## 1. Priority Recommendations

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---

### Summary of mission outcomes and priority recommendations
- A virtual technical assistance (TA) mission supported by the IMF’s Asia and Pacific Department (APD) was conducted by the IMF Statistics Department (STA) and the Pacific Financial Technical Assistance Centre (PFTAC) during October 25 – November 2, 2021.
- The mission assisted the Department of Resources and Development (DoRD), National Statistics Office (NSO) improving the compilation and dissemination of Government Finance statistics (GFS) and Public Sector Debt Statistics (PSDS) according to the Government Finance Statistics Manual 2014 (GFSM2014) and the Public-Sector Debt Statistics Guide 2011 (PSDSG 2011).
- The mission was conducted under the Data for Decisions (D4D) trust fund and the PFTAC GFS capacity development project.
- The mission held discussions with DoRD management, GFS compilers, and the Department of Finance and Administration (DoFA) on progress made.
- COVID-19 travel restrictions have delayed finalization of audited financial statements (AFS) across all sectors; only three out of eighteen recommendations were accomplished mainly because of source data unavailability (Appendix I).
- AFS for fiscal year (FY) 2020 for budgetary central government (BCG) and state governments (SGs) was not available at the time of the mission; additional assistance may be required to complete BCG and SG FY 2020 GFS when the AFS are completed.
- Hands-on training and technical support were provided in the compilation of extrabudgetary units (EBUs) and the social security fund (SSF) GFS; AFS for FY2019 was available from the FSM Office of the National Public Auditor webpage and were used to bridge financial information to the GFS using Microsoft Excel working files. These datasets were completed by the end of the mission; some FY2020 statements were also available and included.
- The NSO updated Microsoft Excel software to the 2016 version (a high priority recommendation from the previous mission).
- DoFA’s chart of accounts (CoA) and FMIS reform project encountered delays but regained traction; the DoFA shared an updated CoA / FMIS project document. The new FMIS may create the opportunity to produce quarterly and preliminary annual GFS reports. The mission encouraged DoRD to collaborate with DoFA to ensure incorporation of economic and functional classification aligned to GFSM 2014 in the new CoA and FMIS.
- DoFA compiles a quarterly COVID-19 expenditure report to Congress; the mission encouraged DoFA to release this information on the website as it provides useful information for surveillance and policy making.
- The mission assisted in compilation of PSDS for the FSM public sector using AFS as source and worked with the World Bank (WB) to formalize an official request to the Secretary for the DoFA to participate in the joint IMF/WB quarterly public sector debt (QPSD) database.
- The mission assisted in completion of the PSDS data gap analysis and action plan.
- The mission recommended reviewing and updating existing business process documentation; amend and update guidelines by incorporating PSDS compilation and dissemination procedures to sustain ongoing operations and mitigate risks from staff transitions.

### Priority recommendations (Table 1)
- Target Date: Immediate
  - Priority Recommendation: Complete PSDS for the public sector FY2019 (2019Q4) and submit to the World Bank.
  - Responsible Institutions: DoRD/DoFA
- Target Date: January 2022
  - Priority Recommendation: Compile and disseminate BCG and SGs GFS for FY2020 upon receiving the AFS.
  - Responsible Institutions: DoRD
- Target Date: March 2022
  - Priority Recommendation: Compile PSDS for the public sector FY2020 (2020Q4) and submit to the World Bank.
  - Responsible Institutions: DoRD/DoFA
- Target Date: December 2021
  - Priority Recommendation: Release COVID-19 expenditure report on the DoFA website.
  - Responsible Institutions: DoFA

