Federated States of Micronesia

Key trends and development challenges

Federated States of Micronesia (FSM) is an atoll state located in the Pacific sub-region of Micronesia. With a GDP of $427 million, FSM is the seventh-largest economy in the Pacific, accounting for 1.1% of regional GDP. FSM has a population of 114,000 (2022), resulting in a GDP per capita of $3,700, ranking tenth in the Pacific. While FSM is categorised as a microstate, its Exclusive Economic Zone (EEZ) covers 2.99 million square kilometres, the 14th-largest globally, and is comparable in size to the EEZ of Mexico.

FSM has the fourth-highest Official Development Assistance (ODA) to Gross National Income (GNI) ratio in the Pacific Islands region, with aid accounting for 31% of national income. In a global context, FSM remains among the most aid-reliant countries in the world, ranking fourth among 127 developing countries for its ODA/GNI ratio. FSM’s government development agenda is focused on improvements to the country’s human capital and infrastructure. At 0.634, FSM’s Human Development Index score ranks 135th out of 193 ranked countries.

Between 2008 and 2022, annual Official Development Finance (ODF) disbursements to FSM — including grants, loans, and other forms of assistance — averaged $157 million. Less than 3% of the development finance received by FSM between 2008 and 2022 came in the form of loans.

Development partners and sector trends

FSM has seen a great deal of variation in its annual ODF receipts over the past 15 years. ODF to the country peaked at $285 million in 2013 and declined heavily afterwards. This trend is in part a product of the country’s Compact of Free Association (COFA) agreement with the United States, which infrequently releases multi-year budget support packages in large lump transfers. Since 2020 and the onset of the pandemic, disbursements to FSM have risen again, to around $190 million annually.

The vast majority (91%) of ODF support to FSM comes from four development partners, the United States (66%), China (12%), Japan (9%), and the World Bank (4%). The country sees one of the highest levels of donor concentration in the region, largely due to its COFA agreement.

ODF disbursements to FSM are largely in line with regional trends in terms of sector distribution. Projects focused on government and civil society and education are moderately above regional averages. Conversely, spending on the transport and water sectors is below regional averages.

Since 2008, FSM has received $52 million in development financing with a “principal” focus on either climate adaptation or mitigation. Over this same period, the country has seen $57 million in development financing with a “significant” focus on climate outcomes. Like other countries in COFA arrangements with the United States, the country has seen a marked rise in spending on climate initiatives since 2020, albeit from a low base. As a share of total ODF received by FSM, “principal” climate projects make up 4% of total spending, significantly below the regional average of 9%. Similarly, spending on “significant” climate projects in FSM makes up 3% of incoming funds, markedly below the regional average of 13%.

Between 2008 and 2022, FSM received $7 million in development financing with a “principal” focus on gender equality, and $69 million in development financing with a “significant” focus on gender equality. “Principal” gender equality financing constituted 0.3% of ODF received by the country, below the regional average of 2%. Notably, “significant” marked gender financing made up 3% of incoming ODF, markedly below the regional average of 21% and the lowest share of any Pacific country. The largest project directly targeting gender equality in FSM was the multi-year Pacific Women Shaping Pacific Development program, funded by Australia.