Economy of the Federated States of Micronesia
Encyclopedia
The economic activity of the Federated States of Micronesia
consists primarily of subsistence agriculture
and fishing
. The islands have few mineral
deposits worth exploiting, except for high-grade phosphate. The potential for a tourist industry exists, but the remoteness of the location and a lack of adequate facilities hinder development. Financial assistance from the US is the primary source of revenue, with the US pledged to spend $1.3 billion in the islands in 1986-2001. Geographical isolation and a poorly developed infrastructure are major impediments to long-term growth.
Under the terms of the Compact of Free Association
, the United States
provided FSM with around $2 billion in grants and services from 1986 to 2001. The Compact's financial terms are being renegotiated for an extension period. In 2001 the U.S. provided more than $84 million in Compact grants--an amount equivalent to over one-third of FSM's GDP
--plus more than $20 million through other federal programs. Total official development assistance from all sources was more than $100 million in 2001, with nearly 90% of that total coming from the U.S.
The FSM public sector
plays a central role in the economy as the administrator of the Compact money. The national and state-level governments employ over one-half of the country's workers and provide services accounting for more than 40%of GDP. Faced with the potential decrease or cessation of some of the assistance programs upon the Compact's financial provisions' expiry in 2001, the Government of the FSM in 1996 began to implement a program of economic reforms designed to reduce the role of the public sector in the economy.
The tourist industry
is present but has been hampered by a lack of infrastructure. Visitor attractions include scuba diving in each state, World War II battle sites, and the ancient ruined city of Nan Madol
on Pohnpei
. Some 15,000 tourists visit the islands each year. The Asian Development Bank
has identified tourism as one of FSM's highest potential growth industries.
Farming is mainly subsistence, and its importance is declining. The principal crops are coconuts, bananas, betel nuts, cassava, and sweet potatoes. Less than 10% of the formal labor force and less than 7% of export revenue come from the agriculture sector. Manufacturing activity is modest, consisting mainly of a garment factory in Yap
and production of buttons from trochus
shells.
There are no patent
laws in Micronesia.
purchasing power parity - $277 million (2002 est.)
note:
GDP is supplemented by grant aid, averaging perhaps $100 million annually
GDP - real growth rate:
1% (2002 est.)
GDP - per capita:
purchasing power parity - $3 900 (2002 est.)
GDP - composition by sector:
agriculture:
50%
industry:
4%
services:
46% (2000 est.)
Population below poverty line:
26.7%
Household income or consumption by percentage share:
lowest 10%:
NA%
highest 10%:
NA%
Inflation rate (consumer prices):
2% (2002 est.)
Labor force:
37,410 (2000)
Labor force - by occupation:
two-thirds are government employees
Unemployment rate:
22% (1999 estimate)
Budget:
revenues:
$127.3 million ($69 million less grants
expenditures:
$144.2 million; including capital expenditures of $17.9 million (FY05 est.)
Industries:
tourism, construction, fish processing
, craft items from shell, wood, and pearl
s
Industrial production growth rate:
NA%
Electricity - production:
192 million kWh (2002)
Electricity - consumption:
178.6 million kWh (2002)
Electricity - exports:
0 kWh (2002)
Electricity - imports:
0 kWh (2002)
Agriculture - products:
black pepper
, tropical fruits and vegetables, coconut
s, cassava
(tapioca
), sweet potato
es; pig
s, chicken
s
Exports:
$22 million (f.o.b., FY99/2000 est.)
Exports - commodities:
fish, garments, banana
s, black pepper
Exports - partners:
Japan
, United States
, Guam
(2004)
Imports:
$82.5 million f.o.b. (FY99/00 est.)
Imports - commodities:
food, manufactured goods, machinery and equipment, beverages
Imports - partners:
US, Australia, Japan (2004)
Debt - external:
$53,1 million (FY02/03 est.)
Economic aid - recipient:
$79 million (1998); note - under terms of the Compact of Free Association, the US will provide $1.3 billion in grant aid during the period 1986-2001
Currency:
1 United States dollar
(US$) = 100 cents
Exchange rates:
US currency is used
Fiscal year:
1 October - 30 September
Federated States of Micronesia
The Federated States of Micronesia or FSM is an independent, sovereign island nation, made up of four states from west to east: Yap, Chuuk, Pohnpei and Kosrae. It comprises approximately 607 islands with c...
consists primarily of subsistence agriculture
Subsistence agriculture
Subsistence agriculture is self-sufficiency farming in which the farmers focus on growing enough food to feed their families. The typical subsistence farm has a range of crops and animals needed by the family to eat and clothe themselves during the year. Planting decisions are made with an eye...
and fishing
Fishing
Fishing is the activity of trying to catch wild fish. Fish are normally caught in the wild. Techniques for catching fish include hand gathering, spearing, netting, angling and trapping....
