International Monetary Fund (IMF) staff published an end-of-mission statement for the 2026 Article IV consultation with the Federated States of Micronesia, noting that growth is estimated to have rebounded to 2.3 percent in FY2024 but is expected to moderate to 1.1 percent in FY2025 and remain around 1 percent in FY2026. The statement points to downside risks from delays in implementing large infrastructure projects and intensifying climate change, which could weaken growth and increase emigration pressures. Inflation is assessed to have slowed to 3.5 percent as global commodity prices moderated and United States inflation eased. The fiscal surplus narrowed as revenues normalized after windfall gains and states increased spending, while public debt declined to 9.6 percent of GDP in FY2025; assets of the Compact and FSM trust funds are reported at a combined 508 percent of GDP. IMF staff highlighted the renewal of the Compact of Free Association with the United States, including a significant increase in grants, as an opportunity to reset the economic trajectory if paired with reforms, with near-term priorities to expedite climate-resilient public investment and improve project quality. Recommended measures also included mobilizing a mix of grants, concessional loans, and domestic revenue to finance investment while preserving fiscal buffers, addressing fiscal risks from financially weak state-owned enterprises and the cost of remediating oil spills from WWII-era shipwrecks, streamlining and harmonizing state laws and regulations including foreign direct investment and business rules, enabling productive land use while protecting customary ownership rights, leveraging digital banking and fiscal reforms to ease credit constraints, and improving the timeliness and availability of economic statistics. IMF staff will prepare a report for the IMF Executive Board’s discussion and decision, subject to management approval.
International Monetary Fund 2026-01-30
International Monetary Fund staff concludes 2026 Article IV mission to the Federated States of Micronesia and calls for faster climate resilient investment and private sector reforms
The IMF staff concluded the 2026 Article IV consultation with the Federated States of Micronesia, noting growth rebounded to 2.3% in FY2024 but is expected to moderate to around 1% by FY2026. Recommendations include expediting climate-resilient investments, leveraging grants and loans, addressing fiscal risks, and improving economic statistics, with the renewal of the Compact of Free Association with the United States seen as a pivotal opportunity for economic reform.