On January 8, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Republic of the Marshall Islands.
The Republic of the Marshall Islands (RMI) is a small, isolated and disperse country, highly dependent on external aid. GDP growth picked up in fiscal year (FY) 2012 (fiscal year, ending September 30) to 3.2 percent, lifted by a surge in fishery output and higher copra and coconut oil production. In FY2013, however, growth is expected to have slowed to 0.8 percent, dragged down by delays in the implementation of infrastructure projects. Meanwhile, inflation is estimated to have eased from 4.3 percent in FY2012 to 1.6 percent in FY2013, thanks to subdued global commodity prices. The fiscal balance slipped into deficit in FY2012, and is expected to stay at -0.8 percent of GDP in FY2013, driven by large transfers to poorly performing state-owned enterprises (SOEs). The current account deficit including official transfers remained elevated at 8.1 percent of GDP in FY2012, as high imports more than offset a pickup in exports and an increase in receipts from fishing license fees. Lending conditions have remained tight, with the banking sector providing only limited credit to businesses.
Although the RMI’s economic performance is expected to strengthen in FY2014, prospects over the medium to long-term are less sanguine. In FY2014, GDP growth is projected to rebound to 3.2 percent, driven by the resumption of Compact-funded infrastructure projects. In the longer term, however, growth is expected to slow to around 1½ percent, weighted down by the scheduled reduction in Compact grants and limited private sector growth. While the fiscal deficit is expected to decline in FY2014 thanks to one-off revenues, it is projected to widen again to around 2 percent of GDP in FY2015, and persist in the medium-term, driven by high subsidies to SOEs and increased expenditures for social security contributions for public sector employees from the upcoming pension reform.
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.
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.