### Detailed technical assessment and recommended actions

A. Institutional Sectorization
- Findings:
  - Two new institutional units established in the FSM: Telecommunications Regulatory Authority (TRA) and FSM Telecommunications Cable Corporation (FSMTCC).
  - TRA created under FSM Public Law 18-52 in 2014, commenced operations in 2019; funded by license fees, grants and donations, and moneys appropriated by Congress; initially funded by an operating grant and a World Bank grant; currently classified as a nonmarket producer.
  - FSMTCC incorporated under FSM Public Law 18-52 in 2014; two equal shareholders (Secretary of DoFA and Secretary of DTC&I); governed by five-member Board of Directors; received a license to operate in 2019, building cable network across FSM; initial capital for 2018 and 2019 mainly from grants from FSM government and the World Bank; advised to classify as a public nonfinancial corporation (NFPC) and to review classification after at least five years of operations.
  - Four component units omitted from the Yap Government AFS due to lack of financial information: Gagil-Tomil Water Authority, Southern Yap Water Authority, Yap Fishing Authority, and Yap Sports Council; auditors indicated operations of these units were immaterial (apart from Yap Fishing Authority).
- Recommended action:
  - Update the IU table and compilation files to reflect the addition of the TRA and FSMTCC since they started operations.
  - Conduct an annual review of the IU table and update as necessary and agree the IU table across all macroeconomic statistics frameworks.
  - Continue to work with the Yap State statistics office to investigate collection of financial information for omitted component units to be included in EBUs data time series.

B. Chart of Accounts and Financial Management Information System
- Findings:
  - CoA/FMIS reform project encountered delays due to bidding not aligned with allotted budget and staff turnover; new project manager hired.
  - New structure of CoA proposed in January 2021 tentatively approved with some flexibility; official approval pending finalization.
  - Implementation date for new CoA/FMIS for national and state governments undetermined.
  - New FMIS could accommodate higher frequency reporting and produce GFS fiscal report; draft CoA considers GFSM 2014 codes, including three digits of COFOG and four (with up to six) digits of economic classification.
  - Draft CoA coding needs to be shared with NSO for bridging national codes to GFSM 2014; pilot testing phase advised to ensure compliance between project scoping and implementation.
- Recommended action:
  - DoRD should collaborate with DoFA to ensure successful incorporation of economic and functional classification aligned to GFSM 2014 in the new CoA and FMIS.

C. Government Finance Statistics data compilation and dissemination
- Findings:
  - NSO updated Microsoft Excel to the 2016 version, improving compatibility with STA’s annual GFS questionnaire.
  - AFS, primary data source for GFS compilation, were not available for all GG units on the FSM Office of the National Public Auditor webpage at mission start; AFS for BCG and SGs were not available and expected to be completed by end December 2021.
  - EBUs, SSF, and public corporations (PCs) datasets for FY2019 were completed by end of mission; included Kosrae Housing Authority and the TRA with available financial statements FY2016 to FY2019; some FY2020 statements included.
  - Current compilation can aggregate subsector GFS but cannot yet consolidate (GG consolidation requires elimination of intra-and intergovernmental transactions and debtor-creditor relationships using AFS notes).
- Recommended action:
  - Update BCG and SG working files and transfer the data to the annual GFS questionnaire and submit the data to IMF STA.
  - Compilers should at least once a month populate and bridge the data for one of the EBUs or the SSF to ensure continuous understanding and ease of compilation.

D. COVID-19 Expenditure
- Findings:
  - DoFA compiles a quarterly report on FSM COVID-19 Health and Livelihoods Support Program expenditure and submits it to Congress.
  - FSM signed a US$14million agreement in grants received from Asian Development Bank (ADB) in November 2020, effective in December 2020 until September 2021; objective: alleviate COVID-19 effects, control spread, inject stimulus, and provide social assistance to poor and vulnerable groups.
  - A steering committee meets and allocates funding on a quarterly basis across five programs funded by the grant:
    - Support to low-income households (LIHH): distribution subject to data collection from the LIHH questionnaire; questionnaires first launched in Pohnpei then distributed to Yap, Kosrae and Chuuk.
    - Food security program: distributed based on allocation per state; disbursement delayed due to reiteration of applicable criteria focusing on community needs.
    - COVID-19 community grants: targets community level, focuses on raising awareness and education on self-preventive measures; disbursement relatively efficient.
    - Small/Micro-enterprise loans: managed by the FSM Development Bank with lighter criteria and easier process than normal loans; most loan applications approved; disbursement efficient.
    - Support for the elderly, disabled and gender-based violence (GBV) survivors: provides social assistance to vulnerable groups and is subject to LIHH questionnaire information.
- Recommended action:
  - Release the DoFA quarterly COVID-19 expenditure report on the DoFA website to support surveillance and policy making.

