1

JEMFAC Progress Monitoring

Presented by the RMI Government

RMI-U.S. JEMFAC Meeting

Honolulu, HI

August 29, 2007

2

Outline of Presentation

• Economic Update & Policy Reform• Priority Funding• Fiscal Year 2008 Budget• Fiscal Update & Decrement

Management• Compliance Management• Education Reform Initiatives

3

Policy Framework

• Maintaining Macroeconomic Stability

• Improving the Business Policy Environment

• Prioritizing Education & Health Sectors

• Implementing Infrastructure Development Projects

4

Recent Economic Performance

• Positive GDP growth continues but at a modest pace;

• Real GDP in FY 2006 is estimated 1.3% increased with anticipated real

GDP growth for FY 2007 at 2.0%;

• Growth experienced in FY 2004 was 5.6%;

• Slow growth in FY 2005 & 2006 partly due to high global energy prices;

• While Government continues to be the main component of the economy,

its growth has been steady but the private sector growth is gradually

increasing.

5

Real Gross Domestic Product Growth 1997-2007 Trend

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Real GDP Growth -5.4% -3.6% -2.9% 5.1% 2.7% 3.8% 3.4% 5.6% 1.7% 1.3% 2.0%

1997 1998 1999 2000 2001 2002 2003 2004 2005 20062007 (forecast)

6

Sectoral Shares of GDP, FY 2006

Private Enterprise

32.1%

Public Enterprise

8.1%Finance (Banks)

6.0%

Government38.8%

NGOs1.6%

Households13.4%

7

What is influencing growth?

• Construction and fisheries industries have generated significant employment growth which has been major factor in private sector contribution to the real GDP.

• Government compensation of employees is still a major contributor to the GDP growth.

• The difficulties with Marshall Energy Company, as a result of high fuel prices, constrained growth in FY 2005 & 2006.

8

Employment Trend Factors • Government payroll has re-absorbed the Kindergarten

program with approximately 200 employees from the former Head Start program.

• Employment growth is derived from the private sector while the Government is presently steady.

• The opening of the new Tuna Loining Plant is expected to further increase the private sector employment growth in FY 2008.

9

Employees by Major Sectors, FY1997 - FY2007

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07proj

Public sector Non-Government sectorKwajalein US BasePrivate sector

10

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;

• A modern Dry-Dock Facility nearing final approval of securing operational site.

• The Tuna Loining Plant is to re-open soon under new management. Construction is near completion with prospect of employing up to 600 workers by early 2008;

11

Improving Business Environment

• Passage of Immigration and Labor Laws

• Passage of Secured Transactions Law

• Strengthening of the Land Registration Authority

• Establishment of Public-Private RMI Economic

Development Council to advise President on economic

reform initiatives.

12

Public-Private Dialogue

Role of the RMI Economic Development Advisory Council;

The Council will:

• Consult with the business community to foster public-private cooperation;

• Provide advice to the President on appropriate policies to encourage private sector development including, but not limited to, regulatory reform, tax reform, public sector reform, land tenure, trade and industry policy;

13

RMI Priorities:Education & Health Sectors

• Education and Health sectors continue as the RMI Government’s two top priorities;

• Focus implementation of the base grant;

• Direct positive impact on all other sectors and the economy, as a whole, over the medium and long-term.

14

Education & Health Spendings

• Education recurrent spending has increased by

125%;

• Health recurrent spending has increased by 71%;

• Spending on other areas has declined by 9%.

Recurrent spending on Education & Health have grown rapidly since FY 2003:

15

Education and Health Spending

$-

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

FY03 FY04 FY05 FY06 FY 07Budget

FY 08Proposed

MoH

MoE

Other

Recurrent Expenditure FY 2003 - FY 2008(General Fund, Compact Funds, Federal Grants and Special Revenues)

16

Fiscal Policy Framework

• Adoption of Balanced Budget

• Implementation of Cash Management Plan

• More Aggressive Tax Collections and Tight Expenditure Controls

• Restructuring Selected Public Services into Corporate Enterprises

• Continuation of Performance Based Budgeting Concept

17

Factors Affecting FY 2008 Budget Formulation

• Wage & Hiring Freeze Policy;

• Modest assumptions of inflation and growth used for

revenue estimates based on recent trends and expectations;

• Utility costs to increase modestly;

• ADB debt payment to increase substantially;

• Slight reduction in Compact infrastructure grant to support

Ministry of Health & Ministry of Education.

