slide RMI Economic Review JEMCO-JEMFAC, August 2013 Graduate School USA, Pacific & Virgin Islands Training Initiatives 1

slide Graduate School USA Pacific Islands Training Initiative RMI Presentation Economic Performance Economic Policy Compact Trust Fund 36

slide Graduate School USA Pacific Islands Training Initiative REAL GDP and Per Capita GDP % GDP Growth from FY03 to FY12 0.8% GDP Per Capita Growth

slide Graduate School USA Pacific Islands Training Initiative Average Wage Rates % Average Private Wage Growth During Amended Compact Period 1.3% Average Public Wage Growth During Amended Compact Period

slide Graduate School USA Pacific Islands Training Initiative Employment by Sector % Average Private Wage Growth During Amended Compact Period 1.8% Average Public Wage Growth During Amended Compact Period

slide Graduate School USA Pacific Islands Training Initiative Govt Revenues vs Expenditures 40

slide Graduate School USA Pacific Islands Training Initiative Govt Employment & Avg Wages 41

slide Graduate School USA Pacific Islands Training Initiative External Debt 42

slide Graduate School USA Pacific Islands Training Initiative FY12 Subsidies to SOEs 43 $11 million in Subsidies in FY12

slide Graduate School USA Pacific Islands Training Initiative Outmigration & GDP 44 -7, % ANNUALLY

slide Graduate School USA Pacific Islands Training Initiative CAP (not implemented) TRAM (under consideration) SOE Framework Legislation (with Nitijela) ADB Public Sector Program (closed-out) External Debt Management (with Nitijela) World Bank ICT Reform (underway) Decrement Management, MTBIF & the Fiscal Management Model (requires sustained attention) RMI Policy Initiatives 45

slide Graduate School USA Pacific Islands Training Initiative RMI Policy Issues FISCAL MANAGEMENT ISSUES/OPPORTUNITIES Infusion of additional resources supports previously unplanned expenditures in FY13: $3 million from World Bank (ICT reforms); $6 million from ADB as 2nd tranche of PSP Large surplus from Vessel Day Scheme (VDS), US treaty and $5,000 VDS rate; (MIMRA revenues in FY12 over $10 million) Similar infusions likely in FY14: $5 million possible from World Bank (ICT reforms); Continued large surplus from VDS with anticipated increase to $6,000 daily rate. 46

slide Graduate School USA Pacific Islands Training Initiative RMI Policy Issues DECREMENT MANAGEMENT, MTBIF & THE FISCAL MANAGEMENT MODEL RMI implementation of the MTBIF could have addressed 1 st step of the requirement for a decrement management plan Line agency ownership and leadership adoption were absent Budgets did not reflect commitments Table submitted to USG in late July based on the Fiscal Management Model provided only a medium-term revenue forecast. A serious dialogue to specify a way forward is required; sustained solutions will take time 47

slide Graduate School USA Pacific Islands Training Initiative RMI Compact Trust Fund OBSERVATIONS Management of the CTF further streamlined and improved; investment costs are admirably low and investment policy monitoring/updates reflect high standard of care Annual report for FY2012 continues improvements, building on the FY2011 report Looming need to focus on “distribution policy” per TF Agreement Article 15(1) Projections on CTF “effectiveness” could be further improved for clarity New issue  25 percent of annual grants continue after FY2023 per Military Use and Operating Rights Agreement 48

slide Graduate School USA Pacific Islands Training Initiative RMI Compact Trust Fund 52

slide Graduate School USA Pacific Islands Training Initiative RMI Compact Trust Fund 54

slide Graduate School USA Pacific Islands Training Initiative RMI Compact Trust Fund 55 $557m

slide Questions or Comments? JEMCO-JEMFAC, August Graduate School USA, Pacific & Virgin Islands Training Initiatives

slide Graduate School USA Pacific Islands Training Initiative FSM Policy Issues PUBLIC EXPENDITURE & FINANCIAL ACCOUNTABILITY (PEFA) PEFA is a framework for the assessment of Public Financial Management (PFM) developed by the World Bank and IMF Implemented in many countries in the world PEFA focuses on PFM systems rather than fiscal objectives PEFA is based on an international standards and provides a precise measurement system. 28 high level indicators Further sub-categories FSM conducted a self and formal assessment with evaluators from PFTAC, World Bank, Forum, FSM, etc. Requested PFTAC to develop “Road Map” for PFM and PEFA 19