### COVID-19 related spending and program implementation (additional details)
- By June 2021, the FSM disbursed close to US$ 4 million from the ADB grant. Only LIHH, the COVID-19 community grants and small-micro-enterprise loans were spent.
- Program rollout constraints:
  - Progress of support program to low-income households and to vulnerable groups was moderate due to the slow process of identifying qualified beneficiaries from data entry and questionnaire collection.
- Additional COVID-19 related fiscal measures and spending:
  - Tourism Mitigation Fund: US$ 5.8 million.
  - Pandemic unemployment assistance: US$ 14.9 million (total).
  - Other payments to assist citizens and non-citizens affected by COVID-19 restrictions (amounts not separately quantified in the excerpt).
- Recommended action (COVID-19 reporting and statistics):
  - Publish FSM COVID-19 Health & Livelihoods Support Program quarterly reports on the DoFA website to support surveillance and policy making.
  - Ensure GFS compilers can identify COVID-19 expenditures from the AFS to ensure correct statistical treatment for fiscal statistics compilation.

### Public sector debt statistics: institutional arrangements and compilation
- Invitation and participation:
  - The WB extended an invitation to the FSM to participate in the QPSD database; mission assisted to formalize an official request to the Secretary of the DoFA.
  - Country practice: invitations usually extended to DoFA, debt management division; institutional responsibility should be agreed among agencies via a memorandum of understanding.
- Technical assistance and diagnostics:
  - Mission assisted compilers to complete the D4D PSDS gap analysis assessment, heatmap and action plan.
  - NSO and DoFA officials attended the virtual APD PSDS workshop (October 2020) but could not complete the entire workshop; mission completed outstanding gap analysis and action plan documents.
- Compilation approach and data sources:
  - PSDS can be compiled using the same working files used to compile GFS for all public sector units; AFS populate working files with balance sheet information allowing compilation of liabilities and debt aggregates.
  - Consolidation requires identification of debtor–creditor relationships; mission identified on-lending loan stock positions between the BCG and other public sector units from AFS notes to eliminate double counting.
  - No elimination was done for other accounts payable (OAP); detailed assessment of AFS information is required to address this.

### Key public sector debt findings and statistics (as compiled during the mission)
- Methodology and coverage note:
  - The DSA methodology, scope and coverage differ from PSDSG 2011 guidelines; differences partly explain divergent debt estimates.
- DSA (Article IV staff report November 2021) comparison:
  - Total public debt of the national and state governments for 2018 assessed in the DSA: US$ 88.1 million, of which US$ 83.7 million was external debt.
- Mission-compiled gross public sector debt stock (as of September 30, 2019):
  - Total gross public sector debt stock: US$ 201 million, equal to 49% of GDP.
  - Creditor residency:
    - Domestic creditors: US$ 125.4 million.
    - External creditors: US$ 75.6 million.
  - Sector composition:
    - General Government (GG): US$ 132.2 million (equal to 32 percent of GDP).
    - Financial and nonfinancial public corporations: US$ 68.8 million (equal to 17 percent of GDP).
  - Instrument composition and OAP:
    - Other accounts payable (OAP) account for 60% of public sector gross debt stock and 29 percent of GDP (2019).
    - OAP debt stock for the PS: US$ 119.6 million, of which:
      - GG: US$ 82.7 million.
      - Public financial and nonfinancial corporations sector: US$ 36.9 million.
    - For the GG, budgetary and state governments present the largest portion of OAP: US$ 45.9 million and US$ 29.2 million respectively.
  - Notes on data content:
    - Financial statements’ OAP items include amounts payable to component units, payments due to the primary government, payments due to FSM state governments, compensated absences payable, tax refunds payable, unearned revenues, and accounts payable and accruals not classified elsewhere.
    - Financial statements do not provide sufficient information on OAP counterparts, specific debt characteristics, and arrears; such detail could be obtained from the financial system.
- Preliminary assessment impact on DSA:
  - Preliminary finding suggests that the bottom-line assessment for the DSA remains broadly unchanged with this debt stock information, although the threshold of the present value of external debt-to-GDP ratio and the threshold of the public debt-to-GDP ratio are projected to be breached by a few years earlier than those projected for 2021 DSA.

