2022 Index of Economic Freedom

Micronesia

OVERALL SCORE61.0
WORLD RANK82
Rule of Law

Property Rights54.3

Judicial Effectiveness82.2

Government Integrity56.8

Government Size

Tax Burden80.7

Government Spending0.0

Fiscal Health99.5

Regulatory Efficiency

Business Freedom52.4

Labor Freedom81.5

Monetary Freedom84.3

Open Markets

Trade Freedom74.8

Investment Freedom35.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 0.1 million
  • GDP (PPP):
    • $0.4 billion
    • -1.6% growth
    • 0.7% 5-year compound annual growth
    • $3,446 per capita
  • Unemployment:
    • 16.2%
  • Inflation (CPI):
    • 0.5%
  • FDI Inflow:

Micronesia’s economic freedom score is 61.0, making its economy the 82nd freest in the 2022 Index. Micronesia is ranked 16th among 39 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

Micronesia’s economic growth slowed from 2017 to 2018 but accelerated in 2019 before turning negative in 2020. A five-year trend of declining economic freedom has reversed course. Boosted by significant score increases for rule of law, Micronesia has recorded a 6.9-point overall gain in economic freedom since 2017 and has climbed into the “Moderately Free” category for the first time. Micronesia’s status as a major beneficiary of international aid is reflected in its robust fiscal health, but the burden of government spending on the economy is one of the heaviest in the world.

IMPACT OF COVID-19: As of December 1, 2021, data on deaths attributed to the pandemic in Micronesia were not available. The economy contracted by 1.6 percent in 2020.

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Background

The widely scattered Caroline Islands in the southwestern Pacific Ocean were part of a U.N. Trust Territory administered by the United States 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 only limited powers. In 2019, David Panuelo was elected president by a narrow margin. Elections for the unicameral parliament took place in March 2021. Under a Compact of Free Association signed in 1986 and up for renewal in 2023, the U.S. is responsible for Micronesia’s defense and currently provides approximately $130 million annually in economic assistance. Economic activity consists largely of subsistence farming and fishing.

Rule of Law

Property Rights 54.3 Create a Graph using this measurement

Judicial Effectiveness 82.2 Create a Graph using this measurement

Government Integrity 56.8 Create a Graph using this measurement

The law respects and protects property rights. The judiciary is constitutionally independent, but courts are weakened by chronic underfunding, technical constraints on capacity, delays, and an inability to enforce judgments properly. Although the authorities can investigate and punish cases of official corruption and misuse of funds, both problems remain subjects of public discontent.

Government Size

The top individual income tax rate is 10 percent, and the top corporate tax rate is 21 percent. The overall tax burden equals 37.3 percent of total domestic income. Government spending has amounted to 61.5 percent of total output (GDP) over the past three years, and budget surpluses have averaged 13.0 percent of GDP. Public debt is equivalent to 16.0 percent of GDP.

Regulatory Efficiency

Micronesia is essentially a subsistence economy except in larger towns where the government is by far the largest employer and limited commercial activity is conducted. There is a minimum wage for government jobs in all four states, but only one state (Pohnpei) has a minimum wage for the private sector. The government has monopolies in fuel, telecommunications, and copra production and is heavily dependent on U.S. subsidies.

Open Markets

Micronesia has two preferential trade agreements in force. The simple average tariff rate is 5.1 percent, but nontariff barriers and poor trade infrastructure limit overall trade freedom. Micronesia is not a member of the World Trade Organization. Numerous impediments discourage foreign 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
1Singapore84.4-5.3
2New Zealand80.6-3.3
3Taiwan80.11.5
4Australia77.7-4.7
5South Korea74.60.6
6Japan69.9-4.2
7Samoa68.36.4
8Malaysia68.1-6.3
9Brunei Darussalam64.8-1.8
10Indonesia64.4-2.5
11Kazakhstan64.4-6.7
12Mongolia63.91.5
13Thailand63.2-6.5
14Vanuatu62.92.4
15Philippines61.1-3.0
16Micronesia6110.6
17Tonga60.83.3
18Vietnam60.6-1.1
19Bhutan59.31.0
20Kiribati59.214.8
21Cambodia57.1-0.2
22Solomon Islands56.50.0
23Fiji56.4-5.8
24Kyrgyz Republic55.8-7.9
25Uzbekistan55.7-2.6
26Papua New Guinea54.6-4.3
27India53.9-2.6
28Sri Lanka53.3-2.4
29Bangladesh52.7-3.8
30Tajikistan49.7-5.5
31Nepal49.7-1.0
32Burma49.6-5.6
33Laos49.2-4.7
34Pakistan48.8-2.9
35China48-10.4
36Maldives47.3-7.9
37Timor-Leste46.31.6
38Turkmenistan46.2-1.2
39North Korea3-2.2
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