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Country programme

This Country Program was prepared by Leah Briones-Johnson, PhD,           

Country Program Consultant under the FSM-GCF Readiness Phase,    

Sep 2016 to Sep 2017, with the Pacific Community as delivery partner. 

      Cover photograph by Jeffrey Ikosia 

            A seawall and the iconic coconut ‘trees of life’ for the islands.              Woleai Atoll, Yap State, 2010.

Acronyms and Abbreviations  ................................................................................................4

Foreword ................................................................................................................................5

Executive Summary ...............................................................................................................6

1. Country Profile ....................................................................................................................7

1.1           Climate Change Profile: ‘Highly Vulnerable’ .................................................................................................9

1.2          Climate Change Policy Response  ................................................................................................................13

1.3          Development Profile: ‘Fragile’ ......................................................................................................................17

1.4          Development Prospects and Strategies: ‘Green Growth’ ............................................................................22

1.5 ‘A Green and Prosperous FSM’ Strategic Framework  ................................................................................27 

2. Country Agenda and GCF Engagement ...........................................................................29 

2.1  Institutional Arrangements .........................................................................................................................29

2.2  Roles and Contributions of Key Stakeholders ............................................................................................30

2.3  Identification of Country Priorities for the GCF .........................................................................................36

2.4  Private Sector Engagement .........................................................................................................................37

2.5 Country Portfolio .........................................................................................................................................38

1. Country Program Implementation and Sustainability Plan ...........................................52 

3.1          Implementation Timeline and Institutional Arrangements .......................................................................52 

3.2          Reporting .....................................................................................................................................................53

3.3          M&E System: Results Framework and Context ..........................................................................................54

3.4          Management Needs .....................................................................................................................................55

3.5 Mechanisms for Keeping the Future, Present: ............................................................................................55 

Annexes ................................................................................................................................56

Annex 1: Reference Guide on the Development of the Strategic Framework ..................................................56

Annex 2: Supplementary Consultations ............................................................................................................61

Annex 3: ODA Priorities List (2016 to 2018) ....................................................................................................62

Annex 4: FSM-GCF Proposal Approval Process ...............................................................................................63

Annex 5: FSM-GCF Eligibility Assessment Form .............................................................................................65

Annex 6: Country Program M&E Results Framework Template .....................................................................67

Annex 7: Key Sources Consulted .......................................................................................................................73

Annex 8: Acknowledgements ............................................................................................................................76

Acronyms and Abbreviations  

Executive Summary

The Green Climate Fund (GCF) Country Program (CP) for the Federated States of Micronesia (FSM) was prepared under the direction of the National Designated Authority (NDA) for the GCF at the FSM Department of Finance and Administration, in consultation with all four States: Yap, Chuuk, Pohnpei and Kosrae. Consultations were undertaken with a whole-of-society approach, including stakeholders from government, non-governmental and intergovernmental organisations and the private sector. 

This CP presents the strategic and operational framework for engagement with the GCF. Its purpose is to ensure that project and program proposals submitted to the GCF integrate national priorities with climate-smart development. It further serves to increase the understanding of the linkages between climate change and the sustainable development of the FSM as a Small Island Developing State but also as a Large Ocean State. To this end, the CP is anticipated to maximise access to climate finance opportunities and attract complementing investors to stimulate ‘green growth’ development in the FSM. 

The CP covers the sectors under the Joint State Action Plans for Disaster Risk Management and 

Climate Change (JSAPs), prepared by each State in 2015. The sectors include: the environment (coastal ecosystem and biodiversity), water resources and sanitation, agriculture, health, education, infrastructure, transportation, fisheries, social and cultural, and private sector development.  

The Country Portfolio includes a total of 13 priority projects/programs, which are large scale, multi-year and cross-sectoral, and with an approximate total amount of $US 1.4 billion. The projects were identified through a States-driven process that consolidated the endorsed priority projects under the JSAPs, the FSM Infrastructure Development Plan (IDP) and the FSM Overseas Development Assistance (ODA) Priorities List for the period 2016 to 2018.  The consolidated projects/programs were identified as part of a larger FSM-GCF Proposal Approval Process that ensures early alignment of projects and programs with the FSM nation-wide development priorities and the GCF impact result areas. With the exception of the FSM Renewable Energy Program, all priority projects/programs in this CP are at ‘Ideas’ stage, requiring further scoping, sector-wide analysis and stakeholder consultations. 