### Recommended actions on public sector debt statistics (PSDS)
- Institutional and submission actions:
  - Authorities should discuss and agree among agencies who will take primary responsibility for compiling and submitting the PSDS.
  - Authorities should complete PSDS for the public sector FY2019 (2019Q4) and submit upon acceptance of participation in the joint IMF/WB QPSD database.
  - Once the AFS for 2020 is completed, authorities should compile PSDS for the public sector FY2020 (2020Q4) and submit to the joint IMF/WB QPSD database.
- Next steps and technical areas:
  - Discuss debt valuation, maturity, and possibilities of full public sector debt consolidation.
  - Obtain more detailed creditor information and debt characteristics from financial systems to analyze OAP and eliminate double counting where appropriate.

### Staff resources, capacity constraints, and business process recommendations
- Staffing and workload:
  - NSO continues to experience resource constraints with two officials in charge of GFS while also handling other statistics.
  - Primary GFS compiler also works on consumer price index (CPI) statistics; a senior official overseeing GFS compiles and disseminates balance of payments and real sector statistics.
  - The two compilers also support social statistics, population census, and household income expenditure surveys.
- Implications:
  - Although fiscal and debt statistics are currently compiled annually, significant resources are required to produce GFS for the GG and to complete consolidation work.
  - Business process documentation should be reviewed and clarified to meet compiler needs.
- Mission recommendations on capacity:
  - More training and practice are needed to ensure continuity and sustainability of GFS compilation in the long term.
  - More resources should be planned to accommodate annual and higher frequency fiscal and debt statistics.

### Priority actions, milestones, and selected target dates (progress as of October 2021)
- Publish COVID-19 expenditure report on the DoFA website — Target Completion Date: December 2021.
- 2021 Priority: Complete PSDS for the public sector FY2019 (2019Q4) and submit to the WB — Target Completion: Immediate.
- 2021 Priority: Compile PSDS for the public sector FY2020 (2020Q4) and submit to the WB — Target Completion Date: March 2020 (as stated in source).
- Compile and disseminate BCG and SGs GFS for FY2020 upon receiving the AFS — Target Completion Date: January 2022.
- Other selected targets and notes:
  - Participate in discussions and review mapping of economic segment in the new FMIS — Target Completion Date: June 2021 (discussed in October 2021 mission with DOFA).
  - Ensure grants received by BCG are properly classified and reported in the new FMIS — Target Completion Date: December 2022.
  - Consolidate BCG and other GG units’ annual data — Target Completion Date: September 2022 (no progress as of October 2021).
  - Compile quarterly GFS for BCG once new FMIS can generate quarterly reports — Target Completion Date: November 2022.

