Economic Impact of the Compact and Renewal for the FSM
Economic Impact of the Compact and Renewal for the FSM (PDF) (Report). Asian Development Bank. April 2023. p. 64.
- Has attachment: File:FPWKLGAG.pdf
Abstract: Non-Renewal Scenario: The paper shows significant reliance on US grants, especially in smaller states of the FSM, with illustrations of fiscal consequences if no additional Compact grants are extended. This scenario emphasizes the painful adjustments required to achieve fiscal balance, primarily through expenditure compression and job losses. This approach underscores the immediate and harsh fiscal adjustments needed in the absence of Compact renewal.
Renewal Scenario: The study explores the potential positive impacts of a renewed Compact, highlighting how continued US economic assistance could stabilize fiscal outcomes, avoid a fiscal cliff, and potentially establish perpetual trust funds to ensure a stable flow of resources. However, it notes that while renewal could prevent economic shocks, it is not sufficient alone to place FSM on a sustained higher growth trajectory.
International Relations Context: The study also touches upon geopolitical considerations, such as US efforts to counter China’s influence in the Pacific region, which plays into the strategies surrounding the Compact negotiations.
Economic Trends and Reforms: It discusses FSM’s economic performance and the partial fulfillment of its policy reform commitments, which contribute to its relatively weaker economic outcomes in recent times.
The paper does not make explicit recommendations to affected parties but expresses a willingness to collaborate with the FSM and its development partners to address arising needs. Overall, it provides a nuanced analysis of possible future scenarios for FSM within the broad geopolitical and economic context.
