ADB's Work in the Federated States of Micronesia

The Federated States of Micronesia (FSM) comprises four states—Chuuk, Kosrae, Pohnpei, and Yap—spread across 607 islands in the northwestern Pacific. As a small island developing state, the FSM experiences heightened barriers to growth due to its geographic isolation, small population and associated capacity constraints, and exposure to natural hazards. In 2021, the FSM’s economy was significantly impacted by border closures linked to the coronavirus disease (COVID-19) pandemic but has started recovering in 2022 as travel restrictions ease up particularly with the renewal of the Compact of Free Association with the United States (the Compact).

The FSM joined ADB in 1990. ADB’s programming in the country seeks to reduce costs by increasing the supply of renewable energy; manage risks by improving disaster risk financing and public financial management; and create value by delivering safe water and sanitation services, strengthening human capacity, and supporting private sector development.

ADB’s Pacific Approach, 2021–2025, serves as the country partnership strategy for the FSM, and focuses on building resilience against economic shocks, delivering sustainable services, and promoting inclusive and sustainable growth. It introduces new priorities such as a more programmatic approach to climate change solutions; longer-term capacity support, including posting of international experts on a long-term basis; greater flexibility in procurement and contracting; and a greater emphasis on gender equality. Recognizing the need for capacity support to complement physical infrastructure, ADB is helping improve utility and public sector performance alongside infrastructure works.

To date, ADB has committed 67 public sector loans, grants, and technical assistance totaling $197.5 million to the FSM. Cumulative loan and grant disbursements to the FSM amount to $108.67 million. These were financed by regular and concessional ordinary capital resources, the Asian Development Fund, and other special funds. ADB’s ongoing sovereign portfolio in the FSM includes 9 grants worth $54.8 million.

In 2022, ADB committed a $5 million grant to help prepare the FSM’s future energy projects. The project readiness financing will help ensure that ensuing projects are implementation-ready for the timely and cost-effective achievement of the intended outputs and outcomes.

ADB has also committed nearly $30 million in grant assistance for the FSM’s COVID-19 response. Ongoing projects in the FSM involve renewable energy development, basic education, water supply and sanitation in Chuuk, and a project readiness financing to prepare an investment in transport. ADB’s Private Sector Development Initiative is strengthening the FSM’s business environment by increasing access to finance.

The overall objective of the Omnibus Infrastructure Development Project is to enhance public health and the environment through assistance to support economic growth and poverty reduction in Chuuk through improvements to the electrical power sector. Photo: Eric Sales/ADB

Operational challenges. The FSM experiences both physical and governance constraints that affect project implementation. As a federation, each state enjoys considerable autonomy, with responsibility for public services devolved from the central government. This structure can hamper development partner coordination and efficiency, and place fiscal pressure on state governments, which may be exacerbated as the Compact is phased out.

The FSM’s small population can migrate to, and work freely in, the United States—with outward migration further contributing to capacity constraints in the public and private sectors. ADB and the FSM are working to strengthen collaboration between partners, and between the state and national levels, and to identify and address development priorities. Ongoing support is needed to address long-term capacity constraints and infrastructure gaps, and to strengthen governance.

Knowledge Work

ADB brings added value beyond its role in project financing. ADB acts as a knowledge broker—engaging in regional issues, including climate change and ocean health.

ADB co-hosted a webinar in 2021 on achieving long-term climate change resilience for Pacific small island developing states beyond the pandemic—stressing the need to improve climate adaptation and build resilience to help the most vulnerable communities.

ADB also publishes knowledge products on macroeconomic forecasting and public sector management in its Asian Development Outlook and Pacific Economic Monitor. Recent publications discuss the effects of rising fuel prices on public services, commodities, and transport costs and considers how Pacific governments have provided public relief measures in response to these issues. ADB is also conducting assessments on tourism and the economic impacts of the potential cessation of the Compact.

  ADB Projects in the FSM Project data sheets for loans, grants, TAs

Future Directions

The FSM’s national Strategic Development Plan for 2004–2023 provides a road map to address fiscal and economic challenges leading up to, and beyond, the expiration of the Compact grants. To achieve fiscal consolidation, the plan stresses the need to mobilize revenue by reforming the country’s taxation system and strengthening tax administration, while highlighting the need for ongoing prudence in managing public expenditures.

ADB will continue to support the government’s priorities in energy, water supply and sanitation, transport, and basic education; and will provide technical assistance for public administration reforms, particularly at the state level.

Last updated: 3 May 2023