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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 dropping an estimated 2.4% in 2020 and 1.5% in 2021 (IMF). According to the latest forecast from the International Monetary Fund, growth is projected at 3.5% this year and 2.5% in 2023, 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 14.4% in 2021, from 19% one year earlier, and is expected to float around 15% in the coming years, thanks to grant assistance from development partners (international aid contributes 70% of the state budget), along with government’s own funds from domestic resource mobilization and reprioritization of expenditures. The Marshall Islands also received temporary unemployment assistance from the U.S. under the 2020 Coronavirus Aid, Relief, and Economic Security Act. Nevertheless, sizable budgetary grants under the Compact Agreement of the Republic of Marshall Islands with the United States will be lost with the expiration of the agreement in 2023. The loss would be only partially compensated by disbursements from a Compact Trust Fund (CTF) set up for this purpose. The country’s current account is expected to remain positive by 6% in 2022, marking a significant contraction from the 2020 level of 13.4% (Asian Development Bank). Inflation stood at 0.6% in 2021 and is projected to gradually increase to 1.6% this year and 2% in 2023 (IMF). The government is attempting to develop the country's marine resources (fishing and aquaculture) as well as tourism and agriculture. 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 represents about half of the country's real GDP, while industry contributes around 12.8%. 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 digital economy.

The government of the archipelago does not provide official figures on unemployment, which is estimated to affect 6.4% of the population and 26% of the youth according to the World Bank’s latest figures from 2019. 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 3,767 as of 2021.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 0.240.240.240.250.27
GDP (Constant Prices, Annual % Change) 6.8-2.4-1.53.52.5
GDP per Capita (USD) 4,2934,4134,3384,5264,694
General Government Gross Debt (in % of GDP) 24.819.0e14.414.715.3
Inflation Rate (%) -0.5-0.30.61.62.0
Current Account (billions USD) -0.060.040.010.00-0.00
Current Account (in % of GDP) -25.916.23.60.4-0.5

Source: IMF – World Economic Outlook Database , October 2021

Note: (e) Estimated Data

Country Risk

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Main Sectors of Industry

Breakdown of Economic Activity By Sector Agriculture Industry Services
Value Added (in % of GDP) 20.2 14.1 68.0
Value Added (Annual % Change) 31.7 15.2 1.0

Source: World Bank - Latest available data.

 
Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 USD 0.940.890.850.890.88

Source: World Bank - Latest available data.

 

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Foreign Trade

The Marshall Islands is very open to foreign trade (104% of 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 2019 (latest data available - International Trade Centre), the country mainly exported passenger and cargo ships (mostly re-exports), fish and broadcasting equipment. Imports were led by passenger and cargo ships, fuel, machinery and equipment.

According to the latest data by UNCTAD, the main destination for the country’s exports are Poland (30.9%), Denmark (20%), South Korea (14.5%), Indonesia (10.9%), and Cyprus (7.2%). Historically, the major import partners are South Korea, Singapore, China and Japan. The country lacks adequate infrastructure and airline transportation, and is fairly far from the developed economies of the region (e.g. Japan, Australia). 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, which has been increasing in recent years. According to figures from WTO, in 2020 the Marshall Islands exported USD 44 million worth of goods (down by 20% year-on-year), whereas imports increased by 10.3% (to USD 75 million). According to data from the World Bank, the country's external trade deficit stood at 34.5% of GDP in 2020, up from the record low of 73% one year earlier.

 
Foreign Trade Values 20162017201820192020
Imports of Goods (million USD) 14590756875
Exports of Goods (million USD) 4740415544
Imports of Services (million USD) n/an/a000

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20142015201620172018
Foreign Trade (in % of GDP) 150.1136.5113.8122.7125.6
Trade Balance (million USD) -45-60-66-58-33
Trade Balance (Including Service) (million USD) -93-111-124-83-46
Imports of Goods and Services (Annual % Change) -6.4-0.90.510.93.1
Exports of Goods and Services (Annual % Change) 10.9-2.9-11.3-2.38.6
Imports of Goods and Services (in % of GDP) 99.591.777.483.685.2
Exports of Goods and Services (in % of GDP) 50.644.836.439.140.4

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20212022 (e)2023 (e)2024 (e)2025 (e)
Volume of exports of goods and services (Annual % change) 2.37.92.32.72.4
Volume of imports of goods and services (Annual % change) 0.00.00.00.00.0

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Member of Pacific Islands Forum (PIF)
 
 

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