was one of the results of TA 4219-RMI (footnote 7).
30. TA 4794 (footnote 19).
31. Loan 1948-RMI Outer Island Transport Infrastructure Project, for $10.0 million, approved on 28 November 2002.
32. ADB. 2004. Technical Assistance for Pilot Project on Institutionalizing Civil Society Participation to Create Local Pro-Poor Projects (Financed by the Poverty Reduction Cooperation Fund). Manila (TA 6170-REG, approved on 6 April).
33. ADB. 2001. Marshall Islands Meto 2000. Economic Report and Statement of Development Strategies. Majuro. ADB. 2006. Juumemmej. Republic of the Marshall Islands Social and Economic Report 2005. Majuro.
34. ADB. 2000. Technical Assistance for Private Sector Development in the Pacific. Manila (TA 5963-REG, for $350,000, approved on 15 December).
35. Private transaction costs remain high, reflecting (i) the imperfect land market; (ii) overregulation in some areas; (iii) inaction in other areas (e.g., contract enforcement, issuance of business licenses, and work permits); (iv) some lack of transparency; (v) weakly performing utilities; and (vi) continued excessive government interventions in private markets (e.g., copra, shipping). The tax system still needs reform, and the subsidized SOE sector continues to perform poorly.
36. ADB. 2002. Technical Assistance to the Republic of the Marshall Islands for Mobilizing Land. Manila (TA 3941- RMI, for $420,000, approved on 16 October)
37. TA 2757-RMI (footnote 20).

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