2019 Index of Economic Freedom

Micronesia

overall score51.9
world rank149
Rule of Law

Property Rights7.6

Government Integrity36.6

Judicial Effectiveness26.6

Government Size

Government Spending0.0

Tax Burden92.8

Fiscal Health98.8

Regulatory Efficiency

Business Freedom57.4

Labor Freedom71.9

Monetary Freedom85.8

Open Markets

Trade Freedom80.6

Investment Freedom35.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 0.1 million
  • GDP (PPP):
    • $0.3 billion
    • 2.0% growth
    • 0.7% 5-year compound annual growth
    • $3,393 per capita
  • Unemployment:
  • Inflation (CPI):
    • 0.5%
  • 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.

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Background

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.

Rule of LawView Methodology

Property Rights 7.6 Create a Graph using this measurement

Government Integrity 36.6 Create a Graph using this measurement

Judicial Effectiveness 26.6 Create a Graph using this measurement

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.

Government SizeView Methodology

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.

Regulatory EfficiencyView Methodology

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.

Open MarketsView Methodology

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.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong90.20.0
2Singapore89.40.6
3New Zealand84.40.2
4Australia80.90.0
5Taiwan77.30.7
6Malaysia 74-0.5
7South Korea72.3-1.5
8Japan72.1-0.2
9Macau710.1
10Thailand 68.31.2
11Indonesia65.81.6
12Kazakhstan65.4-3.7
13Azerbaijan65.41.1
14Brunei Darussalam65.10.9
15Philippines63.8-1.2
16Bhutan62.91.1
17Kyrgyz Republic 62.3-0.5
18Fiji62.20.2
19Samoa62.20.7
20China58.40.6
21Papua New Guinea58.42.7
22Cambodia57.8-0.9
23Tonga57.7-5.4
24Laos57.43.8
25Sri Lanka56.4-1.4
26Vanuatu56.4-13.1
27Bangladesh 55.60.5
28Tajikistan55.6-2.7
29Mongolia55.4-0.3
30Vietnam55.32.2
31India55.20.7
32Pakistan 550.6
33Solomon Islands54.6-2.9
34Nepal53.8-0.3
35Burma53.6-0.3
36Uzbekistan53.31.8
37Maldives53.22.1
38Micronesia51.9-0.4
39Afghanistan51.50.2
40Turkmenistan48.41.3
41Kiribati47.3-3.5
42Timor-Leste44.2-3.9
43North Korea5.90.1
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