Contry economic review : Federated States of Micronesia

Abstract

During the current Compact of Free Association with the United States (US) that dates from 1987, economic growth in the Federated States of Micronesia (FSM) has averaged a 1.9 percent rate of annual increase in gross domestic product (GDP). Taking into account the population growth of 2.0 percent, GDP per capita declined during this period. At the beginning of the Compact, the FSM was endowed with a weak policy environment, which was inward looking, not conducive for private sector development, and supported a large Government. Supported by large external transfers, the economy initially boomed and grew by over 4 percent annually between fiscal year (FY)1987-FY1995, with the private sector growing by 7.1 percent as a modern cash economy established itself in nontraded activities. However, this period was not to be long-lived.