The portfolio represents the urgent, large scale needs in the FSM to achieve resilient and transformative development, and positions the country to transition into ‘green growth’. The implementation and sustainability of this CP depends on the commitment to strengthen institutional structures in order to absorb and effectively manage the ambitious, yet necessary, portfolio over the longer term. This CP ensures that the institutional pillars of ‘leadership, coordination and capacity’ are a key part of the strategic and operational implementation of the 

portfolio. Of the pillars, it is particularly incumbent on leadership to ensure that the 

Sustainability Plan set out in Section 3 remains active and relevant. 


1.  Country Profile

1.1  Climate Change Profile: ‘Highly Vulnerable’ 

Current and Projected Climate Impacts 

The FSM has experienced increases in air temperature at 0.1°C per decade since 1952. It also continues to experience ocean acidification and accelerated above average sea-level rise at 

10mm per year (since 1993). Projections indicate that air and sea-surface temperature, ocean acidification and sea level rise, along with coastal erosion, will all continue to intensify. Variable and heavy rainfall, severe droughts and extreme weather continue to affect the main and outer-islands. While current projections on their frequency carry some uncertainty, climate modelling to the year 2100 provides high to very high confidence levels of negative climate change impacts in the FSM (Table 1).^[1]

FSM’s climate can vary considerably from year to year due to the cyclical El Niño and La Niña events of the El Niño-Southern Oscillation (ENSO). El Niño causes drier conditions which results in droughts. La Niña causes above-average rainfall and tropical storms. 

The vast geographical spread of the FSM islands from Yap State to Kosrae State sees a wide variation in location and geology from west to east. The islands have thus a wide range of climates and different impacts are experienced across the country. Yap is characterised by gentle slopes and swampy lowlands, unlike the other three states which have rugged highlands. Yap is drier than the other states and is highly susceptible to droughts and wildfires. It is also the most susceptible to typhoons; between three and five typhoons hit the State each year. During the summer months (June to October), Yap experiences heavy showers or thunderstorms, occasionally accompanied by strong and shifting winds. Chuuk State is composed of a large archipelago with mountainous islands surrounded by a string of islets on a barrier reef, a large lagoon, and islands which are flat and small located outside the lagoon, referred to as ‘outer-islands’. As the most populated State, Chuuk’s dispersed geography and demography is unique compared to the other states, all which have the majority of their populace concentrated on large central islands. Storms and typhoons have caused widespread damage in Chuuk, while also bringing heavy rainfall causing extensive flooding, mudslides, and landslides that have resulted in deaths. Pohnpei State periodically experiences droughts and short, severe tropical storms. The northern part of Pohnpei often experiences tropical disturbances. Kapingamarangi is the State’s southernmost atoll and is the most subject to droughts. Kosrae State has experienced severe droughts and also frequent severe rainstorms, accompanied by damaging winds, during the rainy season of November through March. Table 

2 shows the projected climate change impacts for each State. 

Vulnerable Groups 

The communities who are most at risk include the young and the elderly; the disabled and those with other health and mobility problems; the socially disadvantaged; those with limited access to public information broadcasts and communications; those that work outdoors such as fishers and farmers; and those who have already been, or are likely to be displaced, such as residents of riverbanks and hillsides, low-lying atolls and those living close to the coasts. Those living in rural areas and outer-islands are particularly vulnerable, given the long distances, at times unfavourable weather, logistics and high-cost challenges in inter-island transportation that make it particularly difficult to deliver assistance. The social group of women and young girls, especially if pregnant, rearing young children, caring for the elderly, and/or affected by sexual violence^[2], are also especially at risk. 

Adaptive Capacity 

As a Small Island Developing State (SIDS), the FSM’s vulnerability profile is characterised by its environmental fragility, remoteness and geographic dispersion across a vast ocean. It is further characterised by fragmented governance, underdeveloped infrastructure and low availability of technical capacity. These challenges are compounded by high exposure to economic shocks, natural disasters and climate change. Table 3 summarises the current level of capacity in the FSM States to respond to negative climate change impacts.^[3]

Vulnerable Sectors 

In 2015, each FSM State prepared its Joint State Action Plans for Disaster Risk Management and Climate Change (JSAP), and identified the vulnerable sectors of the environment (coastal ecosystem and biodiversity), water resources and sanitation, agriculture, health, education, infrastructure (transport and energy), fisheries, social and cultural, and the private sector. Cutting across these sectors are three main identified areas of vulnerability: private sector investment, food and water security, and infrastructure and energy development. 

