Wednesday, 18 August 2010 9:24 AM

ADB Loan to Help Marshall Islands Meet Budget Targets, Reform Public Sector

MANILA, PHILIPPINES - The Asian Development Bank (ADB) will provide loan assistance to the Republic of the Marshall Islands to help to achieve long-term fiscal sustainability and to improve the efficiency and effectiveness of the public sector.

ADB's Board of Directors today approved financial assistance to the Government of the Marshall Islands comprising two loans amounting to $14.5 million. A technical assistance grant of $700,000 will also be made available to support the implementation of the Public Sector Program. The program will be supplemented by two proposed projects in the energy and social sectors funded by the Japan Fund for Poverty Reduction.

The Public Sector Program supports the Marshall Islands' broad-ranging expenditure and tax reforms, including state-owned enterprise reform. The program is structured into two subprograms. During the first, policy actions were designed and the implementation of immediate reform priorities commenced. Subprogram two will largely complete implementation of the policy actions.

"ADB is a long-term development partner of the Marshall Islands and is committed to assisting the government in addressing its development challenges and achieving economic progress," said Robert Wihtol, Director General of ADB's Pacific Department. "The loan is a symbol of the strengthened partnership between ADB and the Marshall Islands."

The Marshall Islands economy heavily relies on government spending, and in turn on the foreign grants which fund more than two-thirds of government's budget. Most foreign grants are provided under an amended Compact of Free Association (or the Compact) with the United States. Increased foreign grants helped the economy grow between 2000 and 2007. However, in 2008, the economy contracted due to high food and fuel prices and a state of national economic emergency was consequently declared by the RMI government.

"Despite economic hardship, the Marshall Islands has been undertaking a new initiative to facilitate public sector reform to put the country on a path of economic stability, and sustainable growth," said Sungsup Ra, a Director in ADB's Pacific Department.

ADB has been working closely with other development partners, who have participated in designing the Public Sector Program. Under the program, the key partners agreed to establish a joint steering committee to support the Marshall Islands home-grown reform initiatives.

ADB's loan, from its concessional Asian Development Fund, will have a 24-year term, including a grace period of eight years with an interest rate of 1% per annum during the grace period, and 1.5% for the rest of the term.

The technical assistance of $700,000 equivalent will be sourced from ADB's Technical Assistance Special Fund. $600,000 of the amount will be financed on a grant basis from the fund. The Government of the Marshall Islands will provide the balance in kind.

RMI joined ADB in 1990. Since then, ADB has approved 12 loans for $78.13 million and 47 technical assistance (TA) grants for $18.98 million.