[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-detail-111159-en":3,"doc-seo-111159-105":29,"detail-sidebar-cat-0-en-105":91},{"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":20,"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},111159,962075006959,"Anda","https://ap-avatar.wpscdn.com/avatar/e0002397efbe92a78e?_k=1776741047341049297",8,"Research & Report","Federated States of Micronesia - Joint World Bank-IMF Debt Sustainability Analysis - Risk Assessment Summary","Federated States of Micronesia is assessed at moderate risk of debt distress under the LIC DSF, improved from a high-risk assessment in October 2021. Baseline assumptions include likely renewal of the COFA and higher U.S. grants, yielding low mechanical ratings on a 10-year horizon. Over a 20-year horizon, stress tests show natural-disaster and export shocks could raise external debt ratios above thresholds, making both external and overall risk moderate. The report emphasizes uncertainty around COFA timing and recommends using compact and trust funds, strengthening public spending capacity, advancing private-sector reforms, and building climate resilience.","Public Disclosure  \nPub lic Disc losure Authorized  \nApproved by:  \nLalita Moorty and Manuela Francisco (IDA) and Thomas Helbling and Pritha Mitra (IMF) .  \nPrepared by the staff of the International Development Association (IDA) and the International Monetary Fund (IMF) . 1,2  \n\n| FEDERATED STATES OF MICRONESIA\u003Cbr>JOINT BANK-FUND DEBT SUSTAINABILITY ANALYSIS |  |\n| --- | --- |\n| Risk of external debt distress | Moderate |\n| Overall risk of debt distress | Moderate |\n| Granularity in the risk rating | Substantial space |\n| Application of judgment | Yes: The forecast horizon is extended to 20 years to take account of a continuous upward trajectory of debt indicators in stress tests. |\n\nThe Federated States of Micronesia (FSM) is assessed at moderate risk of debt distress under the Low-Income Country Debt Sustainability Framework (LIC DSF), improved from the previous high-risk assessment in October 2021. Incorporating the likely renewal of the Compact of Free Association (COFA) in the baseline, which includes a large increase in U.S. grants to the FSM, the mechanical ratings on a 10-year forecast horizon indicate low risk. However, the risk of debt distress is assessed as moderate for the 20-year horizon as stress tests indicate that natural disaster shocks and export shocks could increase the present value (PV) of external debt-to-GDP, and external debt service-to-exports ratios above their thresholds. As such, the risk of external debt distress is assessed as moderate, with substantial space to absorb shocks. The PV of public debt-to-GDP also  \n1 The FSM’s Composite Indicator of 1.72 indicates a weak debt-carrying capacity, based on the October 2023 IMF’s World Economic Outlook (WEO) and the 2022 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.  \nappears vulnerable to shocks of growth and natural disasters within 20 years, while it does not breach the benchmark in the baseline. As a result, the overall risk of debt distress is also assessed as moderate. This assessment has significant uncertainties, particularly regarding the timing of the new COFA's enactment. The sizeable Compact and FSM trust funds can be used to mitigate risks in the event of an extensive delay of the new COFA. It is also crucial to build capacity to improve effectiveness of public spending, accompanied by reforms to promote the development of the private sector, which would help achieve higher sustainable growth and strengthen debt dynamics. Additionally, the FSM’s vulnerability to climate change and weather-related natural disasters constitutes a key risk and calls for strategies to strengthen climate change resilience.  \n1. This Debt Sustainability Analysis (DSA) covers debt owed by the national and state governments of the FSM (Text Table 1) . As of June 2023, debt is primarily external and includes guaranteed debt from stateowned enterprises (SOEs) . Since the previous DSA, the authorities enhanced debt transparency, including reporting of both guaranteed and on-lent debt by SOEs, thanks to support by the FY2022-2023 Performance and Policy Actions (PPAs) under IDA’s Sustainable Development Finance Policy (SDFP) .3 Nevertheless, the coverage of the analysis can be improved by including other elements in the government (e.g. social security fund4) . There is no non-guaranteed SOE’s debt. Against this background, the shock for SOE’s debt is set to zero in the contingent liability stress test. There are no Public Private Partnership (PPP) . 