世界发展银行-Republic-of-the-Marshall-Islands-Country-Economic-Memorandum-and-Public-Expenditure-Review---Maximizing-Opportunities,-Enhancing-Sustainability_236页_10mb

Summary of the Republic of the Marshall Islands Country Economic Memorandum and Public Expenditure Review

Core Content

The Country Economic Memorandum (CEM) and Public Expenditure Review (PER) for the Republic of the Marshall Islands (RMI) aim to support the Government of RMI (GoRMI) in identifying a prioritized set of reforms to drive increased economic growth, resilience, and fiscal sustainability. The report highlights the challenges, opportunities, and risks to achieving long-term development goals, with a focus on improving public resource management and enhancing the effectiveness of public services.

The RMI is a small, isolated nation located midway between Hawaii and the Philippines, consisting of 29 atolls. Its land area is about 181 square kilometers, with a population of approximately 54,000. The country is highly vulnerable to climate change due to its low elevation and exposure to natural disasters. Despite being a middle-income country with a GNI of US$4,838 per capita, human development indicators are low, and the Human Capital Index (HCI) in 2020 was 0.42, placing it among the lowest in the Pacific region.

Main Themes and Challenges

1. Economic Performance and Growth

• Average economic growth has been low (1.5% over 15 years) and highly volatile, influenced by aid-financed construction, public service activity, and the fisheries sector.
• Labor productivity has grown at 0.6% annually, with growth fluctuations tied to investment in public infrastructure and fisheries.
• The economy is heavily reliant on imported goods and services, with net exports helping to counterbalance domestic demand fluctuations.

2. Public Sector Dominance

• The public sector accounts for around 40% of GDP and half of formal sector employment.
• State-owned enterprises (SOEs) are active in key sectors such as energy, transport, ICT, agriculture, and banking.
• Private sector activity is limited to fisheries, trade, and construction.

3. Fiscal Sustainability and Compact Expiry

• The Compact of Free Association (COFA) with the US is set to expire in 2023, which could significantly impact RMI's fiscal stability.
• Annual Compact Sector Grants (CSGs) are expected to be replaced by distributions from the Compact Trust Fund (CTF), but the fund's corpus is insufficient to fully replace CSGs.
• The CTF distribution rules could lead to highly unstable annual funding, with potential years of zero distributions, risking a fiscal adjustment equivalent to 13% of GDP and an economic contraction of up to 10%.

4. Economic Geography and Structural Constraints

• RMI's extreme remoteness, small size, geographic dispersion, and limited natural resources are major constraints to sustainable growth.
• These factors make traditional development strategies, such as manufacturing-based or export-led growth, less effective.
• The country must focus on sectors less affected by these constraints, such as the fisheries sector and labor mobility.

5. Key Risks to Growth and Sustainability

• Climate Change and Natural Hazards: Rising sea levels could flood critical infrastructure, such as the international airport on Nairobi Islet. Coastal adaptation costs are estimated at 9–25% of GDP annually.
• Dual Burden of Disease: Communicable and non-communicable diseases (NCDs) are a growing burden, projected to increase from 6.3% to 13.6% of GDP by 2040.
• Fiscal and Policy Risks: The introduction of the Sovereign Virtual Currency (SOV) could threaten the country’s last US dollar correspondent banking relationship (CBR), risking economic stability.

Growth and Development Opportunities

• Fisheries Sector: RMI has significant potential in this area, with recent increases in fishing license fees contributing to higher public spending. However, the sector is subject to regional agreements and needs better management and private sector development.
• Labor Market and Mobility: Strengthening the domestic labor market and leveraging the open access to the US labor market under the Compact could enhance employment and income opportunities.
• Public Infrastructure: Improving transport, electricity, and ICT infrastructure is essential for reducing production costs and increasing service quality.
• Human Capital Development: Enhancing education and health outcomes is crucial for building a productive workforce and improving long-term economic prospects.

Public Expenditure and Management Challenges

• Public Financial Management (PFM): The current PFM system is weak, with a distortionary and inefficient tax regime, lack of expenditure controls, and no long-term fiscal strategy.
• Wage Bill Management: The public sector wage bill accounts for about 21% of GDP and is a key component of fiscal sustainability. While the overall wage bill has remained contained, HRM processes are inefficient, opaque, and a major constraint to service delivery.
• Procurement Bottlenecks: The procurement framework is outdated and fragmented, leading to inefficiencies and poor service delivery.
• Service Delivery in Social Sectors: Education and health services are predominantly government-funded and delivered, with low outcomes despite high spending. Improving efficiency is essential to achieving better human capital development.

Key Recommendations

1. Strengthen Fiscal Sustainability: Develop a long-term fiscal strategy, improve tax buoyancy, and ensure expenditure controls are in place.
2. Enhance Public Financial Management: Modernize the financial management information system (FMIS), improve procurement processes, and implement integrated HRM information systems (HRMIS).
3. Improve Public Service Delivery: Focus on efficient management of the wage bill, streamline HRM processes, and enhance the quality and outcomes of education and health services.
4. Maximize Fisheries Benefits: Develop the fisheries sector through better management, private sector involvement, and sustainable practices.
5. Leverage Labor Mobility: Strengthen domestic labor market institutions and support the use of labor mobility opportunities to increase employment and income for Marshallese citizens.

Conclusion

The report underscores the need for a balanced approach to reform, recognizing the limitations of the public sector in delivering services and the importance of managing fiscal risks. It emphasizes the strategic importance of the fisheries sector, labor mobility, and public infrastructure in driving sustainable economic growth. The recommendations are aligned with the National Strategic Plan 2020–30 and aim to improve the quality of life and economic resilience for RMI citizens.