Private Sector Investment 

Across the States, private sector investment is concentrated in the three main economic sectors of agriculture, fisheries and tourism.^[4] However, all three sectors are highly dependent on a healthy and well-managed natural environment, which in turn, is highly vulnerable to climate change. For example, fisheries have high correlations of fish catch with sea surface temperatures and ENSO events; as pelagic fish leave the region due to rising temperatures and as reef fish stocks dwindle due to coral bleaching, the FSM could suffer severe economic setbacks. Nature-based tourist operators are concentrated in the coastal zone, and are therefore vulnerable to sea-level rise, high seas/swell events, heavy rainfall and severe weather. Climate impacts include the potential of high sea-swell events to disrupt commercial transport access, posing a risk to both incoming people and supplies to the islands. Further, the tourist drawcards of thriving terrestrial and marine ecosystems are likely to be negatively impacted by rising sea surface temperatures and ocean acidification. 

Food and Water Security 

Higher disturbance frequencies on terrestrial and marine ecosystems are expected to negatively impact food and water security.^[5] These include increased impacts of droughts in Yap and Chuuk on natural vegetation; shortages in freshwater supplies, especially in the outer-islands; increased incidence of lowland flooding and seawater inundation of traditional taro pits; and of landslides, especially in the steep topographies of Chuuk, Pohnpei and Kosrae; depleted coral-based marine ecosystems as a result of ocean acidification; negative impacts on fisheries, turtle nesting beaches and low-lying seabird nesting areas on atolls as a result of sea temperature rise and change in ocean currents. Compounding these climateinduced hazards is the widespread unsustainable use of natural resources, common across all the States. These human-induced vulnerabilities include over-fishing, deforestation and the building of roads and other infrastructure that negatively impact the coastal environment. In addition, inadequate land, water and wastewater management practices exacerbate climateinduced natural disasters. 

Infrastructure and Energy Development 

Infrastructure is highly vulnerable to sea level rise. For the States of Chuuk, Pohnpei and Kosrae, most infrastructure is located close to the coastline as the interior of the islands are mountainous. Kosrae State is presently tackling the most urgent example of the damaging impacts of shoreline change, high tide and storm flooding in the FSM, as it strives to reposition its major roads and other infrastructure for resilience. Infrastructure development also offers the greatest potential for economic growth, effective public service delivery and strong adaptive capacity in the FSM. Yet, the sector poses the biggest challenges to the protection of the natural environment, which is ‘the most important infrastructure’.^[6] The FSM recognises that infrastructure development must thus be undertaken with great caution, and has integrated climate change planning into its updated Infrastructure Development Plan (IDP) (discussed further in Section 1.2).  

The FSM also recognises that clean energy underpins climate-smart infrastructure development while it remains highly dependent on imported petroleum fuels for both electricity generation and transportation. Progress in the energy sector is thus considered particularly important, and especially given that it is the principal source of greenhouse gas emissions in the country (Figure 1). The FSM’s Intended Nationally Determine Contribution 

(INDC) has an unconditional target of 28 per cent reduction in greenhouse emissions and a conditional target of 35 per cent by the year 2025. 

The Country priority pipeline of projects and programs (Section 2.5.1) responds to these main areas of vulnerability. 

1.2  Climate Change Policy Response  

In the FSM, climate change and development are inextricably linked. A key goal in the FSM’s twenty year (2004 to 2023) Strategic Development Plan (SDP) is to ‘mainstream environmental considerations, including climate change, in national policy and planning as well as in all economic development activities’.^[7]  

Since 2013, the FSM has established concrete policy and planning initiatives to advance climate change considerations in development planning. Consistent with the SDP goal above, its Integrated Disaster Risk Management and Climate Change Policy (CC Policy) goal is: 

“to promote development that proactively integrates the management of disaster and climate related hazards by investing in disaster risk management, climate change adaptation and greenhouse gas emissions reduction in pursuit of a safe, resilient and sustainable future for our country.”  