*Federated States of Micronesia — Summary of Mission Outcomes and Priority Recommendations (section 1).*

### 1. Priority Recommendations _______________________________________________________________________ 6

### 1. Priority Recommendations

### Summary of mission outcomes and priority recommendations
- A virtual technical assistance (TA) mission supported by the IMF’s Asia and Pacific Department (APD) was conducted by the IMF Statistics Department (STA) and the Pacific Financial Technical Assistance Centre (PFTAC) during October 25 – November 2, 2021.
- The mission assisted the Department of Resources and Development (DoRD), National Statistics Office (NSO) improving the compilation and dissemination of Government Finance statistics (GFS) and Public Sector Debt Statistics (PSDS) according to the Government Finance Statistics Manual 2014 (GFSM2014) and the Public-Sector Debt Statistics Guide 2011 (PSDSG 2011).
- The mission was conducted under the Data for Decisions (D4D) trust fund and the PFTAC GFS capacity development project.
- The mission held discussions with DoRD management, GFS compilers, and the Department of Finance and Administration (DoFA) on progress made.
- COVID-19 travel restrictions have delayed finalization of audited financial statements (AFS) across all sectors; only three out of eighteen recommendations were accomplished mainly because of source data unavailability (Appendix I).
- AFS for fiscal year (FY) 2020 for budgetary central government (BCG) and state governments (SGs) was not available at the time of the mission; additional assistance may be required to complete BCG and SG FY 2020 GFS when the AFS are completed.
- Hands-on training and technical support were provided in the compilation of extrabudgetary units (EBUs) and the social security fund (SSF) GFS; AFS for FY2019 was available from the FSM Office of the National Public Auditor webpage and were used to bridge financial information to the GFS using Microsoft Excel working files. These datasets were completed by the end of the mission; some FY2020 statements were also available and included.
- The NSO updated Microsoft Excel software to the 2016 version (a high priority recommendation from the previous mission).
- DoFA’s chart of accounts (CoA) and FMIS reform project encountered delays but regained traction; the DoFA shared an updated CoA / FMIS project document. The new FMIS may create the opportunity to produce quarterly and preliminary annual GFS reports. The mission encouraged DoRD to collaborate with DoFA to ensure incorporation of economic and functional classification aligned to GFSM 2014 in the new CoA and FMIS.
- DoFA compiles a quarterly COVID-19 expenditure report to Congress; the mission encouraged DoFA to release this information on the website as it provides useful information for surveillance and policy making.
- The mission assisted in compilation of PSDS for the FSM public sector using AFS as source and worked with the World Bank (WB) to formalize an official request to the Secretary for the DoFA to participate in the joint IMF/WB quarterly public sector debt (QPSD) database.
- The mission assisted in completion of the PSDS data gap analysis and action plan.
- The mission recommended reviewing and updating existing business process documentation; amend and update guidelines by incorporating PSDS compilation and dissemination procedures to sustain ongoing operations and mitigate risks from staff transitions.

### Priority recommendations (Table 1)
- Target Date: Immediate
  - Priority Recommendation: Complete PSDS for the public sector FY2019 (2019Q4) and submit to the World Bank.
  - Responsible Institutions: DoRD/DoFA
- Target Date: January 2022
  - Priority Recommendation: Compile and disseminate BCG and SGs GFS for FY2020 upon receiving the AFS.
  - Responsible Institutions: DoRD
- Target Date: March 2022
  - Priority Recommendation: Compile PSDS for the public sector FY2020 (2020Q4) and submit to the World Bank.
  - Responsible Institutions: DoRD/DoFA
- Target Date: December 2021
  - Priority Recommendation: Release COVID-19 expenditure report on the DoFA website.
  - Responsible Institutions: DoFA

