For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.
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 -1.8% in 2020 and -3.2% in 2021 due to the outbreak of the COVID-19. It came back to -0.6% in 2022 and should turn positive in 20223 (+2.9%) and 2024 (+2.8%), subject to the post-pandemic global economic recovery.
According to the latest available data, the overall fiscal balance registered a surplus of 3% in 2020, owing to a strong collection of fishing license fees and a surge of corporate taxes, before reaching only 1% in 2022 (IMF, 2023). But the country's medium-term economic outlook appears fragile because of the remaining 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 18.3% of GDP in 2020, 15% in 2021 and 14.2% in 2022. It is expected to continue to decrease in 2023 with 13.3% in 2023 but increase at 17.4% in 2024 (World Bank, 2023). Inflation rose to 2.1% in 2021 and 5.8% in 2022. It is expected to decrease in 2023 and 2024 with 3% and 1.9% respectively, according to the latest World Economic Outlook of the IMF (2023).
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||2020||2021||2022 (E)||2023 (E)||2024 (E)|
|GDP (billions USD)||0.41||0.41||0.42||0.46||0.48|
|GDP (Constant Prices, Annual % Change)||-1.8||-3.2||-0.6||2.8||2.8|
|GDP per Capita (USD)||3,938||3,871||4,033||4,336||4,544|
|General Government Gross Debt (in % of GDP)||18.3||15.5||14.0||11.9||16.5|
|Inflation Rate (%)||1.0||1.8||5.0||4.7||2.1|
|Current Account (billions USD)||0.02||0.00||0.00||-0.00||-0.03|
|Current Account (in % of GDP)||3.7||1.1||1.1||-0.5||-6.3|
Source: IMF – World Economic Outlook Database - October 2021.
Note: (e) Estimated Data
|American Dollar (USD) - Average Annual Exchange Rate For 1 MUR||0.03||0.03||0.03||0.03||0.03|
Source: World Bank - Latest available data.
|Breakdown of Economic Activity By Sector||Agriculture||Industry||Services|
|Value Added (in % of GDP)||22.3||5.0||66.7|
|Value Added (Annual % Change)||-6.8||-8.3||-2.0|
Source: World Bank - Latest available data.
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.
See the country risk analysis provided by Coface.
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.
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Latest Update: September 2023