[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-detail-110803-en":3,"doc-seo-110803-105":29,"detail-sidebar-cat-0-en-105":90},{"code":4,"msg":5,"data":6},0,"success",{"doc_id":7,"user_id":8,"nickname":9,"user_avatar":10,"doc_module":4,"category_id":11,"category_name":12,"doc_title":13,"doc_description":14,"doc_content":15,"file_id":16,"file_url":17,"file_type":18,"file_size":19,"view_count":4,"is_deleted":4,"is_public":20,"is_downloadable":20,"audit_status":20,"page_count":21,"language":22,"language_code":23,"site_id":24,"html_lang":23,"table_of_contents":25,"faqs":26,"seo_title":13,"seo_description":14,"update_tm":27,"read_time":28},110803,1374391974468,"Eden","https://ap-avatar.wpscdn.com/davatar_29158cc5080c5b710cf443261637dec0",8,"Research & Report","Federated States of Micronesia - Joint World Bank-IMF Debt Sustainability Analysis - October 2021","The Federated States of Micronesia remains at high risk of external and overall debt distress under the Low-Income Country Debt Sustainability Framework. The expected expiration of U.S. Compact grants in FY2023 could trigger a fiscal cliff, shifting debt onto an upward trajectory from FY2024 and breaching key thresholds within a 20-year horizon. Debt is judged sustainable due to available liquid assets, especially the FSM Trust Fund. The analysis highlights the need for gradual fiscal consolidation, structural reforms to support private growth, and resilience strategies for climate-related disasters.","Public Disclosure Authorized Public Disclosure Authorized  \nINTERNATIONAL DEVELOPMENT ASSOCIATION  \nINTERNATIONAL MONETARY FUND  \nFEDERATED STATES OF MICRONESIA  \nJoint World Bank-IMF Debt Sustainability Analysis  \nOctober 2021  \nPrepared Jointly by the staffs ofthe International Development Association (IDA) 1,2  \nand the International Monetary Fund (IMF)  \nApproved by Marcello Estevão, Hassan Zaman (IDA), Andreas Bauer and Martin Sommer  \n(IMF)  \n\n| Federated States of Micronesia: Joint Bank-Fund Staff Debt Sustainability Analysis |  |\n| --- | --- |\n| Risk of external debt distress | High |\n| Overall risk of debt distress | High |\n| Granularity in the risk rating | Sustainable: Despite a continuous upward debt trajectory, the FSM’s national assets including the FSM Trust Fund provide sufficient safeguards for debt sustainability. |\n| Application of judgment | Yes: the forecast horizon informing mechanical risk signals is extended to 20 years to take account of the longer-term implications of a possible fiscal cliff in FY2023 . |\n\n1 The FSM’s Composite Indicator of 1.67 indicates a weak debt-carrying capacity, based on the April 2021 IMF’s World Economic Outlook (WEO) and the 2019 World Bank’s Country Policy and Institutional Assessment (CPIA) .  \n2 This DSA has been prepared jointly by the IMF and World Bank, following the 2018 Guidance Note on the Bank-Fund Debt Sustainability Framework for Low Income Countries.  \nThe Federated States of Micronesia (FSM) remains at high risk of debt distress under the Low-Income Country Debt Sustainability Framework (LICDSF). The expected expiration of the U.S. Compact grantsin FY2023 could result in a fiscal cliff. Under the baseline scenario without fiscal adjustment, the fiscal cliff would put debt on an upward trajectory from FY2024, with the external debt-to-GDP ratio reaching 44.2 percent in FY2031 and 81.1 percent in FY2041, and the public debt-to-GDP ratio reaching 45.1 percent in FY2031 and 82.3 percent in FY2041. As a result, the threshold of the present value of external debt-to-GDP ratio and the threshold of the public debt-to-GDP ratio are projected tobe breached considering a 20-year horizon. While a mechanical  \napplication of the DSF based on a 10-year forecast horizon would imply a moderate risk rating, the projected breach of the thresholds within a 20-year forecast warrants an assessment of high risk of external and overall debt distress. Debt is considered sustainable due to the availability of liquid assets, most importantly from the FSM trust fund. To lower the risk of debt distress and ensure debt sustainability, gradual fiscal consolidation, and steadfast structural reforms to promote private sector growth would be needed. 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.  \nPUBLIC SECTOR DEBT COVERAGE  \n1. This Debt Sustainability Analysis (DSA) covers debt owed by the national and state governments ofthe FSM (Text Table 1). As of May 2021, debt is primarily external and includes guaranteed debt from strategically important state-owned enterprises (SOEs) . The legal framework in the FSM only allows for the central government on-lend to SOEs. There have been ongoing efforts by the authorities, supported by the FY2022 Performance and Policy Actions (PPAs) under IDA’s Sustainable Development Finance Policy (SDFP), to enhance debt transparency, including reporting of both guarantees and non-guaranteed debt by SOEs. Against this background, the contingent liability stress test with default settings under the DSF is used to analyze public debt not covered by this DSA. The FSM uses the U.S. dollar as the legal tender and does not have a central bank. The external debt is defined based on the residency criteria.  \nText Table 1. Coverage of Public Debt  \n\n| 1 | Subsectors of the public sector | Sub-sectors covered |\n| --- | --- | --- |\n|  | Central governme","cbCaiiC6BbxcZOu0","https://ap.wps.com/l/cbCaiiC6BbxcZOu0","pdf",403427,1,17,"English","en",105,"# Risk assessment and overall conclusions\n## Risk of external debt distress\n## Overall risk of debt distress\n## Granularity in risk rating and judgment on forecast horizon\n# Public sector debt coverage\n## Covered subsectors and guarantees\n## Coverage definitions and contingent liability stress test\n# Background on debt\n## Debt levels and composition as of end-May 2021","[{\"question\":\"Why does the analysis rate the Federated States of Micronesia at high risk of debt distress?\",\"answer\":\"The forecast considers the FY2023 fiscal cliff risk from the expected expiration of U.S. Compact grants, leading to threshold breaches within a 20-year horizon. This results in high risk despite an alternative mechanical approach using a shorter horizon.\"},{\"question\":\"How does the report justify using a 20-year forecast horizon instead of a 10-year horizon?\",\"answer\":\"It extends the forecast horizon to 20 years to capture longer-term implications of a possible fiscal cliff in FY2023, which affects the risk signals and supports a higher risk assessment.\"},{\"question\":\"What role do liquid assets and the FSM Trust Fund play in the debt sustainability conclusion?\",\"answer\":\"Debt is considered sustainable because sufficient safeguards exist, particularly liquid assets from the FSM Trust Fund. This mitigates debt distress even while risk signals remain high under the framework.\"}]",1784487167,43,{"code":4,"msg":30,"data":31},"ok",{"site_id":24,"language":23,"slug":32,"title":13,"keywords":33,"description":14,"schema_data":34,"social_meta":85,"head_meta":87,"extra_data":89,"updated_unix":27},"federated-states-of-micronesia-joint-world-bank-imf-debt-sustainability-analysis-october-2021","",{"@graph":35,"@context":84},[36,53,67],{"@type":37,"itemListElement":38},"BreadcrumbList",[39,43,47,50],{"item":40,"name":41,"@type":42,"position":20},"https://docshare.wps.com","Home","ListItem",{"item":44,"name":45,"@type":42,"position":46},"https://docshare.wps.com/document/","Document",2,{"item":48,"name":12,"@type":42,"position":49},"https://docshare.wps.com/document/research-report/",3,{"item":51,"name":13,"@type":42,"position":52},"https://docshare.wps.com/document/federated-states-of-micronesia-joint-world-bank-imf-debt-sustainability-analysis-october-2021/110803/",4,{"url":51,"name":13,"@type":54,"author":55,"headline":13,"publisher":57,"fileFormat":60,"inLanguage":23,"description":14,"dateModified":61,"datePublished":61,"encodingFormat":60,"isAccessibleForFree":62,"interactionStatistic":63},"DigitalDocument",{"name":9,"@type":56},"Person",{"url":40,"name":58,"@type":59},"DocShare","Organization","application/pdf","2026-07-19",true,{"@type":64,"interactionType":65,"userInteractionCount":4},"InteractionCounter",{"@type":66},"ViewAction",{"@type":68,"mainEntity":69},"FAQPage",[70,76,80],{"name":71,"@type":72,"acceptedAnswer":73},"Why does the analysis rate the Federated States of Micronesia at high risk of debt distress?","Question",{"text":74,"@type":75},"The forecast considers the FY2023 fiscal cliff risk from the expected expiration of U.S. Compact grants, leading to threshold breaches within a 20-year horizon. This results in high risk despite an alternative mechanical approach using a shorter horizon.","Answer",{"name":77,"@type":72,"acceptedAnswer":78},"How does the report justify using a 20-year forecast horizon instead of a 10-year horizon?",{"text":79,"@type":75},"It extends the forecast horizon to 20 years to capture longer-term implications of a possible fiscal cliff in FY2023, which affects the risk signals and supports a higher risk assessment.",{"name":81,"@type":72,"acceptedAnswer":82},"What role do liquid assets and the FSM Trust Fund play in the debt sustainability conclusion?",{"text":83,"@type":75},"Debt is considered sustainable because sufficient safeguards exist, particularly liquid assets from the FSM Trust Fund. 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