### Detailed technical assessment and recommended actions

A. Institutional Sectorization
- Findings:
  - Two new institutional units established in the FSM: Telecommunications Regulatory Authority (TRA) and FSM Telecommunications Cable Corporation (FSMTCC).
  - TRA created under FSM Public Law 18-52 in 2014, commenced operations in 2019; funded by license fees, grants and donations, and moneys appropriated by Congress; initially funded by an operating grant and a World Bank grant; currently classified as a nonmarket producer.
  - FSMTCC incorporated under FSM Public Law 18-52 in 2014; two equal shareholders (Secretary of DoFA and Secretary of DTC&I); governed by five-member Board of Directors; received a license to operate in 2019, building cable network across FSM; initial capital for 2018 and 2019 mainly from grants from FSM government and the World Bank; advised to classify as a public nonfinancial corporation (NFPC) and to review classification after at least five years of operations.
  - Four component units omitted from the Yap Government AFS due to lack of financial information: Gagil-Tomil Water Authority, Southern Yap Water Authority, Yap Fishing Authority, and Yap Sports Council; auditors indicated operations of these units were immaterial (apart from Yap Fishing Authority).
- Recommended action:
  - Update the IU table and compilation files to reflect the addition of the TRA and FSMTCC since they started operations.
  - Conduct an annual review of the IU table and update as necessary and agree the IU table across all macroeconomic statistics frameworks.
  - Continue to work with the Yap State statistics office to investigate collection of financial information for omitted component units to be included in EBUs data time series.

B. Chart of Accounts and Financial Management Information System
- Findings:
  - CoA/FMIS reform project encountered delays due to bidding not aligned with allotted budget and staff turnover; new project manager hired.
  - New structure of CoA proposed in January 2021 tentatively approved with some flexibility; official approval pending finalization.
  - Implementation date for new CoA/FMIS for national and state governments undetermined.
  - New FMIS could accommodate higher frequency reporting and produce GFS fiscal report; draft CoA considers GFSM 2014 codes, including three digits of COFOG and four (with up to six) digits of economic classification.
  - Draft CoA coding needs to be shared with NSO for bridging national codes to GFSM 2014; pilot testing phase advised to ensure compliance between project scoping and implementation.
- Recommended action:
  - DoRD should collaborate with DoFA to ensure successful incorporation of economic and functional classification aligned to GFSM 2014 in the new CoA and FMIS.

C. Government Finance Statistics data compilation and dissemination
- Findings:
  - NSO updated Microsoft Excel to the 2016 version, improving compatibility with STA’s annual GFS questionnaire.
  - AFS, primary data source for GFS compilation, were not available for all GG units on the FSM Office of the National Public Auditor webpage at mission start; AFS for BCG and SGs were not available and expected to be completed by end December 2021.
  - EBUs, SSF, and public corporations (PCs) datasets for FY2019 were completed by end of mission; included Kosrae Housing Authority and the TRA with available financial statements FY2016 to FY2019; some FY2020 statements included.
  - Current compilation can aggregate subsector GFS but cannot yet consolidate (GG consolidation requires elimination of intra-and intergovernmental transactions and debtor-creditor relationships using AFS notes).
- Recommended action:
  - Update BCG and SG working files and transfer the data to the annual GFS questionnaire and submit the data to IMF STA.
  - Compilers should at least once a month populate and bridge the data for one of the EBUs or the SSF to ensure continuous understanding and ease of compilation.

D. COVID-19 Expenditure
- Findings:
  - DoFA compiles a quarterly report on FSM COVID-19 Health and Livelihoods Support Program expenditure and submits it to Congress.
  - FSM signed a US$14million agreement in grants received from Asian Development Bank (ADB) in November 2020, effective in December 2020 until September 2021; objective: alleviate COVID-19 effects, control spread, inject stimulus, and provide social assistance to poor and vulnerable groups.
  - A steering committee meets and allocates funding on a quarterly basis across five programs funded by the grant:
    - Support to low-income households (LIHH): distribution subject to data collection from the LIHH questionnaire; questionnaires first launched in Pohnpei then distributed to Yap, Kosrae and Chuuk.
    - Food security program: distributed based on allocation per state; disbursement delayed due to reiteration of applicable criteria focusing on community needs.
    - COVID-19 community grants: targets community level, focuses on raising awareness and education on self-preventive measures; disbursement relatively efficient.
    - Small/Micro-enterprise loans: managed by the FSM Development Bank with lighter criteria and easier process than normal loans; most loan applications approved; disbursement efficient.
    - Support for the elderly, disabled and gender-based violence (GBV) survivors: provides social assistance to vulnerable groups and is subject to LIHH questionnaire information.
- Recommended action:
  - Release the DoFA quarterly COVID-19 expenditure report on the DoFA website to support surveillance and policy making.

