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MAJURO, Marshall Islands (January 26, 2001 – The Marshall Islands Journal)---The Marshall Islands is facing an economic crisis that has been caused largely by factors beyond the government’s control, the Asian Development Bank said in a November 17 report on a visit to the RMI.

The government’s cash crunch could impact its ability to meet payroll costs this year, the report said.

The ADB report described the two-pronged financial problem facing the nation" "A short term budgetary crisis which threatens to disrupt the normal working of the government and the economy, and a long-term development crisis which threatens to lead to a misalignment of future external assistance program."

The ADB report relates to a fiscal and financial management program loan that is soon to be implemented.

The ADB said that the factors contributing to the "budgetary crunch" now facing the RMI are largely beyond the control of the government.

§ In early 1999, prior to the national elections, the then government reduced the basic import duty rate from 12 percent to five percent of import values. This led to a loss of government revenues to the tune of $3 million during FY2000.

§ Over the years, the cost of off-island medical referrals have been paid on the basis of a 365 day payment period. Beginning last year, however, it was reduced to 30 days. This change resulted in additional payments of $2.9 million by the government in FY2000.

§ The government was expecting to receive $5 million from the sale of the Saab 2000 by Air Marshall Islands. But as of the date of the report, only $1.25 million had been received.

§ Oil prices in November 2000 were more than double those in November 1999, and were expected to increase further this year.

"This will lead to a significant increase in the direct fuel cost of the government and of publicly owned utilities," the ADB report said.

The report, prepared by ADB’s Tilak Sen, noted that last year, the government operated at a $5 million deficit, and this year’s budget is also expected to run at a deficit.

"If these deficits continue, there are risks of delays even in the payment of wages and salaries" for government employees, the report said. To prevent this from happening, the RMI has "been trying to obtain short-term commercial loans on hard terms to finance the deficit and it may even be forced to dip into the Marshall Islands Intergenerational Trust Fund."

The report said that the ADB is supporting Marshallese-owned reforms, which focus on the following areas:

· self-reliant and sustainable development;

· improving the public financial management system;

· ensuring a sustainable income flow for future generations;

· improving the fiscal balance;

· strengthening the financial sector for development, including private sector development;

· improving efficiency and effectiveness of the public service.

The Marshall Islands Journal, Box 14, Majuro, Marshall Islands 96960 E-mail: journal@ntamar.com  Subscriptions (weekly): 1 year US $87.00; international $213.00 (air mail).

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