Federated States of Micronesia: 2026 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Federated States of Micronesia

The 2026 Article IV Consultation discusses that the Federated States of Micronesia (FSM) is progressing to achieve development goals, under challenging circumstances. Medium-term growth prospects remain subdued, with inflation gradually moderating. Risks are tilted to the downside; further delays in executing public investment amidst intensifying climate change would depress growth, which exacerbates emigration and skills shortages, leading to a negative feedback loop. The renewal of the Compact of Free Association with the US, with a significant step-up in grants, provides an opportunity to reset the economic trajectory, if coupled with reforms. Recommendations are informed by the Country Engagement Strategy and focus on strategies to achieve higher sustainable growth. The priority is to expedite climate-resilient public infrastructure expenditure and improve project quality, with the support of development partners. Strengthening climate-specific provisions in infrastructure planning is important for long-term sustainability. Once completed, the National Adaptation Plan should provide strategic sectoral priorities.