The Climate Change Act was developed in 2014 to implement the CC Policy by introducing climate change-mainstreaming obligations for departments and agencies of the National Government.^[8] In March 2017, a Climate Change and Sustainable Development Council (CC&SD Council) was established to ensure the implementation of the Act. The Council will provide leadership and institutional coordination on the mainstreaming of climate change into policies and actions across all sectors and initiatives in the country. Significantly, the Overseas Development Assistance (ODA) Division is represented in the Council to ensure country-driven donor coordination as well as to facilitate leveraging of ODA funds. In June 2017, the FSM Congress progressed a bill to raise the status of the Office of Environment and Emergency Management (OEEM) to Department level, indicating a solid recognition that climate change and the environment remains a top priority for the FSM.  

The JSAPs^[9] were developed to take policy and planning forward by identifying priority projects that establish consistency in climate change-related objectives, strategies and outcomes across development sectors. The JSAPs reviewed vulnerabilities and opportunities for climate-smart development in each State of the FSM. The documents analysed and presented options for implementation of priority projects. Each JSAP developed an action plan with suggested policies and actions, their timelines, responsible government offices, and estimated project costs. Each activity matrix in the JSAP was developed through extensive and inclusive stakeholder engagement and addressed adaptation efforts that were considered to be the most impactful and most immediately needed at both community and State levels. As of August 2017, the JSAPs have been endorsed by all States.  

In the same period, the FSM produced its updated IDP (2016 to 2025) which aligns planning with the JSAPs and which incorporates environmental and climate change considerations. In also aligning with the SDP goal, the IDP provides a good example of mainstreaming climate change in a significant economic development undertaking. One of the main objectives of the IDP is to improve environmental outcomes and conditions while also improving natural disaster and climate change resilience of infrastructure in the FSM. The plan covers ten subsectors: electric power, water/wastewater systems, solid waste management, road and pedestrian facilities, maritime transportation, air transportation, telecommunications, education, health and government administrative buildings. While the Plan identifies one project that specifically targets cross-sector climate change adaptation in Yap State’s infrastructure projects, this approach is mainstreamed across the JSAPs, with each State prioritising a climate resilience approach to their respective infrastructure programs. Projects in the IDP are anticipated to contribute to adaptation and mitigation through the building of climate-proof roads and buildings; improvements to water supply and sanitation, waste management and inter-island transport; and reduced fossil fuel use through upgraded road systems and increased use of renewable energy. A Climate Adaptation Guide for 

Infrastructure was concurrently developed to support the mainstreaming of climate change in all infrastructure projects. In 2015, the FSM began to implement the plan. 

In  July 2017, R&D released the FSM’s first Environment Statistics and System of 

Environment-Economic Accounting (SEEA)-National Assessment Report. Based on existing national policy documents and a national technical assessment of environment statistics, the Report provides a foundation for statistical development that can inform decisions related to supporting the development of a green economy in the FSM. 

To channel these significant developments into a development pathway of low carbon emissions, increased adaptation and ‘green growth’ for the FSM (see Section 1.4), the FSMGCF Readiness Program is working with partners to develop a national adaptation plan 

(NAP) and a green growth strategy (GGS) for the FSM. The NAP will provide a reference framework to define national targets, and ensure a consistent approach in adaptation planning and implementation across sectors, and across the FSM States. The GGS will institutionalize climate proofing and green growth strategies in the design of the infrastructure projects in the pipeline projects/programs (Section 2.5.1) to maximise economic gains under a green growth scenario. Together, these initiatives will inform the development and implementation of a nation-wide approach that adapts infrastructure development to climate change as well as to a green growth development pathway. 

These initiatives are supported by the forthcoming implementation of the INDC. Table 4 presents a summary of INDC targets. The Office of Environment and Emergency 

Management is currently working with the United Nations Development Program (UNDP) to develop the FSM’s INDC assessment and progress report. The report will enable identification of Nationally Appropriate Mitigation Actions (NAMA), of supporting technology and capacity building needs, and the estimated resources for implementation.  

