- GDP (PPP):
- $0.3 billion
- 2.0% growth
- 0.7% 5-year compound annual growth
- $3,393 per capita
- Inflation (CPI):
- FDI Inflow:
Micronesia’s economic freedom score is 51.9, making its economy the 149th freest in the 2019 Index. Its overall score has decreased by 0.4 point, with declines in scores for government spending and trade freedom exceeding improvements in labor freedom and property rights. Micronesia is ranked 38th among 43 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.
The public sector is Micronesia’s largest employer, and relatively few jobs could be created by exploiting the few commercially valuable mineral deposits. Geographic isolation and other challenges minimize the potential for tourism. The business environment does not encourage entrepreneurial activity, and poor policy choices in critical areas of economic freedom have further retarded growth. Tariff barriers are relatively low, but nontariff barriers and inadequate infrastructure limit trade freedom. The overall regulatory and legal framework remains inefficient and lacking in transparency.
The widely scattered Caroline Islands in the southwestern Pacific Ocean were part of a U.N. Trust Territory under U.S. administration after World War II. The eastern four island groups (Pohnpei, Chuuk, Yap, and Kosrae) adopted a constitution in 1979 and became the Federated States of Micronesia. The 607-island archipelago’s central government has limited powers. The most recent parliamentary election for the small unicameral legislature took place in March 2015; in May 2015, the legislature’s at-large members elected President Peter Christian to a four-year term. Under a Compact of Free Association signed in 1986, the U.S. is responsible for defense and currently provides about $130 million annually in economic assistance. Economic activity consists largely of subsistence farming and fishing.
Private property rights are protected for citizens and (to a much lesser degree) foreign nationals who have more than five years’ residence in the country. The government generally respects the constitutionally independent judiciary, but the judicial system is chronically underfunded, weak, and slow. Civilian authorities investigate and punish corruption, but government funds are frequently misused and misappropriated.
Tax laws are administered and enforced erratically. The personal income tax rate is 10 percent, and the corporate tax rate is 21 percent. The overall tax burden equals 13.2 percent of total domestic income. Over the past three years, government spending has amounted to 59.2 percent of the country’s output (GDP), and budget surpluses have averaged 9.4 percent of GDP. Public debt is equivalent to 24.5 percent of GDP.
Given the poor development of the physical and regulatory infrastructure, the formation and operation of private businesses are not easy. The overall entrepreneurial framework remains inefficient and lacking in transparency. A large share of the workforce is employed in the informal sector. The government has monopolies in fuel, telecommunications, and copra production and is heavily dependent on U.S. subsidies.
The combined value of exports and imports is equal to 99.0 percent of GDP. The average applied tariff rate is a relatively low 2.2 percent, but overall trade freedom is limited by nontariff barriers and poor trade infrastructure. Numerous impediments discourage foreign and domestic investment. High credit costs and scarce access to financing constrain the small private sector. Much of the population does not use formal banking.