May 5, 2026
PRESS OFFICER: Pemba Sherpa
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Washington, DC: On April 27, 2026, the Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for The Federated States of Micronesia.[1], [2]
The FSM is progressing to achieve development goals, under challenging circumstances. Growth rebounded to an estimated 2.3 percent in FY2024, before moderating to 1.1 percent in FY2025 as the effects of higher fishing output and public sector wage increase dissipated and commencement of new infrastructure projects was delayed[3]. Inflation slowed to 3.2 percent in FY2025 as global commodity prices moderate and US inflation gradually eases.
The fiscal surplus narrowed as revenues normalized following windfall gains and states increased expenditure in response to the higher revenue envelope from a greater share of fishing fees. Public debt declined to 8.9 percent of GDP in FY2025, while the assets of the trust funds reached 510 percent of GDP.
Growth moderates to 0.7 percent in FY2026 as real income compression and higher import costs, particularly for the relatively fuel intensive fishing sector, weigh on activity. At the same time, activity is bolstered by a gradual pickup in public investment funded by the Compact of Free Association with the United States. Inflation is expected to remain at 3.2 percent in 2026 reflecting gradual passthrough of higher oil prices due to the conflict in the Middle East.
There are significant downside risks to the economic outlook from slower than envisaged implementation of infrastructure projects, intensifying climate change and prolonged conflict. On the upside, reforms to ease bottlenecks could ignite private sector activity, create jobs and reduce aid dependency.
Executive Board Assessment[4]
Executive Directors agreed with the thrust of the staff appraisal. They highlighted Micronesia’s progress on development goals, under challenging circumstances. While welcoming the renewal of the Compact of Free Association, Directors noted that medium‑term growth prospects remain subdued, reflecting capacity constraints, sustained emigration, and the intensifying effects of climate change. They called for efforts to expedite climate‑resilient public investment and advance structural reforms to bolster growth and strengthen resilience. Directors underscored the importance of support from the Fund and other development partners to strengthen capacity and reform implementation.
Directors agreed that the medium‑term fiscal strategy should carefully balance preserving fiscal buffers with addressing development goals and climate adaptation needs. They stressed the importance of anchoring fiscal policy in a credible medium‑term framework along with measures to strengthen public financial and investment management, particularly at the state level. Noting the importance of fostering private sector investments and strengthening revenue mobilization, Directors welcomed plans to modernize the tax system. They recognized the importance of continued reliance on grants and concessional borrowing to safeguard long‑term fiscal sustainability. Prudent use of trust funds to finance public investment is appropriate.
Directors welcomed that the financial sector remains sound, while underscoring that the recent increase in nonperforming loans warrants close monitoring. They agreed that the sector could play a greater role in supporting private‑sector development and encouraged greater efforts to support financial deepening through digital banking and measures to close information gaps. They noted that reinforcing institutional cooperation and regulatory oversight remains critical to broadening access to credit.
Directors emphasized the need for stronger coordination across national and state governments to accelerate structural reforms to unlock private‑sector‑led growth. They noted that priorities include streamlining laws and regulations, particularly related to foreign direct investment, business regulations, and land use. Ongoing efforts to promote job creation and address skill mismatches to mitigate emigration pressures are important. Directors welcomed improvements in disaster risk financing layering and progress on developing the National Adaptation Plan. Noting the substantial climate adaptation needs, they underscored the need to integrate climate‑specific provisions in infrastructure planning. Directors underscored the need to support effective decision‑making through timely publication of statistics.
It is expected that the next Article IV consultation with the Federated States of Micronesia will be held on a 24‑month cycle.
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Table 1. Selected Economic Indicators |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/fsm page.
[3] Fiscal year ends on September 30.
[4] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
