Federated States of Micronesia (FSM) and ADB

ADB supports the Federated States of Micronesia through investments in energy, water, transport, and education, including through technical assistance for related public administration reforms.

Economic forecasts for the Federated States of Micronesia

Figures are based on the latest edition of ADB's Asian Development Outlook, which analyzes economic and development issues in Asia and the Pacific. This includes forecasting the inflation and gross domestic product growth rates of economies throughout the region.


 

Comparative economic forecasts

The latest available economic data for the Federated States of Micronesia compared to countries in the Pacific.


 

Policy Challenge—Strengthening Public Sector Management and the Long-term Fiscal Framework to Harness the Benefits of Growth

Once the renewed COFAs enter into force, North Pacific governments will have additional fiscal space; thus, it is essential to enhance public sector management and develop a fiscal framework to increase public investment efficiency. The renewed compacts will channel $7.1 billion to the three North Pacific economies over 20 years to support government operations and capital investment. These resources will help upscale productive investments and support more broad-based, inclusive, and sustainable growth. To do this, it is critical to upgrade public investment management, enhance the quality of public investment, and manage risk. Addressing capacity constraints and improving expenditure efficiency would also help raise potential economic growth.

Developing a sustainable spending plan over the medium-term can also reduce economic volatility and improve the quality of public service. This will require a long-term reform agenda and additional capital resources to support complementary investments. The extra funds available through the renewed COFA should provide fiscal headroom to support large investments. However, this requires accompanying reforms to improve domestic resource mobilization (DRM) and ensure ample fiscal buffers to help mitigate external shocks—including those from disasters and public health emergencies. Higher quality infrastructure and an improved business environment supported by reforms can be instrumental in achieving private sector-led growth.

To this end, efforts are ongoing to strengthen tax systems. North Pacific economies began implementing DRM measures to help build fiscal self-sufficiency while the previous compact was in effect. Recent measures range from direct revenue-enhancing policies to administrative improvements:

  • Pursuant to its Public Financial Management Reform Roadmap 2023–2026, the Federated States of Micronesia has begun training relevant government staff in audit and tax administration and use of the Automated Systems for Customs Data (ASYCUDA). It is preparing to implement a new financial management information system (FMIS) and it has introduced a set of standard operational budgetary procedures.
  • The Marshall Islands is focusing on strengthening tax administration. It has begun implementing a new FMIS to improve monitoring revenue and debt. The government will also adopt ASYCUDA to help strengthen customs revenue collection.
  • Palau implemented a package of tax reform measures including the PGST, a business profits tax, and a reduced wage tax for certain income levels. The package updates an inefficient, distortionary tax regime, broadens the revenue base, and promotes equity.

To further enhance DRM, a programmatic approach is needed, complemented by measures to build the capacity to manage and use these increased fiscal resources. North Pacific governments recognize the importance of prioritizing and phasing in DRM measures. This approach not only minimizes the burden on limited government staff but also ensures that measures taken build upon each other. The Federated States of Micronesia has drawn up a roadmap to guide its DRM efforts, while the Marshall Islands uses an approach that focuses on improving administrative efficiency before developing revenue-enhancing measures. Palau, on the other hand, is fine-tuning its tax reforms before modernizing supporting tax and customs systems. In addition, to ensure expanded fiscal resources are managed and utilized efficiently, the North Pacific governments need to address understaffing and skills gaps by improving education and training and creating career pathways to help attract workers into public service and strategic economic sectors.

More resources

Asian Development Bank and the Federated States of Micronesia: Fact Sheet

Asian Development Bank and the Federated States of Micronesia: Fact Sheet

The Fact Sheets summarize ADB's partnerships with member economies, providing key facts and figures and an overview of activities and future directions.

Asian Development Outlook (ADO) April 2024

Asian Development Outlook

The Asian Development Outlook analyzes economic and development issues in developing countries in Asia.

Key Indicators for Asia and the Pacific 2023

Key Indicators

The Key Indicators for Asia and the Pacific publication presents data regarding the economic, financial, social, and environmental situations in a broad range of countries across the region.

Basic Statistics 2023

Basic Statistics

The Basic Statistics brochure presents data on selected social, economic, and SDG indicators such as population, poverty, annual growth rate of gross domestic product, inflation, and government finance for economies in Asia and the Pacific.