Marshall Islands Gov Produces National Budget

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Pacific Islands Development Program, East-West Center With Support From Center for Pacific Islands Studies, University of Hawai‘i

Cut Mitigation Plan
Private sector not consulted at event to address 15% across board
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By Giff Johnson

MAJURO, Marshall Islands (Marianas Business Journal, July 13, 2014) – The Marshall Islands government ignored the private sector in what was billed as a "national budget consultation" held for two days in early July. But the event, which was attended by about 70 high-level government officials, including key elected leaders, produced a plan of action to mitigate announced plans for a 15% across-the-board cut to the government's fiscal 2015 national budget.

The consultation was held largely as a result of U.S. government insistence that the Marshall Islands produce a credible plan to address the annual $500,000 decline in funding through the Compact of Free Association. But at the outset of the budget session, parliament Speaker Donald Capelle told participants the work they were to do in the two-day gathering was essential for the benefit of the country.

Capelle joined Acting President David Kabua and Minister Wilbur Heine in chairing the budget consultations that included the three leaders heading two breakout groups that painstakingly reviewed ministry budgets, subsidies and revenue sources and then compared notes to formulate final recommendations to the national government.

Despite the significant omission of participation by the Marshall Islands Chamber of Commerce and key non-government organizations, the consultation was significant because it involved a wide-range of government decision makers jointly reviewing revenue and spending trends and developing budget recommendations that, if incorporated into ongoing government budget preparation, could help mitigate the government's announced 15% budget reduction for fiscal 2015 that begins Oct. 1.

"The leaders identified a range of tax and revenue measures, which if implemented, will mitigate the need for some of the identified expenditure reduction options that otherwise would be necessary," said a statement issued at the end of the meeting and signed by the three chairs as well as Finance Secretary Alfred Alfred Jr. "In addition to tax reform, these measures include anticipated fisheries revenues derived from the efforts of the Marshall Islands Marine Resource Authority, a modest reduction in planned subsidies to state-owned enterprises and a reduction in the special appropriation for Majuro electricity."

While fisheries revenue has soared in the past three years due to the Marshall Islands' membership in the Parties to the Nauru Agreement fisheries bloc, national budgets have not included the full amount of revenue, which has prevented parliamentarians from appropriating all of the revenue through normal budget processes.

A key question for the country that is heavily dependent on U.S. funding is how to adjust to lower grant levels by replacing U.S. funding with locally generated revenues or by cutting the number of workers or service areas. Funding from fisheries, which has jumped from about $2 million to more than $10 million in just four years, gives the government new options. These decisions have a major impact on the private sector, which depends largely on providing services to government.

At the end of the two-day number-crunching session, Capelle, Kabua, Heine and Alfred issued a statement saying the leaders "agreed to the compelling rationale for the Republic of the Marshall Islands to develop its own comprehensive and credible plan that addresses external concerns while, more importantly, appropriately expressing the Republic of the Marshall Islands' own needs and priorities within its current fiscal constraints."

Capelle told participants that the recommendations from the meeting will be used by the parliament as it formulates upcoming national budgets.

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