The Federated States of Micronesia (FSM)has a very narrow production base, with subsistenceagriculture and fisheries and the public sectors dominatingthe economy, both with regard to employment and value added.The contribution of institutional sectors to growth suggeststhat private enterprises relied on the public sector forgrowth opportunities and households tended to fall back tosubsistence when growth slows. Growth accelerations anddecelerations were largely influenced by the implementationof the U.S. funded airport upgrade project and Compactgrants although over the long run, the net effect of publicinvestment on growth has been small. Economic growth andinternational competitiveness are severely constrained bythe country’s small size, remoteness, geographic isolationand dispersion, and thin institutional and human capacity.This Public Expenditure Review (PER) is aimed at filling aknowledge gap to support the Government of FSM (GoFSM) inimproving the design of public expenditure policies toaddress these key challenges. The main recommendations ofthis PER to support the GoFSM in addressing theaforementioned challenges are centered on how to (a) improvepublic expenditure management to support macroeconomicstability and growth, and (b) improve public expendituremanagement to support efficient, effective, and equitableservice delivery. The PER is composed of a concise set ofchapters analyzing macroeconomic and fiscal trends,intergovernmental relationships, public investmentmanagement (PIM) issues, and the two largest expendituresectors: education and health. Data limitations may resultin some inaccuracies and inadvertent distortions in outcomes.
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