Federated States of Micronesia: Economic Outline
Following the contraction caused by the pandemic, the Federated States of Micronesia (FSM) saw an economic rebound of 3% in FY2021. However, this recovery was brief, and the economy contracted by 0.9% in FY2022, primarily due to challenges faced by the fisheries sector, such as increased costs (including logistics and fuel) and fluctuating demand for tuna. Growth for FY2023 is forecasted at 0.8%, indicating a gradual improvement in construction, transportation, and tourism, coupled with a rise in national government wages. As per the IMF, growth in FY2024 and FY2025 is projected to accelerate to 1.1% and 1.7%, respectively. This acceleration is supported by increases in government spending, thanks to the new COFA-related grants, which include higher public sector wages at the state level. In fact, the Compact of Free Association (COFA) agreement, approved by the United States on March 9, 2024, will deliver a total of USD 6.5 billion in assistance to the three North Pacific countries over the next 20 years starting in FY24. Micronesia will receive USD 3.3 billion.
FSM registered fiscal surpluses of 1.6% of GDP in FY23, down from 7.8% in FY22. Government debt declined to 12.4% in FSM in FY23, and the risk of overall debt distress has been upgraded to medium from high. Inflation reached a decade high of 6.2%, reflecting the lagged effects of elevated global commodity prices and domestic supply constraints. After achieving a surplus of 1.3% of GDP in FY24, the fiscal balance is expected to transition to a small deficit in FY25 and beyond. This change is anticipated due to declining fishing revenues and the normalization of grants. Inflation reached a decade high of 6.2%, reflecting the lagged effects of elevated global commodity prices and domestic supply constraints, and it is expected to remain high around 4% in 2024 before declining thereafter. FSM's susceptibility to climate change and natural disasters poses a significant risk, as it could exacerbate the already deteriorating infrastructure and worsen food security.
Despite a relatively good economic performance, Micronesia faces major geographical challenges as its four component states are very far and isolated, which does not help the country obtain economic sovereignty. The labor force is young and relatively inexpensive, but unemployment affects more than one-fifth of the population (though reliable unemployment figures are not available) and around 40% of the population lives below the national poverty line. The World Bank estimated the country’s GDP per capita (PPP) at USD 3,855 in 2022.
| Main Indicators | 2022 | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 0.43 | 0.46 | 0.48 | 0.51 | 0.53 |
| GDP (Constant Prices, Annual % Change) | -0.9 | 0.8 | 1.1 | 1.7 | 1.1 |
| GDP per Capita (USD) | 4,540 | 4,865 | 5,120 | 5,364 | 5,559 |
| General Government Gross Debt (in % of GDP) | 14.6 | 12.4 | 10.6 | 10.6 | 10.7 |
| Inflation Rate (%) | 5.0 | 6.2 | 4.0 | 3.0 | 2.5 |
| Current Account (billions USD) | 0.04 | 0.02 | 0.00 | 0.00 | 0.00 |
| Current Account (in % of GDP) | 8.5 | 3.3 | 0.8 | 0.8 | 0.6 |
Source: IMF – World Economic Outlook Database - October 2021.
Note: (e) Estimated Data
| Monetary Indicators | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|
| American Dollar (USD) - Average Annual Exchange Rate For 1 GBP | 1.35 | 1.29 | 1.33 | 1.25 | 1.28 |
Source: World Bank - Latest available data.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Value Added (in % of GDP) | 22.5 | 4.9 | 66.8 |
| Value Added (Annual % Change) | -6.8 | -4.3 | 1.5 |
Source: World Bank - Latest available data.
The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
See the country risk analysis provided by Coface.
The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.
Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House
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Latest Update: May 2024
