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International Monetary Fund. Asia and Pacific Dept
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.
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper focuses on a model based approach to study public investment, economic growth, and resilience in the Federated States of Micronesia (FSM). Enhancing public investment management (selection, planning, and implementation) could significantly improve the efficiency of public investment and support economic growth. This is particularly important as FSM starts a new boost to public investment financed by foreign grants. Using a dynamic Debt, Investment, Growth, and Natural Disasters model, we illustrate the effects of various policy options on achieving higher and more resilient growth and improving private sector participation. The reforms can also have fiscal benefits through the higher growth dividend. Additionally, the impact of different types of public investment on building resilience to climate shocks emphasizes the benefits of larger investment in climate-resilient infrastructure to minimize gross domestic product loss and allow the economy to bounce back faster after a large natural disaster.
International Monetary Fund. Statistics Dept.
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,1 a multi-donor initiative aimed at strengthening the quality of national statistical outputs to better support economic policy making in low-and lower-middle income countries and the PFTAC GFS capacity development project.
International Monetary Fund. Asia and Pacific Dept
The COVID-19 pandemic and related containment measures have put severe strains on the economy. The economic policy response has been strong and generally appropriate, helping counter the negative effects of the pandemic. Nevertheless, as the international borders remain shut, the economic contraction is likely to deepen in FY2021. A slow recovery is expected for FY2022 driven by a gradual border reopening. The FSM is facing significant medium-term uncertainty, owing to the possible expiration of grants and other assistance provided under the Compact Agreement with the United States. The FSM is also highly vulnerable to climate change-induced natural disasters.
International Monetary Fund. Statistics Dept.
The International Monetary Fund’s (IMF’s) Statistics Department (STA) provided technical assistance (TA) on financial soundness indicators (FSI) to the Federated States of Micronesia Banking Board (FSMBB) during November 2-13, 2020. The TA mission took place in response to a request from the authorities, with the support of the IMF’s Asia & Pacific Department (APD). The mission was conducted remotely via video conferences due to the COVID-19 pandemic and travel restrictions. The mission worked with the staff of the FSMBB on the development of FSIs that are in line with the IMF’s 2019 FSI Guide.1 The main objectives of the mission were to: (i) review the source data, institutional coverage and accounting and regulatory frameworks supporting the compilation of FSIs; (ii) provide guidance for mapping source data for the banking sector to the FSI reporting templates FS2 and FSD as well as areas for improvement in the metadata; (iii) agree with the FSMBB the timeline to begin regular reporting of the FSIs for deposit-takers to STA, conditional on the availability and completeness of the source data; and (iv) agree on the timeliness of data reporting.
Johanna Tiedemann, Veronica Piatkov, Dinar Prihardini, Juan Carlos Benitez, and Ms. Aleksandra Zdzienicka
Small Developing States (SDS) face substantial challenges in achieving sustainable development. Many of these challenges relate to the small size and limited diversification of their economies. SDS are also among the most vulnerable countries to the impact of climate change and natural disasters. Meeting SDS sustainable development goals goes hand-in-hand with building their climate resilience. But the additional costs to meet development and resilience objectives are substantial and difficult to finance. This work adapts the IMF SDG Costing methodology to capture the unique characteristics and challenges of climate-vulnerable SDS. It also zooms into financing options, estimating domestic tax potential and discussing the possibility of accessing ‘climate funds.’
International Monetary Fund. Fiscal Affairs Dept.
This Climate Change Policy Assessment (CCPA) takes stock of the Federated States of Micronesia (FSM)’s climate response plans, from the perspective of their macroeconomic and fiscal implications. CCPA explores the possible impact of climate change and natural disasters and the cost of FSM’s planned response. It suggests macroeconomically relevant reforms that could strengthen the national strategy and identifies policy gaps and resource needs. FSM has made progress toward its Nationally Determined Contribution mitigation pledge by beginning to expand renewable power generation and improve its efficiency. The authorities plan to continue this and encourage the take-up of energy efficient building design and appliances. Accelerating adaptation investments is paramount, which requires addressing critical capacity constraints and increasing grant financing. It is recommended that FSM needs to increase its capacity to address natural disaster risks following the expiry of Compact-related assistance in 2023. It is advised to improve climate data collection and use, including on the costs of high and low intensity disasters and disaster response expenditure.