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Economic Situation of the Republic of the Marshall Islands (RMI)

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The International Monetary Fund (IMF) has issued a report on the economic situation of the Republic of the Marshall Islands. This article summarizes the key points from the report.

Economic Outlook and Risks

The RMI economy is expected to decline by 1.7% in FY2021 due to the COVID-19 pandemic.

COVID-19 Pandemic Impact: The economic downturn is largely attributed to the global health crisis.
Strong Rebound Expected: Authorities expect a strong rebound in FY2022, driven by containment measures subsiding and planned infrastructure projects resuming.
Climate Change Risks: Climate change and related natural disasters are significant downside risks for the economy.

Fiscal Risks

The RMI faces bimodal fiscal risks:

Bimodal Fiscal Risks

Fiscal Cliff Risk: A potential fiscal cliff if Compact grants are reduced or fishing license fees and tax revenue remain stagnant.
External Debt Distress Risk: External debt distress risks if non-concessional financing is resorted to.

Upside Risks

However, there are upside risks if the expiring Compact grants are renewed on favorable terms.

Government Response

The government has taken comprehensive fiscal measures to mitigate the economic impact of COVID-19:

Covid-19 Response Plan: The size of the Covid-19 Response Plan was increased from 42.3 million USD in June 2020 to about 63 million USD currently.
Development Partners’ Support: Development partners have provided grant financing of about 50 million USD (21% of GDP) for COVID-related spending.

Challenges and Uncertainties

The authorities face implementation challenges due to travel restrictions of foreign experts and logistics bottlenecks to reach outer islands. There is also uncertainty surrounding the potential expiration of Compact financial support in FY2023.