World Bank-Micronesia Partnership

Aerial view of Chuuk, Micronesia. In its first partnership strategy for Micronesia, the World Bank has laid out plans to engage the private sector in creating jobs, improving basic services delivery and contributing to sustainable economic growth. Photo by: Matt Kieffer / CC BY-SA The Federated States of Micronesia faces several challenges that stem from its scattered geography. It is made up of four island states separated over an area of 1.6 million square kilometers. On the side of governance, this has proven to be an impediment to service delivery and has made coordination between the four subgovernments difficult. Also, fiscal autonomy combined with a low capacity for public finance management hinders the government from properly allocating its resources. On the economic front, Micronesia’s geographic isolation has made it difficult to access markets and integrate itself into the global economy. The country has become largely dependent on importation, leaving it exposed to the volatility of global market prices and the high cost of transportation. Micronesia’s splintered geography has likewise made business development extremely problematic. Employment opportunities remain concentrated in the fisheries sector as it makes up 70 percent of the country’s exports. Without a solid economic base, Micronesia is left to rely heavily on foreign aid. Funding levels Previous World Bank assistance to Micronesia was delivered as part of its regional strategy for the Pacific region as opposed to a direct partnership with the country. In recent years, the United States has been the largest donor to Micronesia, outstripping all other contributors of official development assistance by a huge margin. Data from the Organization for Economic Cooperation and Development shows that for 2011–2012, average U.S. ODA reached $98.32 million, while the average ODA from Japan, the second-largest donor to Micronesia, only reached $18.19 million. Funding priorities World Bank’s strategy for Micronesia revolves around two underlying principles: - Creating an environment conducive to private sector development for sustained economic growth. - Enhancing service delivery through improved fiscal policies. The bank has identified the inadequacy of job opportunities and limited access to basic services as the two main constraints to the country’s development and hopes to address these issues through its latest funding strategy. This entails engaging key stakeholders in sectors such as energy, telecommunications, trade, fisheries and environment, while integrating gender equity as an overarching theme across World Bank initiatives. Below is a breakdown of activities to be funded by IDA and trust fund allocations over the next few years. Activities supported by the IFC include: - Foreign Investment Law Review (fiscal 2015). - Investment Climate Assessment – Regulatory Environment for the Fisheries Sector (fiscal 2015). - Diagnostic on Potential of Onshore Fisheries Investments (fiscal 2016). Analytical and advisory services to be undertaken during this funding period include: - Poverty and Gender Analysis (fiscal 2015). - Regional Maritime Safety Study (fiscal 2015). - Public Expenditure Review (fiscal 2016). - Regional Aviation Supply and Linkages Review (fiscal 2016). - Regional Deep Sea Mining Activities Technical Assistance (schedule not yet determined). Devex analysis Micronesia was deemed eligible for IDA grants for fiscal 2014 after a debt sustainability analysis in 2013 revealed the country to be at high risk of debt distress. The World Bank identifies the government’s limited institutional capacity as the biggest threat to its aid delivery. Coupled with the lack of bank presence in Micronesia and the fragmented nature of the federal government’s service delivery mechanism, project implementation is expected to prove challenging. To mitigate risks in this area, the World Bank has begun working closely with the Micronesia’s Department of Finance and Administration, providing training on public finance management, disbursement of funds and procurement procedures. The bank intends to continue collaborating with DOFA and other government agencies throughout the implementation of its projects to keep fiduciary risks at a minimum. Other threats identified by the bank include natural disasters and price fluctuations in the global market. The Pacific region is particularly vulnerable to weather and seismic events, which could considerably derail aid delivery, should they occur. Micronesia’s high dependence on imported fuel, if not tempered, could likewise slow down the country’s economic progress. Recognizing these external factors, the World Bank intends to keep its aid instruments flexible enough to accommodate the country’s needs as they arise. Technical assistance and capacity-building activities will also play a central role in aid delivery and risk mitigation. The World Bank will engage other bilateral and multilateral institutions to coordinate efforts in assisting the Pacific island country. Key partners in Micronesia include: - United States — mainly finances projects in the health and education sectors. - Asian Development Bank — focuses on public sector management, infrastructure and the tourism sector. - Australia — targets budgetary and financial sector reform, strengthening environmental management, and aid coordination. - Japan — aims to reduce overall vulnerability and mitigate environmental and climate change risks. - China — supports the education sector through scholarships, provides technical assistance in agriculture and contributes to infrastructure development. - European Union — focuses on developing renewable energy sources. - United Nations — has established its presence in Pohnpei state with its joint office for the U.N. Development Program, U.N. Population Fund, U.N. Women and UNICEF. The United Nations also provides assistance to Micronesia’s Department of Health and Human Services through the World Health Organization. - Secretariat of the Pacific Community — implements the EU North Renewable Energy Program and assists Micronesia’s statistics office. SPC also implements programs in the region aimed at scaling up the fisheries sector, water and sanitation practices, disaster preparedness, and climate change adaptation. This partnership strategy is the World Bank’s first stand-alone engagement with the country and marks what could be an increasing level of engagement between the two parties in the coming years. Contact Pacific Islands Unit Tel: (61-2) 9223-7773 Email: