IMF Executive Board Concludes 2023 Article IV Consultation with the Republic of the Marshall Islands

September 21, 2023

Washington, DC : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Republic of the Marshall Islands.

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. However, excluding the sector, growth was 4.2 percent, confirming a recovery in domestic demand is underway. Inflation picked up to 7.9 percent in March 2023 on the back of higher food and fuel prices while the current account surplus narrowed on the back of a decline in export volumes and grants and an increase in import payments due to higher prices.

Growth is expected to strengthen to 3 percent over FY2023-24 as performance in the fisheries sector improves, with construction activity supported by the resumption of donor-financed projects and preparations for the 2024 Micronesian Games. 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 lead to a narrowing of the trade deficit. The medium-term outlook is contingent on the successful renewal of the Compact of Free Association agreement with the United States. A new agreement would strengthen the RMI’s fiscal and external positions while in its absence, the fiscal and current account balances are expected to slip into deficit over the medium term. Risks are tilted to the downside, reflecting the RMI’s geographical isolation and vulnerability to climate change.

Executive Board Assessment[2]

Executive Directors commended the authorities’ actions to spur the post-pandemic recovery, and welcomed that growth is expected to rebound in FY2023. They emphasized, however, that the outlook is subject to significant uncertainty and risks—in particular, related to the country’s geographic isolation, vulnerability to climate change, volatility in fishing revenues and copra output, and fragile financial and trade links. Directors underscored the importance of steadfast reform implementation to secure fiscal sustainability, address structural vulnerabilities, and support private sector growth, while leveraging Fund technical assistance.

Directors emphasized the need for strong efforts to ensure fiscal consolidation in the near term, including through firm revenue mobilization and expenditure reprioritization. While welcoming the progress toward a new Compact agreement with the United States—which would strengthen external and fiscal sustainability—Directors stressed that additional fiscal reforms are needed to build buffers, meet the significant investment demands, and safeguard long-term fiscal and debt sustainability. They encouraged complementing the ongoing modernization of the public financial management framework and the customs revenue system with reforms to enhance tax administration and policies. Gradually reducing subsidies to state-owned enterprises while replacing them with targeted support to the most vulnerable would also be important.

Directors encouraged the authorities to strengthen financial integrity and improve supervision. They urged a cautious approach to new FinTech initiatives, including related to the establishment of Decentralized Autonomous Organizations and the introduction of a stablecoin, and recommended ensuring that an appropriate supervisory framework is in place. Directors also encouraged repealing the Sovereign Currency Act and withdrawing the Digital Economic Zone for Rongelap Atoll Bill. Strengthening the AML/CFT framework is key, including to avoid the loss of correspondent banking relationships. Directors concurred that establishing a Monetary Authority—with an appropriately focused mandate—could strengthen financial stability and inclusion.

Directors 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 the needed external financing. Directors also encouraged structural reforms to boost growth and investment by promoting economic diversification and addressing the lack of available land.


[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 .

Table. Republic of the Marshall Islands: Selected Economic and Financial Indicators, FY2019 – 20281

Preliminary

Projection

FY2019

FY2020

FY2021

FY2022

FY2023

FY2024

FY2025

FY2026

FY2027

FY2028

Output and inflation

Real GDP (percent change)

10.3

-2.9

1.0

-4.5

3.0

3.0

2.0

1.8

1.5

1.5

Consumer prices (percent change, period average)

-0.1

-0.7

2.2

3.2

5.2

2.8

2.3

2.0

2.0

2.0

Consumer prices (percent change, end of period)

-1.7

1.5

2.2

5.7

3.0

2.5

2.0

2.0

2.0.

2.0

Central government finances (in percent of GDP)

Revenue and grants

64.0

70.7

70.4

66.4

62.8

69.5

67.8

68.9

71.6

70.1

Total domestic revenue

33.0

31.7

28.7

31.3

30.9

41.7

40.9

41.0

41.0

41.1

Grants

31.0

39.0

41.7

35.0

31.9

27.8

26.9

27.9

30.6

29.0

Expenditure

65.8

68.2

70.2

65.7

62.8

69.4

68.8

70.3

73.1

72.0

Expense

63.2

62.2

63.3

59.4

53.0

53.5

54.5

56.1

58.4

57.6

Net acquisition of nonfinancial assets

2.6

5.9

6.8

6.3

9.8

15.9

14.3

14.2

14.8

14.4

Net lending/borrowing

-1.8

2.5

0.2

0.7

0.0

0.1

-1.0

-1.4

-1.6

-2.0

Compact Trust Fund (in millions of US dollars; end of period)

434.7

514.4

668.9

567.6

621.1

620.9

622.5

623.7

624.3

624.4

Balance of payments (in percent of GDP)

Current account balance

-31.3

15.0

22.6

8.2

4.1

-0.4

-4.8

-8.0

-12.0

-15.0

Goods and services balance

-79.3

-37.2

-24.9

-33.1

-27.3

-33.7

-35.6

-38.8

-43.0

-44.6

Primary income

21.4

18.9

9.7

11.1

9.7

20.1

18.2

17.2

16.1

15.1

Of which: fishing license fee

10.4

8.6

7.1

6.7

7.6

7.6

7.6

7.5

7.5

7.5

Secondary income

26.6

33.3

37.7

30.2

21.7

13.1

12.6

13.7

14.8

14.5

Of which: Compact current grants

16.0

14.8

12.7

12.2

12.7

3.5

3.4

3.3

3.3

3.2

Of which: other budget and off-budget grants

10.4

18.2

24.7

18.4

8.6

9.5

9.1

10.3

11.5

11.3

Current account excluding current grants

-16.4

-24.2

-18.4

-4.3

-9.0

-12.2

-16.4

-11.3

-15.3

-18.3

External PPG debt (in millions of US$; end of period) 2

67.5

66.2

63.5

59.6

59.7

59.2

62.3

66.7

71.6

78.6

External PPG debt (Percent of GDP; end of period) 2

29.1

27.5

24.6

22.8

21.6

20.2

20.5

21.1

21.9

23.2

Memorandum item:

Nominal GDP (in millions of US dollars)

231.9

240.6

257.5

261.2

276.8

292.8

304.5

315.9

327.0

338.4

Sources: Republic of the Marshall Islands (RMI) authorities; and IMF staff estimates and projections.

1Fiscal year ending September 30.

2Assumption is that RMI will receive its MDBs financial assistance in a mix of grants and loans.


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