Assessing the Impact of Covid-19 on the Federated States of Micronesia Economy
Assessing the Impact of Covid-19 on the Federated States of Micronesia Economy (PDF) (Report). Washington, DC: Pacific and Virgin Islands Training Initiatives (PITI-VITI). 2020-03-06. p. 16.
- Has attachment: File:FTVVR86I.pdf
Abstract: The global emergence of novel coronavirus disease 2019 (COVID-19) continues to have an extraordinary impact on Pacific island economies and across the globe. The Federated States of Micronesia (FSM) has been spared any confirmed cases of COVID-19 and has taken strong proactive measures—among the strongest in the world—to protect the health of the nation. The structure of the FSM economy is heavily dependent on the public sector but also substantially dependent on fisheries activity and sovereign rent receipts. The economy relies very little on tourism and visitor arrivals; nevertheless, the projected economic consequences of the COVID-19 pandemic are significant.
The longer COVID-19 threatens the people and the fragile health system of the FSM, the greater the indirect effects on the government’s fiscal position and on the fisheries sector. More ominously, if the FSM is afflicted with actual COVID-19 cases and community transmission, the negative economic impact will be much worse. In this Technical Note, it is assumed public health restrictions on arrivals will remain through FY2021 and a return to normal access and post-pandemic economic activity begins in October 2021.
The governments of the FSM entered the current fiscal year, FY2020, with a mixed fiscal position. At the state level, revenues and expenditures were largely balanced, but with limited reserves to draw upon and limited fiscal space to endure adverse shocks. At the national level, the government has been running a significant surplus reflecting the growth in the Vessel Day Scheme (VDS) fisheries receipts, and the FSM domicile for Japanese companies. About two-thirds of the additional revenues have been saved in the FSM Trust Fund or as uncommitted reserves. At the national level there is thus significant fiscal space to adjust to direct impacts on the national government’s fiscal position and to assist the states, affected individuals and businesses to mitigate the impact of the current crisis. At the state level the impact of declining economic activity, especially within the private sector, will increase the fiscal drag of the amended Compact’s declining transfers. The combined result will increase fiscal stress with limited reserves to offset fiscal deficits....