18

Fiscal Year 2008 Budget

• FY 2008 Budget projected at $123.6 million

• Slight decline from FY 2007 largely due to ROC grants

from $13.0 million to $9.5 million

• Revenues forecast increase slightly with aggressive

collections and new agreement with Ship Registry

• Federal grants forecast to be steady

• Special Revenues increase due to more accurate

assessment of revenues

• FY 2008 Budget projected at $123.6 million

• Slight decline from FY 2007 largely due to ROC grants

from $13.0 million to $9.5 million

• Revenues forecast increase slightly with aggressive

collections and new agreement with Ship Registry

• Federal grants forecast to be steady

• Special Revenues increase due to more accurate

assessment of revenues

19

FY 2008 Tentative Budget Figures

Funding Source FY 2007 FY 2008Domestic Revenue 30,511,827$ 30,999,890$ Compact Sector & Other Grants 39,982,002$ 40,272,580$ Special Revenues 5,977,336$ 7,528,008$ Federal Grants 8,414,586$ 7,310,129$ Overseas Revenue (ROC recurrent and projects)

13,000,000$ 9,500,000$

Compact Trust Fund 8,949,592$ 9,713,700$ Kwajalein Impact Funds 2,000,497$ 2,050,670$ Kwajaleing Landowner payments 15,793,397$ 16,189,500$ Total 124,629,237$ 123,564,476$

20

FY 2008 Compact sector grant allocations

FY 2008 Compact Sector Grants Breakdown FY 2008 proposed Sector Allocations

Education 11,336,978$ Health 6,512,349$ Private Sector -$ Capacity Building 300,000$ Environment -$ Infrastructure Development 11,855,213$ Total Compact Sector Grants 30,004,540$

21

FY 2008 Education Spending

MOE Outcomes & Tuition/Fees Auxiliary

Related Agencies Pell Grants Enterprise

Non-Appro Non-Appro

$2,434,377 $521,989 0 $136,333 $1,951,139 $3,138,490 0 0 0 $8,182,328

$86,959 $234,615 0 $158,256 $279,000 $876,286 0 0 0 $1,635,116

$7,099,217 $1,233,940 0 $1,380,835 $0 $720,710 0 0 0 $10,434,702

0 0 0 0 0 0 0 0 0 0

$716,426 $173,221 0 $100,000 0 $669,000 0 0 0 $1,658,647

0 $60,180 $174,631 0 0 $486,004 0 0 0 $720,815

0 0 0 0 $54,173 0 0 0 0 $54,173

College of Marshall Islands

$1,000,000 $2,000,000 0 0 $1,100,820 $100,000 $5,000,000 $2,309,595 $296,100 $11,806,515

Total $11,336,979 $4,223,945 $174,631 $1,775,424 $3,385,132 $5,990,490 $5,000,000 $2,309,595 $296,100 $34,492,296

National Scholarship Board

National Training Council

4-Atoll Feeding Program

MOE Outcome 1: Curriculum

MOE Outcome 2: Teacher training

MOE Outcome 3: Improving student performance

MOE Outcome 4: Infrastructure development and maintenance plan

Table 1: MOE Funding (total $) by Outcome, Agency and SourceCompact Base

GrantGeneral Fund Special

RevenueEbeye Special

NeedsFederal and other Grants

SEG Capital Total

22

FY 2008 Recurrent Education Spending by Outcomes

Curriculum30.4%

Teacher training6.1%

Improving student performance

38.8%

NTC2.7%

4-Atoll feeding program0.2%

Scholarship Board6.2%

College of the Marshall Islands15.6%

23

FY 2008 Health Spending

Other

Grants

$777,455 $492,349 $648,000 $500,296 0 0 0 2,418,100

$0 $378,697 $30,000 $775,634 $73,720 0 0 1,258,051

$3,014,918 $1,110,817 $1,609,000 1,318,796 0 0 7,053,531

$1,043,707 $373,637 $651,000 $76,204 0 0 $1,410,434 3,554,982

$59,429 0 0 $28,740 0 0 $91,884 180,053

$32,298 $126,363 $15,000 $518,046 0 0 $68,088 759,795

$1,584,542 $502,630 $252,000 584,891 0 0 0 2,924,063

0 $145,549 0 0 0 0 0 145,549

0 0 $2,772,000 0 0 0 0 $2,772,000

Total $6,512,349 $3,130,042 $5,977,000 $3,802,607 $73,720 0 $1,570,406 $21,066,124

