ECONOMY
Under the terms of the Compact of Free Association, the U.S. provided the FSM with about $2 billion in grants and services between 1986 and 2001. The Compact's financial terms were renegotiated for the 20-year period 2004 through 2023, with the aim of encouraging sustainable development. The U.S. will provide almost $100 million in direct assistance every year until 2023, which includes the systematic reallocation of a portion of the direct aid to a jointly managed Trust Fund. Additional federal grants to the FSM total approximately $35 million annually. Assistance under the Amended Compact is distributed by grants in response to a transparent FSM budget process, focusing on the following six sectors: education, health, infrastructure, public sector capacity building, private sector development, and the environment. The U.S. Department of the Interior is responsible for monitoring and implementing the Amended Compact.
The FSM public sector plays a central role in the economy as the administrator of Compact funds. The national and state-level governments employ over half of the country's workers, government services accounting for more than 40% of GDP. Real wages nationwide have been flat for the past decade, as has the number of jobs in the economy (about 15,500.) Private sector jobs pay about half as much as public sector jobs.
The fishing industry is highly important. Foreign commercial fishing fleets pay over $14 million annually for the right to operate in FSM territorial waters. These licensing fees account for 28% of the national government revenues. Exports of marine products, mainly to Japan, account for nearly 85% of export revenues.
Visitor attractions include SCUBA diving , World War II battle sites, and the ancient ruined city of Nan Madol on Pohnpei. Some 18,000 visit the islands each year. However, the tourist industry has been hampered by a lack of infrastructure and limited commercial air connections. The Asian Development Bank has identified tourism as one of FSM's highest potential growth industries.
Agriculture is mainly subsistence farming. The principal crops are breadfruit, coconuts, bananas, betel nuts, cassava, taro, and kava. Less than 10% of the formal labor force and less than 7% of export revenue come from the agricultural sector.
The large inflow of official assistance to FSM allows it to run a substantial trade deficit--imports outstrip exports by a seven-to-one ratio--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 borrowed against future Compact disbursements in the early 1990s, yielding a significant external debt, close to $60 million. In 2005, the FSM Government and Congress took positive steps toward nationwide tax system to improve collections and more fairly distribute the tax burden.
Economy (FY 2004 Figures)
GDP: $218 million.
GDP per capita (nominal): $2,018.
National income (GDP + foreign assistance): $360 million.
National income per capita: $3,100.
GDP composition by sector: services 77%, agriculture 19%, industry 4%.
Industry: Types--fishing, agriculture, tourism
Trade: Exports ($14 million)--fish, kava, betel nut. Export market--Japan (21%), US (25%), Others (53%), U.S. Imports ($133 million)--food, manufactured goods, fuel. Import sources--U.S. (50%), Japan (11%), Others (39%).
External debt: $ 60.81 million.
Currency: U.S. dollar.
