Economic Overview

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The economy of the Marshall Islands is closely linked to that of the United States, and the U.S. also controls the security and defence of the islands. After growing at a steady pace in recent years, the country’s economy was impacted by the COVID-19 global crisis, with GDP growth turning negative in 2020 (-1.6%). However, real GDP growth recovered in 2021 (+1.7%) and 2022 (+1.5%), thanks to higher fishing activities and strong donor support. According to the latest forecast from the International Monetary Fund, growth is projected at 3.2% this year and 2% in 2024 (helped by the expected rebound of the tourism sector), still below the pre-pandemic average. The country’s economic geography represents a binding constraint to achieving sustainable long-term growth, being characterized by extreme remoteness, small size, geographic dispersion, environmental fragility and limited natural resources.

The country’s debt-to-GDP ratio increased to 20.8% in 2022 from 19.8% one year earlier, and is expected to follow an upward trend in coming years, despite grant assistance from development partners (international aid contributes 70% of the state budget), along with domestic resource mobilization and reprioritization of expenditures by the government. Sizable budgetary grants under the Compact Agreement of the Republic of Marshall Islands with the United States may have been lost with the expiration of the agreement in September 2023; however, the two countries signed a memorandum of understanding on the renewal of the economic provisions of the Compact in January 2023. In the fiscal year 2022, the government's resources declined more quickly than its spending due to a 15% reduction in grants and lower revenue from fishing licenses, resulting in a fiscal deficit equivalent to 2.6% of the GDP. Nonetheless, grant funding, which had been elevated in prior years to aid in the pandemic response, persisted, minimizing the need to borrow. The government is likely to incur a fiscal deficit equal to around 2.9% of GDP in both FY2023 and FY2024 (Asian Development Bank). FY2022 saw an inflation rate of 3.3%, which was largely influenced by the costs of transportation and food; however, this figure remained lower than the rates observed in other North Pacific economies. The Asian Development Bank expects inflation to rise to 3.7% during FY2023 as a result of the revival of business activities and increased power tariffs in major urban centres like Majuro and Ebeye. In addition, due to high international fuel prices and sustained demand growth, inflation is likely to remain at a high level of 3.5% during FY2024. However, the tourism sector is hard to develop due to the high cost of access to the islands. Lastly, the services and banking sectors are relatively well developed and represent about two-thirds of the country's real GDP, while industry contributes around 10.3%. The Marshallese government made cryptocurrency legal tender in May 2018 alongside the U.S. dollar: with this new currency, called sovereign or SOV, the Marshall Islands became the first country in the world to fully embrace the digital economy.

The government of the archipelago does not provide official figures on unemployment, which is estimated to be relatively high (especially for young people). The RMI government is the country’s largest employer, employing roughly 46% of the salaried workforce. The Marshall Islands are classified as an upper-middle-income country by the World Bank, although the GDP per capita (PPP) was estimated at only USD 4,395 as of 2022 by the IMF.

Foreign Trade

The Marshall Islands is very open to foreign trade, which accounts for 116% of  its GDP (World Bank, latest data available). Custom duties are relatively low, and the country has very few trade barriers. However, the Marshall Islands has very limited natural resources and consequently little base for exports. In 2021 (latest data available - International Trade Centre), the country mainly exported ships (90%); fish (5.8%); mineral fuels (1.5%); and electrical machinery (1.3%); whereas imports were led by ships (56.7%); mineral fuels (25.8%); machinery (11.4%); and iron and steel (3%).

According to the latest data by ITC, in 2021, the main destinations for the country’s exports were Denmark (33.6%), South Korea (20.1%), Germany (14.7%), Poland (9.2%), and Cyprus (3.7%); while the main countries for imports were Singapore (25.2%), South Korea (24.3%), China (22.4%), Japan (8.5%), and Cyprus (2.1%). Overall, the country lacks adequate infrastructure and airline transportation and is fairly far from the developed economies of the region (e.g. Japan, Australia, etc.). Trade policy is conducted by the COFA Agreement under which the country has duty-free access to the U.S. market, and is also a member of the Pacific Island Countries Trade Agreement (PICTA) and the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA).

The country imports in high volumes, while its exports are very weak, resulting in an enormous trade deficit. According to figures from ITC, in 2021 the Marshall Islands exported USD 1.4 billion worth of goods (up by 85% year-on-year), whereas imports decreased by 5% (to USD 14.2 billion). Data from the World Bank show that the country's external trade deficit stood at 23.1% of GDP in 2021, down from 37.4% one year earlier.