. The islands have few mineral
Mineral
A mineral is a naturally occurring solid chemical substance formed through biogeochemical processes, having characteristic chemical composition, highly ordered atomic structure, and specific physical properties. By comparison, a rock is an aggregate of minerals and/or mineraloids and does not...
deposits worth exploiting, except for high-grade phosphate. The potential for a tourist industry exists, but the remoteness of the location and a lack of adequate facilities hinder development. Financial assistance from the US is the primary source of revenue, with the US pledged to spend $1.3 billion in the islands in 1986-2001. Geographical isolation and a poorly developed infrastructure are major impediments to long-term growth.
Under the terms of the Compact of Free Association
Compact of Free Association
The Compact of Free Association defines the relationship that three sovereign states—the Federated States of Micronesia , the Republic of the Marshall Islands and the Republic of Palau—have entered into as associated states with the United States.Now sovereign nations, the three freely associated...
, the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
provided FSM with around $2 billion in grants and services from 1986 to 2001. The Compact's financial terms are being renegotiated for an extension period. In 2001 the U.S. provided more than $84 million in Compact grants--an amount equivalent to over one-third of FSM's GDP
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
--plus more than $20 million through other federal programs. Total official development assistance from all sources was more than $100 million in 2001, with nearly 90% of that total coming from the U.S.
The FSM public sector
Public sector
The public sector, sometimes referred to as the state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal.Examples of public sector activity range...
plays a central role in the economy as the administrator of the Compact money. The national and state-level governments employ over one-half of the country's workers and provide services accounting for more than 40%of GDP. Faced with the potential decrease or cessation of some of the assistance programs upon the Compact's financial provisions' expiry in 2001, the Government of the FSM in 1996 began to implement a program of economic reforms designed to reduce the role of the public sector in the economy.
Industries
The fishing industry is highly important. Foreign commercial fishing fleets pay over $20 million annually for the right to operate in FSM territorial waters. These licensing fees account for nearly 30% of domestic budgetary revenue. Additionally, exports of marine products, mainly reexports of fish to Japan, account for nearly 85% of export revenue.The tourist industry
Tourism
Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...
is present but has been hampered by a lack of infrastructure. Visitor attractions include scuba diving in each state, World War II battle sites, and the ancient ruined city of Nan Madol
Nan Madol
Nan Madol is a ruined city that lies off the eastern shore of the island of Pohnpei that was the capital of the Saudeleur dynasty until about AD 1500. It is in the present day Madolenihmw district of Pohnpei state, in the Federated States of Micronesia in the western Pacific Ocean. The city...
on Pohnpei
Pohnpei
Not to be confused with Pompeii, the ancient city destroyed by Vesuvius in AD 79.Pohnpei "upon a stone altar " is the name of one of the four states in the Federated States of Micronesia , situated among the Senyavin Islands which are part of the larger Caroline Islands group...
. Some 15,000 tourists visit the islands each year. The Asian Development Bank
Asian Development Bank
The Asian Development Bank is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia...
has identified tourism as one of FSM's highest potential growth industries.
Farming is mainly subsistence, and its importance is declining. The principal crops are coconuts, bananas, betel nuts, cassava, and sweet potatoes. Less than 10% of the formal labor force and less than 7% of export revenue come from the agriculture sector. Manufacturing activity is modest, consisting mainly of a garment factory in Yap
Yap
Yap, also known as Wa'ab by locals, is an island in the Caroline Islands of the western Pacific Ocean. It is a state of the Federated States of Micronesia. Yap's indigenous cultures and traditions are still strong compared to other neighboring islands. The island of Yap actually consists of four...
and production of buttons from trochus
Trochus
Trochus is a genus of medium-sized to very large sea snails. They are marine gastropod molluscs in the family Trochidae, the top snails....
shells.
Taxation and trade
The large inflow of official assistance to FSM allows it to run a substantial trade deficit and to have a much lighter tax burden than other states in the region (11% of GDP in FSM compared to 18%-25% elsewhere). The government also borrowed against future Compact disbursements in the early 1990s, yielding an external debt of $111 million in 1997 (over 50% of GDP).There are no patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
laws in Micronesia.
Statistics
GDP:purchasing power parity - $277 million (2002 est.)
note:
GDP is supplemented by grant aid, averaging perhaps $100 million annually
GDP - real growth rate:
1% (2002 est.)
