Press Release No. 25/406

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for the Republic of Marshall Islands on October 29, 2025.[1]

After two years of contraction, the Republic of the Marshall Islands (RMI) economy is estimated to grow by 3 percent in FY2024, driven by a strong rebound in fisheries and increased investment and consumption related to the Micronesian Games. This growth has occurred despite delays in grant disbursements related to the Compact of Free Association with the United States (Compact), ongoing emigration, and the end of COVID-related stimulus. Inflation, though moderating from a peak of 9.3 percent in December 2022, remained at 5.7 percent by end-FY2024, above the 10-year average, mainly due to elevated electricity tariffs.

Looking ahead, the new Compact significantly improves the near-term outlook. Growth is projected at 2.5 percent in FY2025, supported by income tax relief and delayed Compact spending. Momentum is expected to accelerate to 4.1 percent in FY2026 amid scheduled fiscal expansion. Over the medium term, growth will moderate due to structural challenges and ongoing labor emigration, while inflation remains above its historical average.

Uncertainty surrounding the baseline outlook is high. The elevated global risks, most notably rising trade barriers, prolonged policy uncertainty, and volatile commodity prices, could increase the RMI’s balance of payments and fiscal pressures, raising living costs. More frequent natural disasters could pose a significant threat to the economy. Domestically, the expansion of Decentralized Autonomous Organization (DAO) registry operations and premature implementation of new largely untested policy initiatives, namely USDM1 and the Universal Basic Income (UBI), could have adverse macro-fiscal and financial integrity implications. Withdrawal of the last Correspondent Banking Relationship (CBR) could disrupt trade and remittance flows.

Executive Board Assessment[2]

Executive Directors welcomed the recent growth recovery, as well as the strengthened external and fiscal outlooks following the successful renewal of the Compact agreement. At the same time, Directors noted that medium-term growth prospects remain constrained by persistent structural challenges, including capacity limitations, vulnerability to climate and external shocks, geographical remoteness, and continued labor emigration. Against the background of significant downside risks, Directors highlighted the importance of prudent policies and sustained reforms supported by capacity development assistance to foster resilient and inclusive growth.

Directors agreed that steadfast revenue mobilization, expenditure reprioritization, and robust PFM reforms will be critical to create space for priority investments, build buffers against climate-related and external shocks, and further strengthen debt sustainability. In this context, they welcomed the enactment of the comprehensive tax reform law as an important step forward. Directors also encouraged the authorities to reprioritize expenditures, including the universal basic income scheme and subsidies to state-owned enterprises, in favor of targeted support to the most vulnerable and needed investments.

Directors underscored the importance of strengthening financial sector oversight to preserve macroeconomic stability. They stressed that the planned global issuance of a digital sovereign bond should be carefully reassessed, taking due account of institutional readiness and ability to effectively mitigate associated macroeconomic as well as financial stability and integrity risks. In that respect, continued strengthening of the AML/CFT regime, including through implementation of the national Strategic Implementation Plan, particularly before embarking on new initiatives, will be critical for safeguarding financial integrity, and will help preserve correspondent banking relationships. Directors also commended the passage of the legislation establishing the Monetary Authority aimed at strengthening financial stability and inclusion.

Directors encouraged the authorities to advance structural reforms to enhance resilience and address climate risks. Mobilizing additional climate financing both domestically and internationally is vital to respond to adaptation needs. In this context, Directors agreed that additional revenue mobilization can help create fiscal space to fund climate investments and that enhanced PFM and public investment management will help attract external climate financing. Strengthening governance, regulatory frameworks, digital infrastructure, and human capital, as well as diversification where feasible, will enhance the business climate and private sector development.  Closing data gaps also remains an important priority.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.