IMF国际货币组织全球-Federated-States-of-Micronesia_2019-Article-IV-Consultation_78页_1mb

Summary of IMF Country Report No. 19/288: Federated States of Micronesia

Core Content

The Federated States of Micronesia (FSM) underwent a 2019 Article IV consultation with the International Monetary Fund (IMF), which concluded on August 28, 2019. The report outlines the economic performance, outlook, risks, and policy recommendations for the FSM.

Economic Performance

• The FSM economy has shown strong performance in recent years, with GDP growth above historical averages.
• GDP growth was 2.4% in FY2017 and 1.2% in FY2018, primarily due to a contraction in the construction sector.
• Inflation has remained low, at around 1.5% in FY2018, thanks to the use of the U.S. dollar as legal tender.
• Fiscal and current account balances have recorded large surpluses since FY2017, driven by revenue windfalls from foreign grants and fishing license fees.

Fiscal Position

• Revenue reached 96.4% of GDP in FY2018, with tax revenue at 34.7%.
• Grants accounted for 38.2% of GDP in FY2018, contributing to fiscal surpluses.
• Non-tax revenue was at 23.5% of GDP in FY2018, mainly from fishing license fees.
• Expenditure was 69.1% of GDP in FY2018, with expense at 51.2%.
• Net lending/borrowing was 27.3% of GDP in FY2018, but is projected to turn negative in FY2024 due to the fiscal cliff.

External Position

• The current account (CA) surplus reached 24.5% of GDP in FY2018, due to corporate tax payments.
• Net international investment position (NIIP) was 130% of GDP at end-FY2017, reflecting abroad investments and trust fund accumulation.
• The Compact Trust Fund (CTF) and FSM Trust Fund (FSMTF) are key to fiscal sustainability, with the CTF rising to 168% of GDP and the FSMTF reaching 57% of GDP in FY2018.

Outlook and Risks

• Growth is expected to converge to potential (estimated at 0.6%) over the medium term, with a 1.4% growth in FY2019.
• Inflation is projected to converge to 2% over the medium term.
• Risks are tilted to the downside, particularly due to the potential expiration of the Compact Agreement in 2023, which could lead to a fiscal cliff and loss of access to U.S. grants and disaster rehabilitation assistance.
• Climate change poses a significant risk, with rising sea levels and natural disasters threatening economic stability and livelihoods.
• Private sector activity remains weak, and reforms are needed to vitalize it.

Policy Recommendations

• Fiscal consolidation of 4–5% of GDP through FY2023 is necessary to avoid the fiscal cliff.
• Gradual introduction of growth-friendly tax measures, including a value-added tax (VAT), is recommended.
• Expenditure rationalization and limiting non-essential spending should be pursued, while protecting spending on education, healthcare, and climate-resilient infrastructure.
• Strengthening climate change resilience through adaptation projects, disaster insurance, and foreign financing is essential.
• Banking sector supervision should be strengthened by updating banking laws and developing prudential regulations.
• Private sector development should be accelerated through reforms to improve the business environment and foreign direct investment (FDI) regime.

Key Initiatives

• A Climate Change Policy Assessment (CCPA) was conducted as part of the consultation, in collaboration with the World Bank.
• The FSM Trust Fund (FSMTF) is being used to build fiscal buffers to ensure long-term sustainability.
• Public financial management and data provision are areas where technical assistance is encouraged.

Main Challenges

• Dependence on U.S. grants and fishing license fees makes the economy vulnerable to external shocks.
• Climate change and natural disasters are major risks, requiring long-term adaptation strategies.
• Weak private sector activity hinders potential growth.
• Uncertainty about the Compact Agreement's renewal could lead to significant fiscal and macroeconomic instability.

Key Information

• The Compact Agreement is set to expire in 2023, leading to a fiscal cliff.
• FSMTF and CTF are critical for fiscal sustainability, but their volatility is a concern.
• The IMF's transparency policy allows for the deletion of market-sensitive information.
• Public financial management and data provision are areas requiring improvement.
• The fiscal adjustment is expected to reduce growth by 0.1–0.3% annually over FY2020–24.

Summary Table: Selected Economic Indicators (FY2015–24)

Conclusion

The IMF Executive Board welcomed the FSM's strong economic performance and improved fiscal and external positions, but emphasized the need for policy actions and reforms to address medium-term uncertainties, particularly related to the Compact Agreement and climate change. The report highlights the importance of fiscal consolidation, climate resilience, banking sector supervision, and private sector development for sustained economic growth and long-term fiscal sustainability.