Federated States of Micronesia: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Federated States of Micronesia

The 2023 Article IV Consultation discusses that the Federated States of Micronesia (FSM) experienced a short-lived recovery in 2021 from Covid, but economic activity has since stagnated because of additional shocks. Economic growth rebounded to 3 percent in FY2021, led by the fisheries sector and government support. However, economic growth is estimated to have averaged zero in FY2022–2023. FSM’s near-term economic prospects will get a boost from higher public investment. Growth in FY2024 is projected at 1.1 percent before accelerating further to 1.7 percent underpinned by continued recovery in tourism, as well as higher public spending partly funded by the higher grants under the new Compact of Free Association (COFA) agreement with the United States. The FSM economy remains highly vulnerable to shocks, such as an increase in global commodity prices, extreme climate events, and potential delays of the COFA agreement. Moreover, the acceleration of outward migration would severely jeopardize already constrained labor supply, affecting implementation of large public projects. The underdeveloped private sector remains vulnerable, and deteriorating infrastructure hinders growth and social goals, especially on health. The adverse impact of climate change is increasingly being felt raising food security concerns.