Press Release No. 16/514

IMF Staff Concludes Visit to the Federated States of Micronesia

November 16, 2016

• Securing fiscal sustainability, building resilience to natural disasters and climate change, and promoting private sector growth remain the priorities.
• Climate change, further delays in the infrastructure projects and declining U.S. grants could pose risks to growth.
• A decisive push for structural reforms could boost potential growth.

An International Monetary Fund (IMF) team led by Serkan Arslanalp visited Pohnpei from November 10‒16, 2016, to review economic developments in advance of discussions for the 2017 Article IV consultations (expected to take place during the summer of 2017).

At the conclusion of the mission, Mr. Arslanalp issued the following statement:

“Growth in the Micronesian economy returned to positive territory in FY2015 (ending September 30), as the fishery sector expanded. Output grew by 3.7 percent, while headline inflation dropped to -0.2 percent, amid falling oil and utility prices. The fiscal balance recorded a surplus of about 10 percent of GDP, due to increased fishing license fees. The strong growth momentum is estimated to have carried into FY2016, with GDP growth expected to be around 2 percent during FY2016-17.

“Despite these positive developments, risks remain beyond the near-term. Extreme weather-related events (in the context of climate change), further delays in the implementation of infrastructure projects, and declining U.S. Compact grants could pose risks to growth. The current trajectory of the Compact Trust Fund is not on track to fully offset expiring U.S. grants after FY2023, while the FSM Trust Fund will partially offset the shortfall. In this context, uncertainties surrounding the global economy could pose risks to trust fund returns and underscore the importance of strengthening fiscal buffers. On the upside, a decisive push for structural reforms could boost potential growth.

“Securing fiscal sustainability, building resilience to natural disasters and climate change, and promoting private sector growth remain the policy priorities. The IMF staff team encourages the implementation of “Action Plan 2023” prepared for the scheduled expiration of U.S. Compact grants. Explicit recognition of the costs of natural disasters and climate change in a medium-term fiscal framework can help build policy buffers. To achieve the government’s long-term development agenda, it will be important to address weaknesses in infrastructure, access to finance, and improve the business environment to foster private sector growth.

“The team is grateful to the authorities for their hospitality and representatives of the government and the private sector for the open and constructive dialogue.”