* Not inclusive of Section 177 Federal grant

Outcome 8: Health Information Service

Outcome 9: Overseas referrals

Outcome 4: Ebeye Hospital

Outcome 5: Effectiveness of Ebeye HospitalOutcome 6: Ebeye Primary and Preventative

Outcome 7: MoH Administration

Outcome 1: Outer Islands Primary and Preventive

Outcome 2: Majuro Primary and Preventive

Outcome 3: Majuro Hospital

Diagram 1: MOH Funding (total $) by Outcome, Agency and SourceMOH Outcomes Compact

Base GrantGeneral

FundHealth Fund & Health Care

US Federal Grants*

Other Revenues non-appr’t

Ebeye Special Needs

Total

24

FY 2008 Recurrent HealthSpending By Outcomes

OI Primary and Preventative

11.5%

Majuro Primary and Preventative

6.0%

Majuro Hospital33.5%

Ebeye Hospital17.7%

Ebeye Primary and Preventative

3.6%

MoH Administration13.9%

Overseas referrals13.2%

MoH Information Services

0.7%

25

Infrastructure Development

• Infrastructure Development Plan is consistent with the RMI’s sectoral priorities, the Education and Health Sectors:

• Elementary Schools

• Majuro Hospital Redevelopment

• The College of the Marshall Islands

• Matching for FAA airport grants;

• Infrastructure grant declines in FY 2008 to increase sector grant to Education and Health but still well above 30% requirement

26

FY 2008 Capital Infrastructure

FY 2008 Infrastructure AllocationsFY 2008

Ministry of Education Elementary Schools 4,695,676$ Majuro Hospital 779,900$ College of the Marshall Islands 5,000,000$ Marshall Islands Airports Authority (FAA Matching) 786,876$ Infrastructure Maintenance Fund 592,761$ Total 11,855,213$

27

FY 2008 Infrastructure Plan

Majuro Hospital6.6%

Ministry of Education Elementary Schools

39.6%

Infrastructure Maintenance Fund

5.0%

College of the Marshall Islands42.2%

Marshall Islands Airports Authority (FAA Matching)

6.6%

28

• Overall fiscal position is improving; • Tighter expenditure control measures in place to meet modest

revenues collected (fuel tax);• ADB debt arrears in FY 2007 have been paid;• Marshalls Energy Company has resumed selling diesel fuel

after its recent re-financing initiative and establishment of template rates in coincide with fuel costs;

• Collected total tax arrears of $1.3 in FY 2006 & 2007 combined, resulting from improved enforcement and greater compliance;

• New Ship Registry agreement of contribution from $1.0 million to $2.0 million per annum.

Recent Fiscal Developments

29

Decrement Management

• Full inflation is critical to cope with rising costs and allow time to

make fiscal adjustments;

• Cost controls through hiring and wage freeze policy;

• Improved tax administration - auditing division, DOI TA on tax &

customs modernization systems & staff training

• Broadened tax and revenue base - e.g. elimination of import tax

exemptions;

• Comprehensive tax review

30

Compliance Management: Audit

• No. of Audit Findings: FY 2003 (33) - FY2006 (10);

• No. of unauditable Component Units: 8 to 2;

• Initiating DOI TA aims to assist Component Units;

• Fixed Assets Finding removed after 17 years;

• Total Questioned Cost is lowest ever;

• RMI’s aim to achieve a clean audit by FY 2008.

31

Compliance ManagementOffice of Compact Implementation

The Cabinet has approved the establishment of an Office of Compact Implementation (OCI) in the Ministry of Foreign Affairs.

OCI will be responsible for coordinating, with other Offices, all Compact matters including:

• Performance budgeting and monitoring• MTBIF• Infrastructure programming• Section 215 report• JEMFAC preparations• Compact Trust Fund reporting

32

Compliance Management Performance Budgeting

• FY 2008 Budget includes $300,000 public sector capacity building grant for consolidating and expanding performance budgeting throughout Government;

• The grant will be managed out of the newly formed Office of Compact Implementation in the Ministry of Foreign Affairs;

• The intention is to phase out over time as performance budgeting becomes firmly established within the Ministries and Agencies.

Education - Reform Initiatives

• Personnel Auditing Initiative

• Improving Data Collection & Analysis

• Reviewing the Current Strategic Plan

• Legislative Proposed Act requiring;• Teacher Certification Process• Minimum Standard for Teacher Qualifications

33

34

Thank you

“Kommoltata”