Marshall Islands: Economy

The gross domestic product (GDP) in the Republic of the Marshall Islands (RMI) contracted due to an absence of public investment. Recovery in the near term hinges on the country’s ability to access capital grants to fund major infrastructure projects.

Selected economic indicators (%) – Marshall Islands 2015 2016 Forecast 2017 Forecast
GDP Growth -0.5 1.5 2.0
Inflation 0.5 2.0 2.5
Current Account Balance (share of GDP) 6.9 11.1 8.9

Source: Asian Development Outlook 2016

Economic performance

The lack of new projects in the RMI and other North Pacific economies reflects continued problems in utilizing capital grants flowing from the compacts of free association that they have with the United States. In addition, extreme weather exerted downward pressure on GDP growth.

The RMI economy contracted by 0.5% in Fiscal Year 2015 (ended 30 September 2015) as election-related spending brought a slight improvement from a 1.0% decline in FY2014. The most recent major infrastructure project, an airport road realignment, was completed in FY2013. Construction fell by 32.9% in FY2015 after an 11.9% decline in FY2014.

The hotel and restaurant sector shrank by 4.3%, partly reflecting the government’s purchase of a 36-room hotel to use as a campus for the University of the South Pacific. This reduced the number of rooms available in Majuro to around 150.

The RMI was affected by several typhoons, the strongest being Typhoon Nangka, which hit in July.

Economic prospects

The RMI economy is forecast to recover and grow by 1.5% in FY2016 and 2.0% in FY2017, supported by fisheries and projects financed by development partners, including a water supply and sanitation project in Ebeye. The recent election of a new government reflected public demands for economic revitalization and job creation, but meeting high expectations will be a challenge. Support from development partners for reform to state-owned enterprises, in line with supportive legislation passed in 2015, could pave the way for private sector growth.

Read more from Asian Development Outlook 2016