JEMFAC Progress Monitoring

1. JEMFAC Progress Monitoring Presented by the RMI Government 6th RMI-U.S. JEMFAC Meeting Washington D.C August 27th, 2008

2. Outline of Presentation • Economic Update & Policy Reform • Fiscal Year 2009 Budget • Priority Funding • Fiscal Update & Decrement Management Photo: Rairok Elementary School II

3. Policy Framework • Maintaining Macroeconomic Stability • Improving the Business Policy Environment • Prioritizing Education & Health Sectors • Implementing Infrastructure Development Projects Photo: Jaliut High School (JHS) Phase II – Admin. Building

4. Sectoral Shares of GDP ( FY 2008) Photo: NIHS Phase II - Classrooms

5. Recent Economic Performance • Positive GDP growth continues but at a modest pace; • Slow growth in FY 2007 & 2008 partly due to high global energy prices; • Real GDP growth in FY 2007 was1.3%; • Projected Real GDP growth for FY 2008 is 1.8%; Photo: JHS Phase II – Staff House

6. What is influencing GDP? • Modest value added activities in the private sector • Job losses and reduction of working hours at USAKA • Public sector • High energy cost. Photo: Northern Islands High School (NIHS) Phase II - Classrooms

7. Industry Developments Positive prospects for the RMI economy: • The newly formed Marshall Islands Shipping Corporation has operated with improved delivery services to the outer islands; • Japan Airlines has conducted direct chartered flights between Tokyo and Majuro, boosting the tourism industry; • The Tuna Loining Plant is open and operational with new management and prospect of employing up to 600 workers by the end 2008; • Majuro Atoll Waste Company (MAWC) has tremendously improve waste collections. Photo: Majuro Atoll Waste Company (MAWC)

8. USAKAImpact Summary *estimated FY08 – FY12 and reflect Prime Contractor (KRS) and AAFES only; *figures not adjusted for inflation Photo: Pan Pacific Foods (RMI) Inc.

9. Employment Trend Factors • Modest growth in Private Sector in FY08, expected growth in FY09 • Decreased employment in USAKA • Slight decrease in Non-Governmental Sector • Stagnant growth in RMI Government and Other Public Sectors Photo: Pan Pacific Foods (RMI) Inc.

10. RMI Priorities: • Education and Health sectors continue as the RMI Government’s two top priorities; • Direct positive impact on all other sectors and the economy, as a whole, over the medium and long-term. Photo: Rairok Elementary School II

11. Education & Health Spending • Recurrent spending on Education & Health have grown rapidly since FY 2003: • Education recurrent spending has increased by 125%; • Health recurrent spending has increased by 71%; • Spending on other areas has declined by 9%. Photo: JHS Phase II – Admin. Building

12. Education and Health Spending Recurrent Expenditure FY 2003 - FY 2008(General Fund, Compact Funds, Federal Grants and Special Revenues) Photo: JHS Phase II – Iakwe Sign

13. Fiscal Year 2009 Budget • FY 2009 Budget projected at $124.5 million • Slight increase from FY 2009 partly due to inflation adjustments • Revenues forecast decrease largely to reduction in labor force in USAKA • Federal grants forecast to be steady • Special Revenues slightly decreased Photo: CMI Classroom

14. Factors Affecting FY 2009 Budget Formulation • Energy costs which led to a declaration of economic emergency; • Wage & Hiring Freeze Policy; • Modest assumptions of inflation and growth used for revenue estimates based on recent trends and expectations; • Utility costs increased sharply; • ADB debt payment to increase substantially; • Slight reduction in Compact infrastructure grant to support Ministry of Health & Ministry of Education; • High inflation rate. Photo: Rairok Elementary School II

15. Government Fiscal Status • Overall fiscal position is stagnant; • Imposed freeze on General Fund; • Recent freeze on vacant government posts; • Reduction of subsidies to State Owned Enterprises (SOE); • Aggressive tax collections; • Consolidation of funds Photo: NIHS Phase II - Classrooms

16. Consumer Price Index – FY2008 Photo: MAWC – Red Bin Repaired

17. Global Budget Figures Photo: JHS Phase II – Admin. Building

18. FY 2009 Compact sector grant allocations Photo: CMI Classroom

19. FY 2009 Education Spending Photo: Rairok Elementary School II

20. FY 2009 Recurrent Education Spending by Outcomes Photo: JHS Phase II - Staff House

21. FY 2009 Health Spending Photo: JHS Phase II – Staff House

22. FY 2009 Recurrent Health Spending By Outcomes Photo: NIHS Phase II - Classrooms

23. Infrastructure Development • Infrastructure Development Plan is consistent with the RMI’s sectoral priorities, the Education and Health Sectors: • The College of the Marshall Islands • Elementary and High Schools • Majuro Hospital Redevelopment • National Energy Capital Projects • Matching for grants; • Infrastructure and Maintenance Fund (IMF) • Majuro Atoll Waste Company (MAWC) • Infrastructure grant increased in FY 2009 due to inflation adjustments and well above 30% requirement Photo: CMI Classroom

24. FY 2009 Capital Infrastructure Photo: CMI Classroom

25. FY 2009 Infrastructure Plan Photo: Rairok Elementary School II

26. Decrement Management • Full inflation is critical in coping with rising costs and will allow time to make fiscal adjustments; • Cost controls through hiring and wage freeze policy; • Consolidation of Special Revenue Funds • Tax Reform Commision Photo: CMI Classrooms

27. Compliance Management: Audit Progress since FY2003 • No. of Audit Findings reduced by 50%; • No. of unauditable Component Units: 8 - 0; • Amount of Questioned Costs reduced by 33%; • Fixed Assets qualification resolved two years in a row; • Request for extension of DOI TA to assist Component Units • Achieved Unqualified Opinion – Clean Audit for the first time Photo: Namdrik Elementary School (Phase 1 – Outer Islands School)

28. Thank you “Kommol Tata” Photo: MAWC – Majuro Dumpsite (Rebuilding Red Bins)

29. IDMP 0018 Marshall Islands High School Phase II IDMP 0017 Rita Elementary School Phase II IDMP 0020 Namdrik Elementary School (Phase I) IDMP 0028 Laura High School Phase II (Stage II)