November 2, 2015 Presented by Jermy Mudong and Sohs John Medium Term Expenditure Framework Department of Finance & Administration November 2, 2015 Presented by Jermy Mudong and Sohs John

Outline of the Presentation Progress towards sustainable economic development Fiscal Challenges Strategic Development Plan 2004-2023 Budget Process

PROGRESS TOWARDS SUSTAINABLE ECONOMIC DEVELOPMENT Section 1 PROGRESS TOWARDS SUSTAINABLE ECONOMIC DEVELOPMENT

Real GDP $millions

Real GDP Growth Sector FY2013 FY2014 Construction -25.9% -40.5% Total Agriculture +0.8% +2.6% Fishing -14.7% -1.8% Construction -25.9% -40.5% Hotels & Restaurants -3.4% -7.5% Government Services -1.3% -2.5% Total -3.6%

FSM Policy Response: Tourism – FSM has included $1.9 million from domestic revenue to fund the State Tourism Investment Plans in the FY2016 Budget, requesting $1.9 million matching funding from U.S Compact grant Infrastructure - $ 12 million appropriated for State Priority Infrastructure projects in FY2015 and in FY2016 Budget -Updated Infrastructure Development Plan to release withheld U.S compact funds

Infrastructure Spending ($m)

Section 2 Fiscal Challenges

Fiscal Autonomy The States make budget and spending decisions independently; Budget decisions on Compact funding are made in consultation with the national government and U.S government. The National Government increasingly provides funding to the States.

Fiscal Challenge $Million

Overall Fiscal Balance ($m) $Million

State Fiscal Gap in 2024 ($m) 2023 Grants 2024 Trust Fund Interest Budget shortfall Chuuk 39.1 17.4 -21.7 Kosrae 11.2 5.4 -5.8 Pohnpei 26.1 14.3 -11.8 Yap 16.8 9.6 -7.2 National 1.4 7.4 +6.0 Total 94.5m 54.1m 40.4m

Strategic Development Plan Section 3 Strategic Development Plan 2004-2023 “Achieving Economic Growth & Self-Reliance”.

SDP 2004 - 2023 Outcome of the 3rd Economic Summit (2004) Key strategic objectives: Stability & security Improved Enabling Environment for Economic Growth Improved Education and Health Status Assured Self-Reliance and Sustainability

2023 Action Plan Takes SDP and breaks into 3-year cycles of actions & reforms Focus is to grow the economy through the Key sectors of Tourism, Agriculture, Fisheries & Energy Contains a 3 year Action Plan Matrix Contains a Results Framework

Section 4 Budget Process

SDP Financial Management Objective Responsible fiscal policies that support financial stability and economic development Adoption of Best Practices in the Transparency of Fiscal Management To Enhance Accountability in the Public Sector Improved Public Sector Management and Resource Allocation Building Public Sector Capacity Transformation of Public Sector Enterprises (PSEs)

Budget Process Develop Budget Call and Budget Guidelines Prepare consolidated budget for EBRC budget review Prepare Recommended Budget for transmittal to Congress Congress appropriates

Long Term Fiscal Frameworks Completed by the five governments in 2013 The frameworks go out to 2023 and are based on a 3 year budget periods The next review of the LTFF is for the period FY2017 – FY2019 Planning for this update has began

National Government Policy Options Balance between; spending to stimulate economy investment for the Future

National Government Burden Sharing   FY2012 FY2013 FY2014 FY2015 FY2016 Change in grant formula 4.0 8.0 Project Management Unit 1.0 0.4 Education 2.3 3.0 5.9 7.4 Infrastructure 2.2 1.3 12.3 10.3 Congress Regional Projects 3.4 6.5 10.0 5.6 Judiciary 0.3 State Tourism Development 1.9 Change in tax revenue formula 4.8 Total 8.1 10.9 19.6 33.1 38.7

FSM Trust Fund ($m)

Overall Fiscal Balance ($m)