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Annual Report 2001

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Marshall Islands

Economic performance

GDP growth in 2001 in the Marshall Islands was estimated at 0.6%, declining from 0.7% in 2000. A small rise in copra exports and the first full year of operations of a tuna loin processing plant contributed to a 5.1% increase in exports to an estimated $8 million, while imports declined to a projected $60 million. This level of trade deficit was due to the large direct budget support under the US Compact and other US federal programs. The trade deficit in 2000 was 52.0% of GDP, a slight decline from the 1999 deficit. Consumer prices were generally stable over the year, rising by an estimated 2.0%. A recent increase in competition in retail and wholesale activities, which saw an increase in cheaper imports from the US and the pressure of trader margins, contributed to the low inflation. The budget has been in surplus in recent years. However, the need to repay a high level of debt arising from Compact-secured government and state-owned enterprise bond issues put a strain on the fiscal position. Income from fishing licenses provides the main source of nontax revenue, approximately $3.0 million in FY2001 (ending 30 September).

ADB operations

Operational strategy: ADB’s operational strategy has three broad thrusts.

• Strengthen fiscal management, and establishment and efficient use of trust funds. An important element is improving accountability and financial management of public funds and governance in the public and private sectors.
• Improve living standards by promoting broad-based growth and expanding access to essential services. Special attention is to be given to addressing the needs of women and equity issues in the outer islands, and creating employment for vulnerable groups.
• Improve the investment climate, thereby promoting private sector and small business development.

Policy dialogue: The Government’s commitment to reform was demonstrated in 2000 when it met the difficult conditions specified in the Public Sector Reform Program, especially the reduction in the public sector staff force by 30%. The Government remained under pressure to recede from reform momentum, which constrained progress. Also, the renewal of the Compact of Free Association with the US was likely to affect the environment for reform. The situation provided an opportunity to influence the Marshall Islands’ future direction. Through improved governance and fiscal discipline, the Marshall Islands will emerge from the next Compact with a stronger and more equitable economy.

Loans and technical assistance: In 2001, ADB approved a blend loan totaling $12 million for a fiscal and financial management program, and an advisory technical assistance grant of $950,000 for fiscal, financial, and economy advisory services.

Project implementation: Since joining ADB in 1990, the Marshall Islands has received 11 loans, of which 6 were active at the end of 2001. Contract awards totaled $6.6 million, bringing the cumulative figure to $48.1 million. The contract award ratio was 29.3%, higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $8.3 million, bringing cumulative disbursements to $48.2 million. The disbursement ratio was 32.6%, higher than the ADB-wide average of 20.5%.

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