flag Federated States of Micronesia Federated States of Micronesia: Economic Outline

Economic Indicators

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During the last few years, the Federal States of Micronesia has been affected by the volatile prices of consumer goods and an unfavourable business climate. The country’s GDP has been slowing down in the past years to an estimated 1.2% in 2019. According to the updated IMF forecasts from October 2021, due to the outbreak of the COVID-19, GDP growth fell to -1.8% in 2020 and -3.2% in 2021. It  should turn positive in 2022 (+0.6%) and 2023 (+3.2%), subject to the post-pandemic global economic recovery.

According to the latest available data, the overall fiscal balance registered a surplus of 17% of GDP in 2019 and 3% in 2020, owing to a strong collection of fishing license fees and a surge of corporate taxes, before reaching only 1.2% in 2021 (IMF, 2022). But the country's medium-term economic outlook appears fragile because of the effect of the Covid pandemic, the weak performance of its small and stagnant private sector and the dependence on US assistance. In fact, the Micronesian government depends heavily on U.S. subsidies, which account for roughly 40% of annual revenue, and is now looking to China for future support as the American subsidies are scheduled to end in 2023. After that, according to IMF forecasts, the fiscal balance is expected to turn into deficit. The agricultural sector is estimated to account for 22.5% of GDP in 2022, while the industrial and the services sectors contribute to 4.9% and 66.8% respectively (World Bank data, 2022). A significant portion of economic activity is concentrated in the public sector (largely financed by international donors), which is the largest source of employment. The islands have few commercially valuable mineral deposits. The potential for tourism is limited by isolation, lack of adequate facilities, and limited internal air and water transportation. Remittances sent to the country by the diaspora are significant and have been on the rise. Public debt decreased to 18.7% of GDP in 2019, 16.1% in 2020 and 15.1% in 2021. It is expected to continue to decrease in the next years, with 14.6% in 2022 and 13.6% in 2023 (World Bank, 2022). Inflation rose slightly to 1.5% in 2019 but decreased to 0.5% in 2020 and then reached 2.6% in 2021. It is expected to remain at this level in 2022 and 2023 according to the latest World Economic Outlook of the IMF (October 2021).

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 labour force is young and relatively inexpensive, but unemployment affects more than one-fifth of the population (though reliable unemployment figures are not available) and 41.2% of the population lives below the national poverty line (Asia Development Bank). In addition, climate risks are very significant and could provoke large agricultural losses. Building resilience to climate change and promoting private sector development remain critical for sustainable growth.

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 0.410.410.430.450.48
GDP (Constant Prices, Annual % Change) -1.8e-3.2-0.62.92.8
GDP per Capita (USD) 3e3444
General Government Gross Debt (in % of GDP) 18.315.014.213.317.4
Inflation Rate (%) 0.92.15.83.01.9
Current Account (billions USD) 0.020.000.00-0.00-0.02
Current Account (in % of GDP) 3.7e1.00.4-0.9-4.7

Source: IMF – World Economic Outlook Database - October 2021.

Note: (e) Estimated Data


 
Monetary Indicators 20162017201820192020
American Dollar (USD) - Average Annual Exchange Rate For 1 GHS 0.250.230.220.190.18

Source: World Bank - Latest available data.

 

Main Sectors of Industry

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Value Added (in % of GDP) 22.5 4.9 66.8
Value Added (Annual % Change) 2.7 -3.9 1.9

Source: World Bank - Latest available data.

 

Indicator of Economic Freedom

Definition:

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.

Score:
50,4/100
World Rank:
160
Regional Rank:
36

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

See the country risk analysis provided by Coface.

 

Indicator of Political Freedom

Definition:

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.

Ranking:
Free
Political Freedom:
1/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

Sources of General Economic Information

Main Online Newspapers and Portals
Micronesia News Sites and Newspapers
Micronesia Newspapers and News Media Guide
News from Micronesia
Useful Resources
Government of the Federated States of Micronesia
Federated States of Micronesia Development Bank (FSMD)
 
 

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Latest Update: October 2022