GDP - per capita:
purchasing power parity - $3 900 (2002 est.)
GDP - composition by sector:
agriculture:
50%
industry:
4%
services:
46% (2000 est.)
Population below poverty line:
26.7%
Household income or consumption by percentage share:
lowest 10%:
NA%
highest 10%:
NA%
Inflation rate (consumer prices):
2% (2002 est.)
Labor force:
37,410 (2000)
Labor force - by occupation:
two-thirds are government employees
Unemployment rate:
22% (1999 estimate)
Budget:
revenues:
$127.3 million ($69 million less grants
expenditures:
$144.2 million; including capital expenditures of $17.9 million (FY05 est.)
Industries:
tourism, construction, fish processing
Fish processing
The term fish processing refers to the processes associated with fish and fish products between the time fish are caught or harvested, and the time the final product is delivered to the customer...
, craft items from shell, wood, and pearl
Pearl
A pearl is a hard object produced within the soft tissue of a living shelled mollusk. Just like the shell of a mollusk, a pearl is made up of calcium carbonate in minute crystalline form, which has been deposited in concentric layers. The ideal pearl is perfectly round and smooth, but many other...
s
Industrial production growth rate:
NA%
Electricity - production:
192 million kWh (2002)
Electricity - consumption:
178.6 million kWh (2002)
Electricity - exports:
0 kWh (2002)
Electricity - imports:
0 kWh (2002)
Agriculture - products:
black pepper
Black pepper
Black pepper is a flowering vine in the family Piperaceae, cultivated for its fruit, which is usually dried and used as a spice and seasoning. The fruit, known as a peppercorn when dried, is approximately in diameter, dark red when fully mature, and, like all drupes, contains a single seed...
, tropical fruits and vegetables, coconut
Coconut
The coconut palm, Cocos nucifera, is a member of the family Arecaceae . It is the only accepted species in the genus Cocos. The term coconut can refer to the entire coconut palm, the seed, or the fruit, which is not a botanical nut. The spelling cocoanut is an old-fashioned form of the word...
s, cassava
Cassava
Cassava , also called yuca or manioc, a woody shrub of the Euphorbiaceae native to South America, is extensively cultivated as an annual crop in tropical and subtropical regions for its edible starchy tuberous root, a major source of carbohydrates...
(tapioca
Tapioca
Tapioca is a starch extracted Manihot esculenta. This species, native to the Amazon, Brazil, Colombia, Venezuela, Cuba, Puerto Rico, Haiti, the Dominican Republic, Honduras, and most of the West Indies, is now cultivated worldwide and has many names, including cassava, manioc, aipim,...
), sweet potato
Sweet potato
The sweet potato is a dicotyledonous plant that belongs to the family Convolvulaceae. Its large, starchy, sweet-tasting, tuberous roots are an important root vegetable. The young leaves and shoots are sometimes eaten as greens. Of the approximately 50 genera and more than 1,000 species of...
es; pig
Pig
A pig is any of the animals in the genus Sus, within the Suidae family of even-toed ungulates. Pigs include the domestic pig, its ancestor the wild boar, and several other wild relatives...
s, chicken
Chicken
The chicken is a domesticated fowl, a subspecies of the Red Junglefowl. As one of the most common and widespread domestic animals, and with a population of more than 24 billion in 2003, there are more chickens in the world than any other species of bird...
s
Exports:
$22 million (f.o.b., FY99/2000 est.)
Exports - commodities:
fish, garments, banana
Banana
Banana is the common name for herbaceous plants of the genus Musa and for the fruit they produce. Bananas come in a variety of sizes and colors when ripe, including yellow, purple, and red....
s, black pepper
Exports - partners:
Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
, United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, Guam
Guam
Guam is an organized, unincorporated territory of the United States located in the western Pacific Ocean. It is one of five U.S. territories with an established civilian government. Guam is listed as one of 16 Non-Self-Governing Territories by the Special Committee on Decolonization of the United...
(2004)
Imports:
$82.5 million f.o.b. (FY99/00 est.)
Imports - commodities:
food, manufactured goods, machinery and equipment, beverages
Imports - partners:
US, Australia, Japan (2004)
Debt - external:
$53,1 million (FY02/03 est.)
Economic aid - recipient:
$79 million (1998); note - under terms of the Compact of Free Association, the US will provide $1.3 billion in grant aid during the period 1986-2001
Currency:
1 United States dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
(US$) = 100 cents
Exchange rates:
US currency is used
Fiscal year:
1 October - 30 September