*Federated States of Micronesia — Summary of Mission Outcomes and Priority Recommendations (section 1).*

### 20. By June 2021, the FSM disbursed close to US$ 4 million from the ADB grant. Only

### 1fsmea2022001 - 20. By June 2021, the FSM disbursed close to US$ 4 million from the ADB grant. Only

### COVID-19 related spending and program implementation
- By June 2021, the FSM disbursed close to US$ 4 million from the ADB grant. Only LIHH, the COVID-19 community grants and small-micro-enterprise loans were spent.
- Program rollout constraints:
  - Progress of support program to low-income households and to vulnerable groups was moderate due to the slow process of identifying qualified beneficiaries from data entry and questionnaire collection.
- Additional COVID-19 related fiscal measures and spending:
  - Tourism Mitigation Fund: US$ 5.8 million.
  - Pandemic unemployment assistance: US$ 14.9 million (total).
  - Other payments to assist citizens and non-citizens affected by COVID-19 restrictions (amounts not separately quantified in the excerpt).
- Recommended action (COVID-19 reporting and statistics):
  - Publish FSM COVID-19 Health & Livelihoods Support Program quarterly reports on the DoFA website to support surveillance and policy making.
  - Ensure GFS compilers can identify COVID-19 expenditures from the AFS to ensure correct statistical treatment for fiscal statistics compilation.

### Public sector debt statistics: institutional arrangements and compilation
- Invitation and participation:
  - The WB extended an invitation to the FSM to participate in the QPSD database; mission assisted to formalize an official request to the Secretary of the DoFA.
  - Country practice: invitations usually extended to DoFA, debt management division; institutional responsibility should be agreed among agencies via a memorandum of understanding.
- Technical assistance and diagnostics:
  - Mission assisted compilers to complete the D4D PSDS gap analysis assessment, heatmap and action plan.
  - NSO and DoFA officials attended the virtual APD PSDS workshop (October 2020) but could not complete the entire workshop; mission completed outstanding gap analysis and action plan documents.
- Compilation approach and data sources:
  - PSDS can be compiled using the same working files used to compile GFS for all public sector units; AFS populate working files with balance sheet information allowing compilation of liabilities and debt aggregates.
  - Consolidation requires identification of debtor–creditor relationships; mission identified on-lending loan stock positions between the BCG and other public sector units from AFS notes to eliminate double counting.
  - No elimination was done for other accounts payable (OAP); detailed assessment of AFS information is required to address this.

