The Federated States of Micronesia - Joint World Bank-IMF Debt Sustainability Analysis
The Federated States of Micronesia (FSM) remains at high risk of debt distress under the Debt Sustainability Framework (DSF). Unless the compact agreement with the United States or parts of it are renewed, the FSM will face a fiscal cliff when the...
| Main Authors: | , |
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| Format: | Report |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/540981570790742527/The-Federated-States-of-Micronesia-Joint-World-Bank-IMF-Debt-Sustainability-Analysis-September-2019 http://hdl.handle.net/10986/32573 |
| Summary: | The Federated States of Micronesia (FSM)
remains at high risk of debt distress under the Debt
Sustainability Framework (DSF). Unless the compact agreement
with the United States or parts of it are renewed, the FSM
will face a fiscal cliff when the U.S. Compact grants
amounting to 20 percent of gross domestic product (GDP) are
expected to expire in FY2023. Under the baseline scenario
without fiscal adjustments, the fiscal cliff would put debt
on an upward trajectory starting in FY2024, with the
external debt-to-GDP ratio reaching 30 percent in FY2029 and
57 percent in FY2039, and the public debt-to-GDP ratio
reaching 43 percent in FY2029 and 67 percent in FY2039. As a
result, the DSF thresholds on the present value of external
debt-to-GDP and public debt-to-GDP ratios are projected to
be breached within a 20-year horizon. While mechanical
application of the DSF based on a 10-year forecast horizon
would imply a moderate risk rating, the envisaged breach of
the thresholds within a 20-year forecast horizon would
warrant an assessment of high risk of external and overall
debt distress. Lowering the risk of debt distress would
require a fiscal adjustment and steadfast structural reforms
to promote private sector growth. The FSM’s vulnerability to
climate change and weather-related natural disasters
constitutes a major risk and calls for strategies to
strengthen climate change resilience |
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