{
  "title": "IMF Executive Board Concludes 2023 Article IV Consultation with the Federated States of Micronesia",
  "publication": "IMF News, March 4, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/03/04/pr2466-micronesia-imf-executive-board-concludes-2023-article-iv-consultation",
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  "summary": "On February 23, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Federated States of Micronesia (FSM).",
  "publishDate": "2024-03-04",
  "sections": [
    {
      "heading": "Overview",
      "content": "- On February 23, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Federated States of Micronesia (FSM).\n- FSM experienced a short-lived recovery in 2021 from Covid, but economic activity has since stagnated because of additional shocks.\n- External and fiscal positions remained robust despite stagnation and shocks."
    },
    {
      "heading": "Recent economic performance",
      "content": "- Real GDP:\n  - Growth rebounded to 3 percent in FY2021.\n  - Estimated to have averaged zero in FY2022-23.\n- Inflation:\n  - Reached a decade high 6.2 percent driven by higher import prices for fuel and food, as well as supply bottlenecks.\n- Labor market and structural issues:\n  - Significant labor shortages exacerbated by outward emigration.\n  - Underdeveloped private sector and deteriorating infrastructure, especially affecting health.\n  - Adverse impact of climate change raising food security concerns.\n- Fiscal and external positions:\n  - Substantial fiscal surpluses in recent years contributed to a decline in public debt to 12.4 percent of GDP.\n  - Assets of the trust funds have risen to 323 percent of GDP."
    },
    {
      "heading": "Near-term outlook and projections",
      "content": "- Growth projections:\n  - FY2024: 1.1 percent\n  - FY2025: 1.7 percent\n  - Without significant reforms, growth likely to converge to the historical average of around 0.7 percent over time.\n- Inflation:\n  - Expected to gradually decline to around 2 percent.\n- Drivers and risks:\n  - Near-term boost from higher public investment and higher grants under the new Compact of Free Association (COFA) agreement with the United States (expected to be implemented starting in FY2025).\n  - Economy remains highly vulnerable to shocks: increase in global commodity prices, extreme climate events, and potential delays of the COFA agreement.\n  - Acceleration of outward migration could severely jeopardize labor supply and project implementation."
    },
    {
      "heading": "Executive Board assessment and policy recommendations",
      "content": "- General assessment:\n  - Directors positively noted the new COFA agreement with the United States and welcomed the envisaged near-term economic recovery.\n  - Directors highlighted medium-term challenges: vulnerabilities to climate change and natural disasters, significant structural bottlenecks, and outward emigration.\n  - Emphasized the need for building social consensus and ensuring policy coordination among domestic stakeholders.\n  - Stressed the importance of continued financial and capacity building support by the international community.\n- Fiscal policy and public finance:\n  - In the short term, fiscal policy should remain cautious until the new COFA is implemented.\n  - Press ahead with the authorities’ public financial management reform roadmap.\n  - Develop a new fiscal framework and strengthen public investment management to enhance implementation and efficiency of public investment.\n  - Further initiatives to improve revenue mobilization, such as modernizing revenue administration and strengthening the tax system, will be needed over time.\n- Structural reforms and private sector:\n  - Encourage structural reforms to improve the business environment, and investments in education and training, and digitalization.\n  - Prioritize land reform and reducing barriers to foreign direct investment to promote private sector development and disincentivize outward emigration.\n  - Improve economic statistics to enhance transparency and accountability.\n- Financial sector:\n  - Financial sector could play a stronger role in supporting economic development.\n  - Welcomed overall soundness, with recommendations to enhance regulatory and supervisory frameworks to boost resilience.\n  - Emphasized strengthening financial deepening and inclusion, and continued progress in the AML/CFT framework.\n- Climate resilience:\n  - Urgency to strengthen resilience to climate change and call for prompt actions to develop and implement a comprehensive National Adaptation Plan."
