IMF Executive Board Concludes 2018 Article IV Consultation with the Republic of the Marshall Islands
IMF News, September 10, 2018
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- Published: September 10, 2018
Economic outlook and recent developments
- Growth in the Marshallese economy is estimated to have accelerated to about 3½ percent in FY2017 (ending September 30) with a strong pick-up in fisheries and construction, with the latter due to the resumption of infrastructure projects.
- Growth is expected to remain robust at about 2½ percent in FY2018 and about 1½ percent over the medium term, underpinned by further increases in infrastructure spending.
- Consumer prices started to rise again in mid-2017, with annual CPI inflation at 1.1 percent in 2017Q4.
- Inflation is expected to rise gradually to around 2 percent over the medium term.
Fiscal position and projections
- Despite rising fishing license fee revenue, the overall fiscal surplus is estimated to have narrowed to 3 percent of GDP in FY2017 because of continued increases in recurrent spending.
- The fiscal surplus is projected to narrow further to 1¾ percent of GDP in FY2018 and turn into a deficit of 1½ percent by FY2023, as government spending is expected to continue growing strongly while fishing license revenues remain stable in nominal terms.
- Central government finances (in percent of GDP), selected series:
- Revenue and grants: FY2017 68.0; FY2018 64.0; FY2019 64.1; FY2020 63.7; FY2021 63.5; FY2022 63.4; FY2023 63.4
- Total domestic revenue: FY2017 38.4; FY2018 31.0; FY2019 30.5; FY2020 29.9; FY2021 29.4; FY2022 29.0; FY2023 28.7
- Grants: FY2017 29.6; FY2018 33.0; FY2019 33.6; FY2020 34.1; FY2021 34.2; FY2022 34.5; FY2023 34.7
- Expenditure: FY2017 65.1; FY2018 62.2; FY2019 63.1; FY2020 63.9; FY2021 64.3; FY2022 64.6
- Expense: FY2017 57.4; FY2018 53.8; FY2019 53.9; FY2020 53.7; FY2021 53.6
- Net acquisition of nonfinancial assets: FY2017 7.6; FY2018 8.4; FY2019 9.3; FY2020 10.0; FY2021 10.4; FY2022 10.7; FY2023 11.1
- Net lending/borrowing: FY2017 3.0; FY2018 1.0; FY2019 0.1; FY2020 -0.4; FY2021 -0.8; FY2022 -1.3
External sector and debt
- Nominal GDP for FY2016 (in millions of U.S. dollars): 196.3
- Current account balance (includes current grants): FY2017 -1.0 (percent of GDP); FY2018 -1.9; FY2019 -2.7; FY2020 -3.0; FY2021 -3.1
- Good and service balance: FY2017 -56.5 (percent of GDP); FY2018 -56.2; FY2019 -56.1; FY2020 -55.9
- Primary income: FY2017 29.8; FY2018 28.6; FY2019 28.3; FY2020 28.0
- o/w fishing license fee: FY2014 8.9; FY2015 13.4; FY2016 12.3; FY2017 11.5; FY2018 10.8; FY2019 10.1; FY2020 9.8; FY2021 9.6
- Secondary income: FY2017 25.9; FY2018 25.6; FY2019 25.3; FY2020 25.0; FY2021 24.9; FY2022 24.7
- o/w compact current grants: FY2014 15.7; FY2015 18.3; FY2016 16.4; FY2017 14.7; FY2018 14.5; FY2019 14.0; FY2020 13.6; FY2021 13.1; FY2022 12.7; FY2023 12.4
- o/w other budget and off-budget grants: FY2014 13.0; FY2015 11.0; FY2016 10.9; FY2017 11.2; FY2018 11.4; FY2019 11.6; FY2020 11.9; FY2021 12.2
- Current account excluding current grants: FY2014 -30.3; FY2015 -16.3; FY2016 -22.4; FY2017 -25.9; FY2018 -26.2; FY2019 -26.9; FY2020 -27.4; FY2021 -27.6; FY2022 -27.7
- External PPG debt (in millions of US$; end of period): FY2014 94.6; FY2015 89.0; FY2016 83.5; FY2017 78.4; FY2018 73.4; FY2019 67.5; FY2020 65.4; FY2021 63.8; FY2022 63.0
- In percent of GDP: FY2014 51.1; FY2015 49.1; FY2016 42.5; FY2017 35.2; FY2018 31.9; FY2019 28.4; FY2020 25.1; FY2021 24.2; FY2022 23.7
- Compact Trust Fund (in millions of US$; end of period): FY2014 240.1; FY2015 247.1; FY2016 294.5; FY2017 356.9; FY2018 393.7; FY2019 432.9; FY2020 474.5; FY2021 518.6; FY2022 565.5; FY2023 615.3
Financial sector, correspondent banking, and digital currency risks
- The RMI’s only domestic commercial bank is at risk of losing its last U.S. dollar correspondent banking relationship (CBR) with a U.S.-based bank as a result of heightened due diligence by banks in the U.S.
