Marshall Islands expand support for public financial management and state-owned enterprise

Marshall Islands Minister of Finance and ADB Governor Alfred Alfred Jr. and ADB Pacific Department Deputy Director General Emma Veve signed the grant agreement for the second additional financing for the Marshall Islands Public Financial Management Project.

The USD2 million additional financing will fund a 3-year extension of the project until the end of 2024 and three new areas of reform support: improving the management of non-tax revenue; strengthening control over contingent liabilities; and introducing performance-based budgeting for local governments.

“This project has already helped implement numerous reforms to improve management of public finances and SOEs in the Marshall Islands, demonstrating the strong commitment of the government and ADB’s close coordination with development partners,” said Ms. Veve. “The additional financing will allow capacity to be built to prioritize and implement further reforms, including finalizing the government’s tax reform agenda, and establishing community service obligation frameworks with SOEs.”

Due to its size, remoteness, exposure to external shocks, and reliance on development assistance, the Marshall Islands has struggled with limited financial governance capacity.

The project, established through a USD2 million grant in 2017 with USD500,000 additional financing in 2019, funded the creation of a reform coordination unit in the Ministry of Finance. This expert team builds capacity and provides day-to-day advice and assistance to update and implement the Marshall Islands’ Public Financial Management Reform Roadmap.

Through the project, 12 reform areas identified in the roadmap have been advanced. These include the building of capacity to undertake tax reform and manage the Marshall Islands’ budgeting and investment framework, a recently drafted fiscal responsibility and debt management bill, and the identification and costing of community service obligations for SOEs. The project is also helping improve gender balance on SOE boards by providing training for potential women directors.

Coronavirus-related border closures saw the Marshall Islands’ economy contract by 5.5% in fiscal year (FY) 2020 (ended 30 September 2020). ADB projects a further 1.4% contraction for FY2021 before returning to 2.5% growth in FY2022. The Marshall Islands receives grants averaging 18.4% of its gross domestic product through its Compact of Free Association with the United States, an extension of which is not yet finalized./.