The International Monetary Fund has concluded its 2026 Article IV consultation with the Federated States of Micronesia, with the Executive Board highlighting subdued medium-term growth and urging faster climate-resilient public investment, structural reforms and a medium-term fiscal strategy that balances preserving fiscal buffers with development and climate adaptation needs. The IMF projects growth to moderate to 0.7 percent in FY2026 and inflation to remain at 3.2 percent as real income compression and higher import costs weigh on activity, partly offset by a gradual pickup in public investment funded by the Compact of Free Association with the United States. Directors noted that growth rebounded to 2.3 percent in FY2024 before slowing to 1.1 percent in FY2025, while the fiscal surplus narrowed as revenues normalized and states increased spending. Public debt fell to 8.9 percent of GDP in FY2025 and trust fund assets reached 510 percent of GDP. The Board called for a credible medium-term fiscal framework, stronger public financial and investment management, tax system modernization, and continued reliance on grants and concessional borrowing to protect long-term fiscal sustainability, with prudent use of trust funds for public investment. It also said the financial sector remains sound but recent increases in nonperforming loans warrant close monitoring, and pointed to digital banking, better information and stronger regulatory coordination as priorities for financial deepening and broader access to credit. The IMF identified slower infrastructure implementation, intensifying climate change and prolonged conflict as key downside risks, while reforms to business regulation, foreign direct investment rules, land use and labor market skills could support private-sector-led growth. The staff report will be published shortly on the IMF page for the Federated States of Micronesia, and the next Article IV consultation is expected to take place on a 24-month cycle.
International Monetary Fund 2026-05-05
International Monetary Fund concludes Federated States of Micronesia Article IV consultation and calls for faster climate resilient investment as growth slows to 0.7 percent
The International Monetary Fund has concluded its 2026 Article IV consultation with the Federated States of Micronesia, highlighting subdued medium-term growth and urging faster climate-resilient public investment, structural reforms and a credible medium-term fiscal framework that preserves buffers while supporting development and climate adaptation. The IMF projects growth of 0.7 percent in FY2026 with inflation at 3.2 percent, and recommends stronger public financial and investment management, tax modernization, continued reliance on grants and concessional borrowing, and prudent use of trust funds. The Board also noted a sound financial sector but rising nonperforming loans and called for digital banking, better information and stronger regulatory coordination to deepen finance and broaden credit access.