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 $442 million, FSM is the seventh-largest economy in the Pacific Islands, accounting for 1% of regional GDP. FSM has a population of 113,000, resulting in a GDP per capita of $3,919 — the fourth-lowest in the Pacific. While FSM is categorised as a microstate, its exclusive economic zone (EEZ) spans 2.9 million square kilometres, the 14th-largest globally, comparable in size to the EEZ of Mexico.

FSM has the fourth-largest official development assistance (ODA) to gross domestic product (GDP) ratio in the Pacific Islands region, with aid accounting for 34% of GDP. In a global context, FSM remains among the most aid-reliant countries in the world, with its aid as a share of GDP ranking fifth among 125 developing countries. FSM’s government development agenda is focused on improvements to the country’s human capital and infrastructure. At 0.615, FSM’s Human Development Index score ranks 149th out of 193 ranked countries.

Between 2008 and 2023, annual official development finance (ODF) disbursements to FSM — including grants, loans, and other forms of assistance — averaged $162 million. Less than 3% of the development finance received by FSM in this period came in the form of loans.

Development partners and sector trends

FSM has seen a high degree of variation in its annual ODF receipts over the past 16 years. ODF to the country peaked at $285 million in 2013 and declined steeply 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, lumpy financial transfers.

The vast majority (82%) of ODF support to FSM in 2023 came from three development partners — the United States (68%), the World Bank (7%), and China (7%). 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 education are moderately above regional averages, while government and civil society spending is well above the regional average. Conversely, spending on the transport and water sectors is below regional averages. These differences are primarily a product of how the United States reports and directs its Compact support to the country.

Since 2008, FSM has received $119 million in development financing with a “principal” focus on either climate adaptation or mitigation. Over this same period, the country has seen $94 million in development financing with a “significant” focus on climate outcomes. Like other countries in COFA arrangements with the United States, FSM 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 made up 4% of total spending, significantly below the Pacific regional average of 8%. Similarly, spending on “significant” climate projects in FSM made up 5% of incoming funds, markedly under the regional average of 11%.

Between 2008 and 2023, FSM received $5 million in development financing with a “principal” focus on gender equality, and $60 million in development financing with a “significant” focus on gender equality. “Principal” gender equality financing constituted less than 1% of ODF received by the country, below the regional average of 2%. Conversely, “significant” marked gender financing made up 2% of incoming ODF, markedly below the regional average of 22% 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.