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Countries and Regions Country Partnership Strategies Document
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Country Strategy and Program Update 2003-2005: Federated States of Micronesia
III. Implementation of the Country Strategy and ProgramA. Progress Under the Poverty Partnership Agreement21. The poverty partnership agreement between the Government and ADB was signed on 14 June 2002. It seeks the Government’s commitment to better define and assess the concept of poverty, design appropriate strategies to reduce poverty, and incorporate these strategies into the country’s development plans, consistent with Government’s priorities. The Government’s current priority and ADB’s proposed assistance program are generally in line with the thrust for poverty reduction. 22. The FSM faces major challenges in achieving the millennium development goals (MDGs). In meeting these goals, a comprehensive poverty reduction strategy is required to address pro-poor growth, improved and expanded access to social services, and creation of jobs. Through regional TA, ADB will assist the FSM in 2003 in preparing a country-owned national poverty reduction strategy (NPRS) involving all stakeholders in a participatory process. Such an NPRS is proposed to be based on a national development strategy to be prepared for the implementation of Compact provision. The strategy will draw on the economic report to be prepared under a proposed ADB TA in 2003, with recommendations emanating from a 3rd FSM Economic Summit. ADB’s current loan program and pipeline for 2003–2005 incorporates the essential elements that will assist the FSM in better achieving the MDGs. Progress toward the MDGs and targets are detailed in Appendix 2, Table A2.1. 23. Assessment of progress to achieving the MDGs is made difficult by the paucity of data on selected indicators. Assessment work to be carried out under the NPRS TA and the poverty analysis will be supported by the household income and expenditure survey to be carried out in 2003. Budget appropriation has been sought in FY2003 and may be supplemented by funding from USDOI. B. Progress in the Country Strategy and Program Focus Areas1. Private Sector Development24. In the FSM, pressures to create more jobs and business opportunities in the private sector stem from the (i) reduction of the public sector; (ii) decline in household income, mainly due to decreasing external assistance, resulting in more demand for formal and informal employment; and (iii) continuing population growth and youthful demographic pattern, resulting in high demand for job opportunities. Private sector-led economic development is the overarching objective of the country’s development strategy. Key policy issues in support of the strategy are to promote small and medium businesses in productive sectors such as fisheries, agriculture, and tourism by improving factor markets (land, labor, and capital) as well as the policy and regulatory environment. Coupled with the Public Enterprise Privatization and Corporate Governance TA, the PSDP loan will assist the Government to achieve this objective. More specifically, the corporatization and eventual privatization of national and state enterprises will be an important objective. 25. The PSDP loan substantially addresses the factors that affect the enabling environment for private sector development. Conditions and policy requirements under the program loan component require land and mortgage legislation be passed to facilitate the use of land as collateral. The project component of the loan establishes secured transaction systems, and land administration and management, and supports job creation through development of small businesses. A focus will be on improving the environment for foreign investment through legislative reforms, simplified regulations, strengthened institutional support, and marketing efforts. Accounting, computer skills, and other vocational education demands resulting from private sector growth will be supported by the proposed BITS loan. The PSDP loan requires the transformation of at least one public sector enterprise in each State to promote private sector development. This support for private sector development is augmented by a TA in 2004 as well as the privatization/transformation requirement of the Chuuk utility that will be required under the proposed OID loan. The FSM’s country economic indicators are in Appendix 2, Table A2.2. 2. Social Services Development26. ADB’s priority in the health and education sectors is to promote equity, access, and quality of services; strengthen management efficiency; and mobilize resources for sustainable delivery. Priority in the health sector is to ensure that FSM citizens have access to basic preventive and curative services that are cost-effective, efficacious, and affordable. The BSS loan will help introduce essential reforms in both sectors to improve human resource development in a sustainable manner with due consideration to gender needs. Efficiency improvement under the BSS loan will enable better utilization of Compact funds for both sectors. 27. Health issues arising from poor access to safe water and sanitation facilities were partly addressed under the Water Supply and Sanitation (WSS) Project and will be improved under the proposed OID loan. The OID loan is expected to significantly improve the overall quality of life in all four states. 28. The BSS loan will use nutrition and health education to address the increase in noncommunicable diseases resulting from improper nutrition based on imported food and population growth issues. Support for local food production, particularly by women producers, is provided through the small business development component of the PSDP. 29. A gender development policy was developed at the 2nd FSM Economic Summit to broaden women’s participation in the development process. As a result, the 1999–2002 FSM Planning Framework incorporates gender and development issues into the FSM’s strategic development objectives, and introduces institutional mechanisms for improving the status of women and gender mainstreaming. While the new gender and development policy remains to be approved by the Cabinet, the new National Women’s Interest Unit in the Department of Health, Education, and Social Affairs has a strategic goal of improving services for women to enhance their status and development in all sectors. The BSS and PSDP loans will have significant gender participation; several components are targeted specifically to help women in health, education, and entrepreneurial development. The country’s poverty and social indicators are provided in Appendix 2, Table A2.3. 