Federated States of Micronesia: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Federated States of Micronesia

Economic growth has been volatile since the Covid-19 pandemic, and inflation reached decade-high levels mainly due to higher prices of imported food and energy. High vulnerability to climate change is also intensifying food security concerns. Despite the weak domestic economy, the fiscal and external current accounts posted large surpluses, partly thanks to foreign grants and taxes paid by foreign firms. The high uncertainty around medium-term external financing and economic prospects diminished significantly with the signing of a new Compact of Free Association (COFA) agreement between the FSM and the United States government, which includes larger grants for the next 20 years and will enable much needed public investment and reforms. However, the agreement still needs to be ratified by the US Congress.