- RMI plans to issue a decentralized digital currency as a second legal tender in addition to the U.S. dollar and the relevant law was enacted in February 2018.
- Directors encouraged the authorities to be cautious about issuing a decentralized digital currency as a second legal tender and carefully consider the macroeconomic and financial stability risks. They noted that the potential benefits from revenue gains could be considerably smaller than the potential costs arising from economic, reputational, and governance risks.
Governance, AML/CFT, and financial supervision
- Directors commended the progress made in addressing correspondent banking relations risks.
- Directors emphasized the need for additional steps to strengthen the AML/CFT framework, including:
- the successful completion of the national risk assessment and the subsequent development of an action plan.
- ensuring the AML/CFT framework is compliant with the FATF standards and covers the offshore and maritime registries.
- Directors called for further steps to enhance the banking supervision framework.
Climate change, disaster resilience, and structural reforms
- RMI is vulnerable to climate change because of its low elevation, and it has experienced natural disasters such as droughts and floods repeatedly.
- Directors emphasized the need for continued efforts to adapt to climate change, including:
- strengthening the early disaster warning system and improving coastal protection and planning.
- explicitly budgeting climate-change adaptation costs to help ensure continuity in project implementation.
- Directors emphasized that structural reforms are needed to promote sustainable growth and recommended implementing planned state-owned enterprises (SOEs) reform, in particular reducing subsidies to SOEs that are not justified by the provision of the essential community services.
Policy recommendations and priorities
- Maintain sound macroeconomic policies to safeguard financial stability, ensure long-term fiscal sustainability, reduce vulnerabilities, and promote sustainable growth.
- Exercise caution on issuing a decentralized digital currency as a second legal tender; carefully weigh macroeconomic, financial stability, reputational, and governance risks.
- Strengthen the AML/CFT framework:
- complete the national risk assessment and develop an action plan.
- achieve compliance with FATF standards and extend coverage to offshore and maritime registries.
- Enhance banking supervision.
- Pursue fiscal consolidation over the medium term through a multi-pronged strategy:
- reverse the recent increase in recurrent spending.
- improve revenue administration and implement tax reform.
- accelerate implementation of the medium-term fiscal framework and public financial management reforms.
- Implement SOE reform, including reducing unjustified subsidies, to support fiscal consolidation and free resources for other priorities.
Key country indicators (selected)
- Population (2016): 54,153
- GDP per capita for FY2016 (in U.S. dollars): 3624.3
- Quota: SDR 3.5 million
- Nominal GDP (in millions of US$), selected years: FY2016 196.3; FY2017 222.3; FY2018 229.9; FY2019 237.7; FY2020 245.8; FY2021 253.8; FY2022 260.7; FY2023 267.4
- Real GDP (percent change): FY2014 -0.5; FY2015 -0.6; FY2016 2.0; FY2017 3.6; FY2018 2.5; FY2019 2.3; FY2020 2.2; FY2021 1.8; FY2022 1.6
Source: IMF Communications Department; Press Release No. 18/342, September 10, 2018.
Content in this bundle
- 1. Fishing License Revenues
- 1. Initial Issuance of 24 Million SOV, and Distribution of RMI’s 12 Million SOV