Given the significance of the energy sector in the INDC, a multi-pronged approach is required to meet the targets. At the systemic level, mitigation challenges can be overcome with support from high levels of government, for example, through clean energy legislation and with well-planned actions to secure funding for technology transfer. At the institutional level, the challenges can be met with improved plans, data and implementation to support the establishment of a system that monitors GHG savings from mitigation projects. The report on the Experimental Energy Accounts for the FSM, released by R&D in July 2017, is a critical step forward. The energy accounts present existing energy data to inform the development, implementation and monitoring of national energy policies and priorities, particularly through infrastructure capacity planning; regulatory development; and through the tracking of implementation progress against nation-wide development priorities. The data can further inform the design and delivery of education and training for local communities to maximise participation in the development of renewable energy sources and the adoption of energy efficient practices. The FSM Energy Policy, and related Action Plans at the national and State levels, are making measurable progress towards greater energy independence by increasing the share of renewable energy sources, and by developing cross-sectoral energy conservation and efficiency standards. The FSM’s Energy Masterplan Roadmap is scheduled to be completed by early 2018 to catalyse progress and guide medium to long term planning towards a cleaner and efficient energy future for the FSM. 

Regional and International Partners 

The FSM’s climate change policy response has involved active engagement with regional and international partners (Figure 2). Notably, The FSM is a signatory to the Micronesia Challenge, a regional initiative with Palau, the Marshall Islands, the Commonwealth of the Northern Mariana Islands and Guam, to conserve at least 30 per cent of near-shore marine resources and 20 per cent of terrestrial resources across Micronesia by 2020. Since 2002, the initiative has established around 35 marine and terrestrial protected areas in the FSM, 

including the conservation easement in Kosrae State for the largest remaining stand of Terminalia Carolinensis (“Ka”) trees in the world. The initiative has also enabled the designation of two UNESCO Biosphere Reserves in Utwe/Walung in Kosrae and Ant Atoll in Pohnpei State.

1.3  Development Profile: ‘Fragile’ 

Context 

As a SIDS, the FSM’s developmental challenges are vast, volatile and fragile. These challenges include a limited resource base that is incompatible with economies of scale and sustained economic growth; small domestic markets with heavy dependence on a few external and remote markets; high costs of energy, infrastructure and transportation; constrained private sector development; limited productive use of land; limited institutional and technical capacity; an apparent rate of gender-based violence and inequality; widely dispersed geography; low resilience to natural disasters and a fragile natural environment. Taken as whole, these challenges make the FSM highly vulnerable to external shocks and heavily dependent on overseas aid, thus forming a formidable barrier to sustainable development. 

The FSM’s development profile is to be understood in the context of its strategic and socioeconomic ties with the United States within the two periods of their Compact of Free Association. The first or original Compact commenced in 1987 and the second or Amended Compact commenced in 2004. Both provide support to the operations of Government and public sector investment. The Amended Compact provides financial assistance of $92 million annually, with a focus on public service delivery, infrastructure and contributions towards the Compact Trust Fund (CTF), which was established to replace the assistance upon its termination in 2023. The Compact also permits unrestricted migration to the USA, which has functioned as a development mechanism in both positive and negative ways for the FSM economy. On the one hand, migration has enabled employment with higher wages and the generation of remittances, especially in the difficult economic period under the second Compact. On the other, it creates wage distortions in the domestic labor market, increases dependency on remittances, and results in a loss of skilled, human capital, thus reducing the long-term productive potential of the economy.  

Macro-economic and fiscal circumstances and strategies 

Given its engagement with the US Compact, the FSM uses the US dollar as its official currency and has not seen the need to develop any domestic debt instruments with which to affect interest rates or monetary aggregates. As a result, macro-economic management in the 

FSM is limited to fiscal policy, which is composed of maximising revenues from the CTF, the FSM Trust Fund and ODA; maintaining a prudent external debt profile;^[10] managing appropriations on public projects; and delivering financial assistance to the States.  

Following years of difficult fiscal adjustments to meet the requirements of the Amended Compact, the FSM’s fiscal balance turned positive in FY2014, when the overall fiscal balance recorded a surplus of $42.7 million. In FY2015, the fiscal surplus dropped to $29.3 million, and to $22.3 million in 2016. Provisional fiscal surplus for FY2017 is $14.2 million, with a surplus forecast of around 15 million per annum for the following three years based on stable fishing license fees. Notably, the surplus is mainly applicable to the national government; in FY2015, for instance, all State governments recorded deficits. However, revenue-sharing arrangements allows for redistribution that has seen an increasing share of revenue to the States. 

