Medium Term Expenditure Framework Department of Finance

Medium Term Expenditure Framework Department of Finance & Administration November 2, 2015 Presented by Jermy Mudong and Sohs John 1

Outline of the Presentation v Progress towards sustainable economic development v Fiscal Challenges v Strategic Development Plan 2004 -2023 v Budget Process 2

Section 1 PROGRESS TOWARDS SUSTAINABLE ECONOMIC DEVELOPMENT 3

Real GDP $millions 260 250 Dismal growth scenario 240 Real GDP 230 220 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 2014 4

REAL GDP GROWTH Sector FY 2013 FY 2014 +0. 8% +2. 6% -14. 7% -1. 8% -25. 9% -40. 5% Hotels & Restaurants -3. 4% -7. 5% Government Services -1. 3% -2. 5% -3. 6% -3. 4% Agriculture Fishing Construction Total 5

FSM Policy Response: Tourism – FSM has included $1. 9 million from domestic revenue to fund the State Tourism Investment Plans in the FY 2016 Budget, - requesting $1. 9 million matching funding from U. S Compact grant Infrastructure - $ 12 million appropriated for State Priority Infrastructure projects in FY 2015 and in FY 2016 Budget -Updated Infrastructure Development Plan to release withheld U. S compact funds 6

Infrastructure Spending ($m) 80. 0 70. 0 60. 0 50. 0 40. 0 30. 0 20. 0 10. 0 Compact Federal Domestic FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 132014201520162017201820192020202120222023 7

Section 2 Fiscal Challenges 8

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. 9

Fiscal Challenge $Million 10

Overall Fiscal Balance ($m) $Million 11

State Fiscal Gap in 2024 ($m) 2023 Grants Chuuk 39. 1 2024 Trust Fund Interest 17. 4 Kosrae 11. 2 5. 4 -5. 8 Pohnpei 26. 1 14. 3 -11. 8 Yap 16. 8 9. 6 -7. 2 1. 4 7. 4 +6. 0 94. 5 m 54. 1 m 40. 4 m National Total Budget shortfall -21. 7 12

Section 3 Strategic Development Plan 2004 -2023 “Achieving Economic Growth & Self-Reliance”. 13

SDP 2004 - 2023 Outcome of the 3 rd Economic Summit (2004) Key strategic objectives: • Stability & security • Improved Enabling Environment for Economic Growth • Improved Education and Health Status • Assured Self-Reliance and Sustainability 14

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 15

Section 4 Budget Process 16

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) 17

Budget Process • • Develop Budget Call and Budget Guidelines Prepare consolidated budget for EBRC budget review Prepare Recommended Budget for transmittal to Congress appropriates 18

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 FY 2017 – FY 2019 • Planning for this update has began 19

National Government Policy Options Balance between; • spending to stimulate economy • investment for the Future 20

National Government Burden Sharing Change in grant formula Project Management Unit Education Infrastructure Congress Regional Projects Judiciary State Tourism Development Change in tax revenue formula Total FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 2. 3 2. 2 3. 4 0. 3 3. 0 1. 0 6. 5 0. 3 4. 0 1. 3 10. 0 0. 3 8. 0 1. 0 5. 9 12. 3 5. 6 0. 3 8. 0 0. 4 7. 4 10. 3 5. 6 0. 3 1. 9 4. 8 8. 1 10. 9 19. 6 33. 1 38. 7 21

15 20 FY 14 FY 20 13 20 FY 12 FY 20 11 20 FY 10 20 FY 09 20 FY 08 20 FY 07 20 FY 06 20 FY 05 20 FY FSM Trust Fund ($m) 70. 0 60. 0 50. 0 40. 0 30. 0 20. 0 10. 0 - 22

Overall Fiscal Balance ($m) 23