Economic Overview

The economy of the Marshall Islands is closely linked to that of the United States, and the U.S. also controls the security and defense of the islands. The country is in the midst of a post-pandemic recovery. Real GDP declined by 4.5% in the fiscal year ending September 2022 due to lower fisheries production arising from the sale of a fishing vessel by a domestic operator. According to the IMF, growth is expected to strengthen to 3% in FY2023 and FY2024 on the back of improvements in copra production, fishing revenues, and transshipment activities. 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 decreased to 18.1% in 2023 from 19.2% one year earlier, and is expected to remain relatively stable in coming years thanks to 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 are expected under the Compact Agreement of the Republic of Marshall Islands with the United States: the new COFA agreement was approved by the U.S. on March 9, 2024, and will deliver a total of USD 6.5 billion in assistance to the three North Pacific countries (Marshall Islands, Palau, and Micronesia) over the next 20 years starting in FY24. In FY2022, despite falling taxes and receding COVID-related grants, RMI recorded a fiscal surplus of 0.7% of GDP due to a contraction in expenditure of 4.5% of GDP as spending on goods and services, and investments fell. A balanced budget was achieved as COVID-19-related grants were withdrawn in FY 2023; while a fiscal surplus of 1.7% of GDP is projected for FY24, with modest surpluses expected from FY25 onwards due to new Compact funding (World Bank). Inflation moderated to 3% in FY23 from 5% in FY22 as supply chain disruptions eased, leading to a reduction in food and fuel prices. In line with easing global food and energy prices, inflation in FY24 is expected to subside to 2.5%, before further declining to 2% from FY25 onwards. 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 a lower-middle-income country by the World Bank, with a GDP per capita (PPP) estimated at only USD 7,092 as of 2022.

Foreign Trade