GDP growth in the FSM has averaged -0.2 per cent per annum since the beginning of the Amended Compact in 2004. FY2015 saw a recovery with the FSM’s economy growing by 3.7 percent, largely owing to growth in the fisheries sector, wholesale and retailing as well as business and financial services. In this same year, the implementation of the updated IDP contributed to a slight increase of 3.8 percent growth in 2016. Continued growth is forecasted in the medium term as the IDP continues to be implemented over the next ten years. 

The well-performing economy of recent years has enabled the National Government to rapidly grow the FSM Trust Fund from $8 million in FY2012 to $81.5 million in FY2016. The government anticipates to contribute $10 million per annum (of the forecasted $15 million per annum surplus) to reach a target Fund value of $250 million by 

FY2023. In contrast, the CTF has a current value of 

$524.7 million, and has so far performed well in FY2017. However, projections based upon actual performance demonstrate that the CTF will be underfunded by FY2023 if it continues on its current trajectory. A fiscal gap of $40 million per annum in the CTF is projected from FY2024 onwards, although this may be eased to $30 million per annum following the intended contribution of the $10 million per annum from the FSM Trust Fund.  

The economic outlook beyond the Amended Compact is therefore uncertain and fragile. 

Beyond 2023, the FSM’s priority is to grow the economic sectors of agriculture, tourism and fisheries so that it can continue funding the social services of health and education at current levels under the Compact. The fiscal gap and uncertain continued performance of both the FSM Trust Fund and the CTF, however, presents a great challenge. Historically, economic activity has largely been driven by the disbursement of Compact funds. GDP is therefore projected to decline by an annual average of 1.0 percent per annum over the post 2023 period. GNDI is also likely to be affected given that in the case of secondary incomes, Compact and other U.S. grant receipts have significantly contributed to GNDI. Finally, difficult fiscal circumstances may place the FSM in a position where it may not be qualified to access any large external borrowing to help off-set any additional fiscal shortfalls. In order to overcome these challenges, the FSM is committed to continued fiscal reforms; to strengthening ODA effectiveness; and to pursuing its strategies for growth.  

Private sector 

The 2023 Action Plan sets out a long-term economic growth strategy with emphasis on private sector led growth. Ideally, private sector growth is expected at a rate sufficient to produce jobs, entrepreneurial opportunities and to contribute to closing the fiscal gap in FY2024. However, the development of a vibrant private sector in the FSM has also been challenging. 

The private sector in the FSM is characterised by a high dependency on the relatively larger public sector. The role of the government in the FSM economy continues to be large even relative to other small Pacific Island nations. Since the first Compact, the government has been the largest sector in the economy, due largely to Compact transfers made directly to national and State governments. Government wages in the FSM are higher than those of the private sector for comparable jobs. Dependency is particularly apparent in public spending on infrastructure development; private sector contraction has directly correlated with the reductions in construction being the dominant factor, particularly in the years 2012 to 2014. Dependency is also characterised by the direct effects of policy decisions on fiscal activities on the private sector. For example, the impact of fiscal shocks on the government translates directly into impacts on the private sector. In the case of a negative fiscal shock, government expenditure cuts goods and services. In the case of positive fiscal shocks, government expenditure increases, as experienced in the FSM, particularly towards wages. 

Private sector development is further constrained by remoteness from major markets, costly operations, and by barriers in attracting foreign investors and retaining skilled workers. The commercial sector in the FSM consists mainly of small family-based businesses in the wholesale and retail sectors or service enterprises such as small hotels, restaurants, taxis and vehicle maintenance. There are around twenty-two major state-owned enterprises (SOEs) operating in the financial sector, power, telecommunications, utilities, fisheries, and other miscellaneous activities. With the exception of Vital and FSM Telecom, a significant number of SOEs have been found to post recurring losses. The key economic sectors of agriculture, tourism, fisheries and energy, remain largely under-developed and the economy remains heavily reliant on imported products. 

