|Project Rationale and Linkage to Country/Regional Strategy
The Republic of the Marshall Islands' (RMI) current national development plan, Vision 2018, was prepared in 2001 but has not maintained its relevance given the changing development needs of the RMI. In May 2010, the government recognized the need to prepare a new national development plan. A national development plan working group was established and the Economic Policy, Planning and Statistics Office (EPPSO) was tasked with leading the preparation of a new plan. The plan is expected to be finalized in mid-2012, and the government has requested support from the Asian Development Bank (ADB) to help with its implementation and monitoring.
Vision 2018 was developed through an extensive consultative process starting with the RMI's second national economic and social summit held in March and April 2001, and then followed by extended deliberations by various working committees established by the Cabinet. It was originally envisaged that following the adoption of Vision 2018, master plans would be developed in major policy sectors and in addition, action plans of ministries and statutory agencies would be prepared to state the respective programs of action aimed at achieving the master plan targets. However, the proposed national development plan structure turned out to be overly ambitious, and only limited progress was made on the preparation of the master plans.
The RMI's development environment has also changed since 2001, creating the need for a more realistic plan. The RMI economy relies heavily on government expenditure and, in turn, on foreign grants that fund more than two-thirds of government expenditure. Most foreign grants are provided by the United States (US), mainly under the amended Compact of Free Association. Increased foreign grants helped the economy grow at an average annual rate of 3.1% from fiscal year (FY) 2000 to FY2007. However, in FY2008, the economy contracted by 2.0% as high world food and fuel prices raised inflation to 14.8%, prompting the declaration of a state of national economic emergency. There was no economic growth in FY2009. The economy grew by 5.2 percent in FY2010, driven by an expansion of fishery output and exports, and moderating fuel prices. Similarly, growth in FY2011 is estimated at about 5 percent, driven by higher fish catches, large inflows from the Kwajalein land use agreement, and the Federal Aviation Administration-funded airport extension project. However, over the medium-term growth is expected to stay low at around 1.5 percent.
Furthermore, within this low growth scenario over the medium-term, the RMI needs to adjust to the annual decline in Compact grants, which will be phased out altogether in FY 2023. The governments of RMI and US are investing in a compact trust fund that is intended to generate a revenue stream to replace US Compact grants in FY2024. Contributions from the RMI government have, however, fallen short because excessive recurrent expenditure and poor revenue performance have prevented the generation of the required fiscal surpluses. Under current policies, the buildup in government assets in the Compact Trust Fund is projected to fall short of replacing Compact grants expiring in FY2023.
As a first step to preparing a new national development plan, and in response to the changing development environment, the government prepared a comprehensive draft concept paper which is currently being used as a guideline in preparing the new plan, with support from the United Nations Development Program.