30. The Government’s environmental objectives relate to (i) improving environmental awareness and education, (ii) managing and protecting natural resources, and (iii) improving waste management and pollution control. Several of these activities have been, from time to time, supported by US Environmental Protection Agency grants, and the Australian Agency for International Development (AusAID) has funded the environmental awareness program. ADB’s program to date has not directly affected any of those areas, although some waste management-related work has been undertaken under the WSS Project. The proposed OID loan may include solid waste management and sewerage treatment, which should significantly reduce lagoon pollution. Alternative funding from other assistance agencies will be sought to assist with other environmental issues and to improve environmental policy and administration work. The FSM’s country environment indicators are found in Appendix 2, Table A2.4. 3. Good Governance31. Since 1995, through its PSRP loan and associated TA, ADB has supported a reform program aimed at improving public sector efficiency and effectiveness in all FSM governments. However, the decentralized nature of government in the FSM requires more effort and resources than currently available to strengthen good governance institutions and arrangements in all levels of government. Some governance issues are being addressed through ongoing TAs such as Economic Policy Reform and Capacity Building (ERCAP) I and Implementation of Performance-Based Budget Management (IPBM). 32. Improved government accountability and transparency can be achieved through better integration of public sector budgeting, accounting, and management reporting systems and procedures. The scope of the IPBM TA will be amended to help and facilitate the implementation of an integrated financial management information system (FMIS) in all five governments. The successful implementation of the new FMIS will not only improve efficiency and effectiveness in government operations, but will also satisfy accountability, transparency, and accrual accounting requirements under the renegotiated Compact. 33. Proper implementation of the new integrated FMIS, which incorporates the budget planning and performance reporting systems, will require acquisition of hardware and software, as well as extensive training and capacity building. The funding through the USDOI is proposed to support the acquisition and project implementation costs, while the preparatory work will be done under the IPBM TA and the associated capacity building and training needs will be funded through TA, Strengthening and Capacity Building in Public Sector Financial Management, in the revised 2002 TA program. 34. Corporate governance issues are being addressed through the PSDP and the TA, Public Enterprise Privatization and Corporate Governance II in 2004. The OID loan, which will include conditions for institutional changes for the utility company in Chuuk, is also expected to improve public enterprise governance. The participation of the FSM governments in regional good governance initiatives that seek to increase participation of civil society and traditional leadership in government decision-making processes will be supported by funding from the Department for International Development, United Kingdom. 35. The governance assessment carried out during the Country Programming Mission determined that improving public sector accountability will require reinforcement of the audit function. A TA, Streamlining and Strengthening of the Office of Auditor General, is proposed to help set up the systems, procedures, and operating guidelines, as well as to explore the possibility of a centralized audit function for all five governments. The timing of the TA in 2005 is to take advantage of the new uniform FMIS expected to be in place by 2004. B. Highlights in Coordination of External Funding and Partnership Arrangements36. ADB, the only multilateral agency active in the country, plays a catalytic role in aid coordination. ABD has organized all four Consultative Group meetings (ADB maintains close linkage with the US, AusAID, and other bilateral aid agencies). While opportunities exist for more comprehensive and broad cooperation among agencies, the Compact with the US is the major external assistance to the FSM. A wide range of federal and nonfederal US services and programs of assistance are also available to the governments and other organizations in the FSM. 37. Japan is the second largest bilateral agency funding activities in the FSM, with annual grants of about $10 million equivalent. These grants are provided basically to the four states and have usually financed the construction of roads, wharves, ports, and fisheries infrastructure. Japan also has a grassroots program for the environment and for improving quality of life. AusAID provides approximately $1.0 million equivalent in aid per year, mainly for education, health, and training. AusAID has recently funded a full-time statistician for 2 years. The People’s Republic of China provides grants for sports facilities and is promoting farming of vegetables. The World Bank does not currently have a program in the FSM, and the International Monetary Fund only undertakes Article IV consultations on a 2-year cycle. However, TA in the areas of tax, budget, statistics, and banking supervision is provided through the Pacific Financial Technical Assistance Centre, which is supported by ADB, the International Monetary Fund, and other assistance agencies. The United Nations and its agencies, such as the United Nations Industrial Development Organization, United Nations Environment Programme, World Health Organization, etc. are engaged in training and TA support in FSM. External assistance is summarized in the development coordination matrix provided in Appendix 2, Table A2.5.
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