Going forward, the government recognises that growth of the private sector will need to be driven by increases in production of competitively traded goods and services from the key economic sectors. Despite challenges, it is committed to forging ahead with reforms to create an enabling environment for private sector development, such as tax reform to replace an outdated and inefficient system and foreign direct investment (FDI) reform to streamline foreign investment under the jurisdiction of the national government. The growth of the utility sector, power and telecommunications since the start of the Amended compact has resulted in the increasing significance of SOEs in the economy. Attention to reforms that increase SOE efficiency and profitability will also thus be helpful. Given the sensitive dependency of the private sector on government fiscal policy, a gradual strengthening of fiscal management will ensure timely and transparent adjustments that can lessen the impacts of shocks on the private sector. 

Domestic Credit Levels 

The FSM banking system has remained sound and stable, providing a secure basis for financial intermediation, due largely to regulation by the FSM Banking Board and supervision by the Federal Deposit Insurance Corporation (provided under the Compact). The FSM has two banks; the U.S. Bank of Guam and the nationally-owned Bank of the Federated States of Micronesia. Between 2008-2015, the deposit base grew rapidly at an  average of 11 percent since the early period of the Compact. Reflecting the trends in deposits and domestic credit, the level of foreign assets rose strongly from an average of $92 million in the early years of the Compact to $199 million in 2015. Consumer lending has grown by an annual average of 12 percent during the Amended Compact. Commercial credit grew from FY2004 to FY2011 by an annual average rate of 14 percent but has since dropped from around 17 million in 2011 to around 11 million in FY2015. 

The growth of the financial sector in the FSM remains inhibited. Despite capital accumulation through a growing level in domestic credit, the difference between the level of deposits and loans are being invested offshore. This reflects a large level of liquidity in the banking system and a high level of perceived risk in the FSM but also to limited opportunities given the low availability of bankable projects, minimal collateral, the cultural and legal difficulty to use land as security, and inadequate provisions to secure transactions. As in other SIDS, limited access to finance is a major constraint where only a nominal number of the population on average, including small and medium businesses, have access to the formal financial sector. In the FSM, the banks have thus generally extended credit to those with secure public sector jobs. 

Poverty Levels 

Multi-dimensional and long term indicators suggest a positive trend in quality of life for the 

FSM islands. In 2013, more households had access to electricity at 32 percent, compared to 24 percent in 2005, and more dwellings had improved sanitary facilities at 46 percent compared to 21 percent. From 200o to 2015, the FSM’s Human Development Index (HDI) increased 5.6 percent to 0.638 (or 127 out of 188 countries), placing it in the medium human development category. Between 1990 and 2015, life expectancy at birth increased by 3.1 years, mean years of schooling increased by 0.9 years and expected years of schooling increased by 1.6 years. GNI per capita increased by about 14.9 percent between 1990 and 2015. GNI and GNDI ($4,850) per capita were 18 percent and 53 percent higher than GDP ($3,079) in 2015. 

However, poverty levels are high with the FSM having one of the highest rates of poverty among its Pacific neighbours (Figure 3). Forty one per cent of the population struggle to meet basic needs; and 10 percent live on consumption levels below the food poverty line (less than US$1.90 per person per day). Kosrae has the lowest rate of poverty at 21 percent. Yap and Pohnpei have 39 percent, and Chuuk has the highest at 46 percent. The FSM 2013/4 Household Income and Expenditure Survey found that of the four States, basic-needs poverty is 

most common and most severe in Chuuk, 

as is the deprivation in access to electricity, water sources, schools and general assets. Yap has the highest proportion of households with poor-quality housing, and also the highest proportion with no improved sanitation. Poverty in Pohnpei and Yap is characterised by a high cost of living. In general, the Survey found that basic-needs poverty was higher for larger households and lower for households that were either headed by a male, or by individuals with education, or individuals employed in the public sector. 

Sustained and substantial outmigration indicates limited employment opportunities and lowwage rates. Estimates^[11] suggest that between 15 per cent and 50 per cent of the population have migrated to US territories, Hawaii and the US Mainland, the majority of which migrated during the economic hardships at the end of the original Compact and  during the public sector reductions in Chuuk and Kosrae, in 2007.  

