Government of the Federated States of Micronesia

Kosrae launches reform measures to address fiscal crisis

Palikir, POHNPEI (FSM Information Service): August 8, 2007 – The State of Kosrae has launched reform measures to address the state’s current financial problems and the projected budgetary shortfall in fiscal year 2008.

As of August 7 2007, four issues in the Kosrae State Adjustment Program have been addressed and they are:

  1. Implementation of sales tax increases have started since May;

  2. 102 positions have been identified for elimination effective October 1, 2007;

  3. Across the board salary reduction 5% will take effect October 1, 2007; and

  4. All actions taken to date have balanced the FY-08 Budget.

The issues are part of the reform matrix established and agreed to by Leadership of Kosrae to resolve the State’s current financial situation.

During a two-day conference in the latter part of May, the Leadership of the State of Kosrae had met to assess the state’s financial situation and consider possible alternatives to address the situation.

The State had an estimated budgetary shortfall within the range of $ 2million for the Fiscal Year 2008.

Accepting the magnitude of the state’s financial crisis the Leadership was resolved to reverse the deteriorating financial situation. It was the consensus of the leadership to pursue a combination of measures to meet the needed adjustment. The specific adjustment measures identified on the Expenditure Side would include:

  • the elimination of 98 positions;

  • a five percent across the board salary reduction; and

  • $75,000 reduction in non-personnel expenditure.

Measures identified on the Revenue Side would include:

  • implementation of recently passed law on sales tax increases;

  • municipal governments agreed to temporarily grant their shares of sales taxes back to the state government; and

  • other recommended revenue raising initiatives.

The Leadership accepted that the adjustment measures will entail a lot of pain and sacrifice. These measures, the leadership accepted, offered no alternatives.

The Leadership Conference included leaders and officials from the three branches, municipal leaders, representatives from the private sector, church and community members and Vice President Alik L. Alik representing the National Government.