IMF Executive Board Concludes 2023 Article IV Consultation with the Republic of the Marshall Islands
IMF News, September 21, 2023
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- Published: September 21, 2023
Overview
- The Republic of the Marshall Islands (RMI) is in the midst of a post-pandemic recovery.
- Real GDP declined by 4.5 percent in the fiscal year ending September 2022 due to lower fisheries production arising from the sale of a fishing vessel by a domestic operator; excluding the sector, growth was 4.2 percent.
- Inflation picked up to 7.9 percent in March 2023 driven by higher food and fuel prices.
- The current account surplus narrowed due to a decline in export volumes and grants and an increase in import payments because of higher prices.
Outlook and Risks
- Growth projections:
- Growth is expected to strengthen to 3 percent over FY2023-24 as fisheries performance improves and construction activity is supported by the resumption of donor-financed projects and preparations for the 2024 Micronesian Games.
- Medium-term growth is contingent on the successful renewal of the Compact of Free Association agreement with the United States; a new agreement would strengthen fiscal and external positions, while absence of a renewal would lead fiscal and current account balances to slip into deficit over the medium term.
- Inflation and current account:
- Inflation is expected to moderate as commodity prices ease and supply disruptions recede.
- The current account surplus is expected to narrow further as COVID-related grants expire, though improved export performance is expected to narrow the trade deficit.
- Risks:
- Risks are tilted to the downside, reflecting geographic isolation, vulnerability to climate change, volatility in fishing revenues and copra output, and fragile financial and trade links.
Executive Board Assessment
- Directors commended authorities’ actions to spur the post-pandemic recovery and welcomed that growth is expected to rebound in FY2023.
- Directors emphasized significant uncertainty and risks related to geographic isolation, climate vulnerability, volatility in fishing revenues and copra output, and fragile financial and trade links.
- Key points from Directors:
- Emphasized the importance of steadfast reform implementation to secure fiscal sustainability, address structural vulnerabilities, and support private sector growth, while leveraging Fund technical assistance.
- Urged strong near-term fiscal consolidation through firm revenue mobilization and expenditure reprioritization.
- Welcomed progress toward a new Compact agreement with the United States but stressed additional fiscal reforms are needed to build buffers, meet investment demands, and safeguard long-term fiscal and debt sustainability.
- Encouraged complementing modernization of public financial management and the customs revenue system with reforms to enhance tax administration and policies.
- Recommended gradually reducing subsidies to state-owned enterprises and replacing them with targeted support to the most vulnerable.
- Encouraged strengthening financial integrity and supervision; urged a cautious approach to new FinTech initiatives (including Decentralized Autonomous Organizations and the introduction of a stablecoin) and recommended ensuring an appropriate supervisory framework.
- Encouraged repealing the Sovereign Currency Act and withdrawing the Digital Economic Zone for Rongelap Atoll Bill.
- Stressed strengthening the AML/CFT framework to avoid loss of correspondent banking relationships.
- Concurred that establishing a Monetary Authority—with an appropriately focused mandate—could strengthen financial stability and inclusion.
- Emphasized the critical importance of building climate resilience, strengthening disaster management, and prioritizing climate-related investments; completing the National Adaptation Plan would help guide the transition to climate resilience, identify critical investments, and attract needed external financing.
- Encouraged structural reforms to boost growth and investment by promoting economic diversification and addressing the lack of available land.
Policy Recommendations
- Fiscal policy and revenue:
- Implement firm revenue mobilization measures.
- Reprioritize expenditures to achieve near-term fiscal consolidation.
- Pursue additional fiscal reforms to build buffers and meet investment needs.
- Enhance tax administration and tax policies complementary to public financial management and customs modernization.
- State-owned enterprises and social protection:
- Gradually reduce subsidies to state-owned enterprises.
- Replace broad subsidies with targeted support to the most vulnerable.
- Financial sector and digital initiatives:
- Strengthen financial integrity and supervision.
- Apply a cautious approach to FinTech initiatives and ensure an appropriate supervisory framework for Decentralized Autonomous Organizations and stablecoin proposals.
- Strengthen AML/CFT framework to preserve correspondent banking relationships.
- Consider establishing a Monetary Authority with a focused mandate to strengthen financial stability and inclusion.
- Climate resilience and disaster management:
- Prioritize climate-related investments and disaster management.
- Complete the National Adaptation Plan to guide investments and attract external financing.
- Structural reforms:
- Promote economic diversification.
- Address constraints related to lack of available land to boost growth and investment.
Key Economic and Financial Indicators (selected figures from table)
- Output and inflation:
- Real GDP (percent change): FY2019 10.3; FY2020 -2.9; FY2021 1.0; FY2022 -4.5; FY2023 3.0; FY2024 2.0; FY2025 1.8; FY2026 1.5.
