Real output growth of the Republic of the Marshall Islands appears to have slowed sharply in FY2003 and again in FY2004. The 2005 Article IV Consultation highlights that the economic activity has been hampered by delays in implementing an upgraded public works program and the closure of a large privately owned tuna processing plant. The fiscal position deteriorated in FY2004. This deterioration reflects, on the revenue side, a decline in grants aimed at infrastructure projects owing in part to delays in initiating projects, lower income tax collection, and volatility in nontax revenue.
The staff report for the 2004 Article IV Consultation on the Federated States of Micronesia (FSM) focuses on economic developments and policies. Fiscal and structural reforms are needed for the FSM to achieve self-sufficiency. The large government sector will be increasingly unsustainable given coming declines in grants. Fiscal adjustment will need to comprise both expenditure cuts and revenue measures. Structural reform priorities should include improvements to the legal framework for land use, foreign investment, and lending.
The Republic of Palau is a small island economy, heavily dependent on tourism and external assistance. Economic growth has been modest in the last few years and inflation is low. The authorities launched a wide range of reform initiatives since 2001, but several important ones have stalled in the legislative process. Although the banking regulatory framework still needs improvements for effective implementation, a tax reform package, a new foreign investment law, a statistics law, and proposals related to streamlining the executive and legislative branch have not yet been enacted.