    },
    {
      "heading": "Key statistics and selected indicators (FY2021–FY2025)",
      "content": "- Nominal GDP (FY2022): US$430 million\n- Population (FY2022): 94,768\n- GDP per capita (FY2022): US$4,540\n- IMF Quota: SDR 7.2 million\n\n- Real sector (annual percent change):\n  - Real GDP: FY2021 3.0; FY2022 -0.9; FY2023 0.8; FY2024 1.1; FY2025 1.7\n  - Consumer prices: FY2021 1.8; FY2022 5.0; FY2023 6.2; FY2024 4.0\n\n- Consolidated government finance (in percent of GDP):\n  - Revenue and grants: FY2021 71.3; FY2022 67.0; FY2023 59.4; FY2024 61.2; FY2025 65.4\n  - Revenue: FY2021 37.3; FY2022 41.7; FY2023 34.9; FY2024 33.1; FY2025 34.0\n  - Tax revenue: FY2021 15.9; FY2022 21.7; FY2023 16.5; FY2024 16.7; FY2025 16.9\n    - of which: corporate income tax: FY2021 2.9; FY2022 9.5; FY2023 4.6\n  - Non-tax revenue: FY2021 20.6; FY2022 20.0; FY2023 18.5; FY2024 17.0\n    - of which: Fishing license fees: FY2021 17.7; FY2022 15.4; FY2023 13.4; FY2024 14.0\n  - Grants 2/: FY2021 33.9; FY2022 25.3; FY2023 24.5; FY2024 28.1; FY2025 31.4\n  - Expenditure: FY2021 66.8; FY2022 59.2; FY2023 57.9; FY2024 60.0; FY2025 65.8\n  - Expense: FY2021 63.6; FY2022 55.5; FY2023 53.4; FY2024 53.3; FY2025 57.2\n  - Net acquisition of nonfinancial assets: FY2021 3.2; FY2022 3.7; FY2023 4.5; FY2024 6.7; FY2025 8.5\n  - Gross Public Investment: FY2021 9.4; FY2022 10.0; FY2023 12.0; FY2024 13.5\n  - Net lending/borrowing: FY2021 7.8; FY2022 1.6; FY2023 1.3; FY2024 -0.4\n  - Net lending/borrowing (excl. grants): FY2021 -29.5; FY2022 -17.5; FY2023 -22.9; FY2024 -26.8; FY2025 -31.8\n  - Public debt (outstanding stock, end of period): FY2021 14.6; FY2022 12.4; FY2023 10.6\n\n- Balance of trust funds 3/:\n  - FY2021 351.5; FY2022 287.7; FY2023 323.2; FY2024 330.9; FY2025 381.0\n\n- Commercial banks (in percentage of GDP; end of period):\n  - Loans /4: FY2021 13.3; FY2022 12.8; FY2023 11.1; FY2024 11.3; FY2025 11.5\n  - Deposits: FY2021 111.7; FY2022 99.5; FY2023 96.2; FY2024 94.2; FY2025 92.9\n\n- Interest rates (in percent, average for FY):\n  - Consumer loans: FY2021 14.2; FY2022 13.7; FY2023 14.3\n  - Commercial loans: FY2021 5.8; FY2022 5.1; FY2023 4.8\n\n- Balance of payments (in millions of U.S. dollars):\n  - Trade balance: FY2021 -161.4; FY2022 -162.4; FY2023 -169.9; FY2024 -181.0; FY2025 -203.5\n  - Net services and income: FY2021 22.2; FY2022 26.5; FY2023 29.3; FY2024 21.9; FY2025 26.4\n  - Private and official transfers: FY2021 147.7; FY2022 172.4; FY2023 155.9; FY2024 162.8; FY2025 180.9\n  - Current account: FY2021 36.6; FY2022 15.3; FY2023 3.8\n    - (in percent of GDP): FY2021 2.2; FY2022 3.3\n\n- External debt (in millions of U.S. dollars; end of period) — Outstanding stock:\n  - FY2021 62.9; FY2022 54.3; FY2023 49.2; FY2024 51.3\n\n- Memorandum items:\n  - Real effective exchange rate 5/: 100.9; FY2022 106.9; FY2023 114.8\n  - Nominal GDP (in millions of U.S. dollars): FY2021 390.0; FY2022 430.2; FY2023 460.5; FY2024 484.0; FY2025 507.1\n\nSource: IMF Executive Board Concludes 2023 Article IV Consultation with the Federated States of Micronesia (March 4, 2024).\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Federated States of Micronesia and the IMF\n- United States and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.IMF.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/03/04/pr2466-micronesia-imf-executive-board-concludes-2023-article-iv-consultation"
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    "Published: March 4, 2024",
    "On February 23, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Federated States of Micronesia (FSM).",
    "FSM experienced a short-lived recovery in 2021 from Covid, but economic activity has since stagnated because of additional shocks.",
    "External and fiscal positions remained robust despite stagnation and shocks.",
    "Real GDP:",
    "Inflation:",
    "Labor market and structural issues:",
    "Fiscal and external positions:",
    "Growth projections:",
    "Inflation:",
    "Drivers and risks:",
    "General assessment:",
    "Fiscal policy and public finance:",
    "Structural reforms and private sector:",
    "Financial sector:",
    "Climate resilience:",
    "Nominal GDP (FY2022): US$430 million",
    "Population (FY2022): 94,768",
    "GDP per capita (FY2022): US$4,540",
    "IMF Quota: SDR 7.2 million",
    "Real sector (annual percent change):",
    "Consolidated government finance (in percent of GDP):",
    "Balance of trust funds 3/:",
    "Commercial banks (in percentage of GDP; end of period):",
    "Interest rates (in percent, average for FY):",
    "Balance of payments (in millions of U.S. dollars):",
    "External debt (in millions of U.S. dollars; end of period) — Outstanding stock:",
    "Memorandum items:",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[Federated States of Micronesia and the IMF](http://www.imf.org/external/country/FSM/index.htm)",
    "[United States and the IMF](http://www.imf.org/external/country/USA/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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