### Key public sector debt findings and statistics (as compiled during the mission)
- Methodology and coverage note:
  - The DSA methodology, scope and coverage differ from PSDSG 2011 guidelines; differences partly explain divergent debt estimates.
- DSA (Article IV staff report November 2021) comparison:
  - Total public debt of the national and state governments for 2018 assessed in the DSA: US$ 88.1 million, of which US$ 83.7 million was external debt.
- Mission-compiled gross public sector debt stock (as of September 30, 2019):
  - Total gross public sector debt stock: US$ 201 million, equal to 49% of GDP.
  - Creditor residency:
    - Domestic creditors: US$ 125.4 million.
    - External creditors: US$ 75.6 million.
  - Sector composition:
    - General Government (GG): US$ 132.2 million (equal to 32 percent of GDP).
    - Financial and nonfinancial public corporations: US$ 68.8 million (equal to 17 percent of GDP).
  - Instrument composition and OAP:
    - Other accounts payable (OAP) account for 60% of public sector gross debt stock and 29 percent of GDP (2019).
    - OAP debt stock for the PS: US$ 119.6 million, of which:
      - GG: US$ 82.7 million.
      - Public financial and nonfinancial corporations sector: US$ 36.9 million.
    - For the GG, budgetary and state governments present the largest portion of OAP: US$ 45.9 million and US$ 29.2 million respectively.
  - Notes on data content:
    - Financial statements’ OAP items include amounts payable to component units, payments due to the primary government, payments due to FSM state governments, compensated absences payable, tax refunds payable, unearned revenues, and accounts payable and accruals not classified elsewhere.
    - Financial statements do not provide sufficient information on OAP counterparts, specific debt characteristics, and arrears; such detail could be obtained from the financial system.
- Preliminary assessment impact on DSA:
  - Preliminary finding suggests that the bottom-line assessment for the DSA remains broadly unchanged with this debt stock information, although the threshold of the present value of external debt-to-GDP ratio and the threshold of the public debt-to-GDP ratio are projected to be breached by a few years earlier than those projected for 2021 DSA.

### Recommended actions on public sector debt statistics (PSDS)
- Institutional and submission actions:
  - Authorities should discuss and agree among agencies who will take primary responsibility for compiling and submitting the PSDS.
  - Authorities should complete PSDS for the public sector FY2019 (2019Q4) and submit upon acceptance of participation in the joint IMF/WB QPSD database.
  - Once the AFS for 2020 is completed, authorities should compile PSDS for the public sector FY2020 (2020Q4) and submit to the joint IMF/WB QPSD database.
- Next steps and technical areas:
  - Discuss debt valuation, maturity, and possibilities of full public sector debt consolidation.
  - Obtain more detailed creditor information and debt characteristics from financial systems to analyze OAP and eliminate double counting where appropriate.

### Staff resources, capacity constraints, and business process recommendations
- Staffing and workload:
  - NSO continues to experience resource constraints with two officials in charge of GFS while also handling other statistics.
  - Primary GFS compiler also works on consumer price index (CPI) statistics; a senior official overseeing GFS compiles and disseminates balance of payments and real sector statistics.
  - The two compilers also support social statistics, population census, and household income expenditure surveys.
- Implications:
  - Although fiscal and debt statistics are currently compiled annually, significant resources are required to produce GFS for the GG and to complete consolidation work.
  - Business process documentation should be reviewed and clarified to meet compiler needs.
- Mission recommendations on capacity:
  - More training and practice are needed to ensure continuity and sustainability of GFS compilation in the long term.
  - More resources should be planned to accommodate annual and higher frequency fiscal and debt statistics.

### Priority actions, milestones, and selected target dates (progress as of October 2021)
- Publish COVID-19 expenditure report on the DoFA website — Target Completion Date: December 2021.
- 2021 Priority: Complete PSDS for the public sector FY2019 (2019Q4) and submit to the WB — Target Completion: Immediate.
- 2021 Priority: Compile PSDS for the public sector FY2020 (2020Q4) and submit to the WB — Target Completion Date: March 2020 (as stated in source).
- Compile and disseminate BCG and SGs GFS for FY2020 upon receiving the AFS — Target Completion Date: January 2022.
- Other selected targets and notes:
  - Participate in discussions and review mapping of economic segment in the new FMIS — Target Completion Date: June 2021 (discussed in October 2021 mission with DOFA).
  - Ensure grants received by BCG are properly classified and reported in the new FMIS — Target Completion Date: December 2022.
  - Consolidate BCG and other GG units’ annual data — Target Completion Date: September 2022 (no progress as of October 2021).
  - Compile quarterly GFS for BCG once new FMIS can generate quarterly reports — Target Completion Date: November 2022.

*Source: IMF staff mission report excerpt (Federated States of Micronesia), progress and recommendations as reported in the provided content.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1fsmea2022001.pdf_