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.  \n| 1 | Subsectors of the public sector | Sub-sectors covered |\n| --- | --- | --- |\n|  | Central government | X |\n| 2 | State and local government | X |\n| 3 | Other elements in the general ","cbCaimVC4ixJRnHN","https://ap.wps.com/l/cbCaimVC4ixJRnHN","pdf",624065,1,18,"English","en",105,"# Risk of Debt Distress Assessment\n## External debt distress risk (20-year vs 10-year horizon)\n## Overall risk of debt distress\n## Key uncertainties and mitigation measures\n# Scope and Coverage of the Debt Sustainability Analysis\n## Public sector subsectors and debt types\n## Debt definitions and contingent liability treatment\n# Public Debt Coverage Tables\n## Coverage of public debt by government level\n## Shocks and assumptions for guaranteed and SOE debt","[{\"question\":\"Why is the external debt distress risk assessed as moderate for the Federated States of Micronesia?\",\"answer\":\"Stress tests over the 20-year horizon indicate natural disaster shocks and export shocks may increase the PV of external debt-to-GDP and external debt service-to-exports above threshold levels, despite baseline vulnerability without breaching benchmarks.\"},{\"question\":\"How does the COFA renewal assumption affect the risk ratings?\",\"answer\":\"Incorporating likely renewal of the Compact of Free Association and higher U.S. grants improves mechanical ratings on a 10-year horizon, but the risk remains moderate when evaluated across the extended 20-year forecast due to stress test results.\"},{\"question\":\"What steps does the analysis recommend to mitigate key risks?\",\"answer\":\"Use compact and FSM trust funds to reduce harm from delays in COFA enactment, strengthen capacity to improve public spending effectiveness, implement reforms to support private-sector development, and develop strategies to strengthen climate change resilience.\"}]",1784488887,45,{"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":86,"head_meta":88,"extra_data":90,"updated_unix":27},"federated-states-of-micronesia-joint-world-bank-imf-debt-sustainability-analysis-risk-assessment-summary","",{"@graph":35,"@context":85},[36,53,68],{"@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-risk-assessment-summary/111159/",4,{"url":51,"name":13,"@type":54,"author":55,"headline":13,"publisher":57,"fileFormat":60,"inLanguage":23,"description":14,"dateModified":61,"datePublished":62,"encodingFormat":60,"isAccessibleForFree":63,"interactionStatistic":64},"DigitalDocument",{"name":9,"@type":56},"Person",{"url":40,"name":58,"@type":59},"DocShare","Organization","application/pdf","2026-07-20","2026-07-19",true,{"@type":65,"interactionType":66,"userInteractionCount":20},"InteractionCounter",{"@type":67},"ViewAction",{"@type":69,"mainEntity":70},"FAQPage",[71,77,81],{"name":72,"@type":73,"acceptedAnswer":74},"Why is the external debt distress risk assessed as moderate for the Federated States of Micronesia?","Question",{"text":75,"@type":76},"Stress tests over the 20-year horizon indicate natural disaster shocks and export shocks may increase the PV of external debt-to-GDP and external debt service-to-exports above threshold levels, despite baseline vulnerability without breaching benchmarks.","Answer",{"name":78,"@type":73,"acceptedAnswer":79},"How does the COFA renewal assumption affect the risk ratings?",{"text":80,"@type":76},"Incorporating likely renewal of the Compact of Free Association and higher U.S. grants improves mechanical ratings on a 10-year horizon, but the risk remains moderate when evaluated across the extended 20-year forecast due to stress test results.",{"name":82,"@type":73,"acceptedAnswer":83},"What steps does the analysis recommend to mitigate key risks?",{"text":84,"@type":76},"Use compact and FSM trust funds to reduce harm from delays in COFA enactment, strengthen 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