- Consumer prices (percent change, period average): FY2019 -0.1; FY2020 -0.7; FY2021 2.2; FY2022 3.2; FY2023 5.2; FY2024 2.8; FY2025 2.3.
- Consumer prices (percent change, end of period): FY2019 -1.7; FY2020 5.7; FY2021 2.5; FY2022 2.0.
- Central government finances (percent of GDP):
- Revenue and grants: FY2019 64.0; FY2020 70.7; FY2021 70.4; FY2022 66.4; FY2023 62.8; FY2024 69.5; FY2025 67.8; FY2026 68.9; FY2027 71.6; FY2028 70.1.
- Total domestic revenue: FY2019 33.0; FY2020 31.7; FY2021 28.7; FY2022 31.3; FY2023 30.9; FY2024 41.7; FY2025 40.9; FY2026 41.0; FY2027 41.1.
- Grants: FY2019 31.0; FY2020 39.0; FY2021 35.0; FY2022 31.9; FY2023 27.8; FY2024 26.9; FY2025 27.9; FY2026 30.6; FY2027 29.0.
- Expenditure: FY2019 65.8; FY2020 68.2; FY2021 70.2; FY2022 65.7; FY2023 69.4; FY2024 68.8; FY2025 70.3; FY2026 73.1; FY2027 72.0; FY2028 72.0.
- Expense: FY2019 63.2; FY2020 62.2; FY2021 63.3; FY2022 59.4; FY2023 53.0; FY2024 53.5; FY2025 54.5; FY2026 56.1; FY2027 58.4; FY2028 57.6.
- Net acquisition of nonfinancial assets: FY2019 2.6; FY2020 5.9; FY2021 6.8; FY2022 6.3; FY2023 9.8; FY2024 15.9; FY2025 14.3; FY2026 14.2; FY2027 14.8; FY2028 14.4.
- Net lending/borrowing: FY2019 -1.8; FY2020 0.2; FY2021 0.7; FY2022 0.0; FY2023 0.1; FY2024 -1.0; FY2025 -1.4; FY2026 -1.6; FY2027 -2.0.
- Compact Trust Fund (in millions of US dollars; end of period): FY2019 434.7; FY2020 514.4; FY2021 668.9; FY2022 567.6; FY2023 621.1; FY2024 620.9; FY2025 622.5; FY2026 623.7; FY2027 624.3; FY2028 624.4.
- Balance of payments (percent of GDP):
- Current account balance: FY2019 -31.3; FY2020 15.0; FY2021 22.6; FY2022 8.2; FY2023 4.1; FY2024 -0.4; FY2025 -4.8; FY2026 -8.0; FY2027 -12.0; FY2028 -15.0.
- Goods and services balance: FY2019 -79.3; FY2020 -37.2; FY2021 -24.9; FY2022 -33.1; FY2023 -27.3; FY2024 -33.7; FY2025 -35.6; FY2026 -38.8; FY2027 -43.0; FY2028 -44.6.
- Primary income: FY2019 21.4; FY2020 18.9; FY2021 9.7; FY2022 11.1; FY2023 20.1; FY2024 18.2; FY2025 17.2; FY2026 16.1; FY2027 15.1.
- Of which: fishing license fee: FY2019 10.4; FY2020 8.6; FY2021 7.1; FY2022 6.7; FY2023 7.6; FY2024 7.5.
- Secondary income: FY2019 26.6; FY2020 33.3; FY2021 37.7; FY2022 30.2; FY2023 21.7; FY2024 13.1; FY2025 12.6; FY2026 13.7; FY2027 14.5.
- Of which: Compact current grants: FY2019 16.0; FY2020 12.7; FY2021 12.2; FY2022 3.5; FY2023 3.4; FY2024 3.3.
- Current account excluding current grants: FY2019 -16.4; FY2020 -24.2; FY2021 -18.4; FY2022 -4.3; FY2023 -9.0; FY2024 -12.2; FY2025 -11.3; FY2026 -15.3; FY2027 -18.3.
- External PPG debt (in millions of US$; end of period): FY2019 67.5; FY2020 66.2; FY2021 63.5; FY2022 59.6; FY2023 59.7; FY2024 59.2; FY2025 62.3; FY2026 66.7; FY2027 78.6.
- External PPG debt (Percent of GDP; end of period): FY2019 29.1; FY2020 27.5; FY2021 24.6; FY2022 22.8; FY2023 21.6; FY2024 20.2; FY2025 20.5; FY2026 21.1; FY2027 21.9; FY2028 23.2.
- Memorandum item — Nominal GDP (in millions of US dollars): FY2019 231.9; FY2020 240.6; FY2021 257.5; FY2022 261.2; FY2023 276.8; FY2024 292.8; FY2025 304.5; FY2026 315.9; FY2027 327.0; FY2028 338.4.
Source: IMF Press Release No. 23/319, September 21, 2023.