1.4  Development Prospects and Strategies: ‘Green Growth’ 

As a SIDS, it is clear that sustainable development in the FSM will not be attainable under the classic economic growth strategies used in larger or industrialised countries. The best available option for the FSM is to strongly pursue a development pathway of increased resilience. The country’s substantial endowment of natural resources makes this option highly viable. Indeed, the country’s long-standing identified priority economic sectors of agriculture, tourism and fisheries are all dependent on a healthy terrestrial and marine ecosystem. While the FSM's total land area amounts to only 273.3 square miles, the country covers a vast exclusive economic zone of more than one million square miles of the Pacific Ocean. Thus although characterized with the challenges of a small island developing state, it is in fact a Large Ocean State^[12]replete with opportunities. 

Given the fragility of the FSM’s natural environment, the need for careful development planning and implementation cannot be overstated. Also, given the accelerated climate change impacts already being felt by communities and the projected increased frequency of natural disasters, the speed of committed planning and implementation will need to gain pace. The country’s SDP (2004 to 2023) has key components that are still to be implemented, for example tax reform and the mainstreaming of gender equality. The absence of systemic monitoring of SDP goals has left the status of progress largely unreported, thus requiring more  leadership focus and institutional commitment to fully execute the Plan. The sectoral planning that has occurred, for example in energy, export strategy, agriculture, can be put to effective use under a more coordinated and strategically focused approach. In 2015, the FSM endorsed the 2023 Action Plan in order to revitalise development planning with a focus on accelerating economic growth and sustainable development. The Action Plan is divided into three-year goals. In the first three years, a number of achievements have been made to date. Most significant of these achievement include financing the FSM Trust Fund, which as discussed above, has performed well. The Action Plan has also been instrumental in ensuring the release of Compact infrastructure grants, enabling the release of around $150 million on infrastructure to stimulate the economy in the short to medium term.  

The Action Plan, however, is more focused on economic growth and does not explicitly progress the SDP goal on productivity based on environmental sustainability. This gap in government planning and implementation in the environmental sector has largely been filled by efforts from conservation non-governmental organisations (NGOs), which include a network of international, regional, national, States and community-based organisations. Namely, the Nature Conservancy, the Micronesia Conservation Trust, the YapCap environmental office, Chuuk Conservation Society, Conservation Society of Pohnpei and Kosrae Conservation and Safety Organisation. Given its community focus to conserve natural resources, NGO efforts have been significant drivers for poverty reduction and increased resilience in the FSM. For over a decade, they have been at the forefront of science-based awareness campaigns, community adaptation training as well as legislation development and enforcement. Yet given the gap in government planning, NGO efforts have largely been fragmented and under-supported both politically and financially. 

Going forward, great opportunities exist to embark on ‘resilient’ or ‘green’ development that is more suited to the FSM’s unique geography, demography and economic base. Unlike the more industrialised countries which are locked into high carbon infrastructure, systems and lifestyles, the FSM has the opportunity to leapfrog old and environmentally destructive technologies. It can build a green economy that is resilient to oil prices spikes and to a changing climate, and with it, a highly adaptive society that can act as stewards of this sustainable economy.  

Within this favourable setting, the FSM has the opportunity to establish climate-smart infrastructure, and mostly avoid the high cost of retro-fitting or replacing capital intensive infrastructure. Further, thanks to its established network of community and environmentally-focused NGOs, it has the opportunity to instil climate-smart social and cultural systems that ensure inclusive access not only to natural resources but also access to political voice, employment, information and other rights. 

This CP represents an increasing acknowledgement and commitment in the FSM towards green growth, and provides a great potential for the country to meet goal number eight of the 2030 global sustainable development goals (SDGs). It takes the SDP’s ‘sustained growth’ approach to the next step of integration and reconciliation of economic-centred growth with social inclusivity and environmental sustainability; thus, from sustained growth to sustainable growth.  

With careful and committed implementation, this CP provides two major game-changing or ‘transformative’ pathways for holistic and sustainable development in the FSM (Figure 4). The first pathway is infrastructure development driven by green growth strategies. The second pathway is resilient communities and ecosystems supported by an effective network of conservation NGOs. These two paths converge through the consolidation of adaptation initiatives across the JSAPs, IDP and ODA priorities. The convergence importantly reconciles ‘hard’, top-down economic infrastructure development with ‘soft’, bottom-up social and environmental safeguards, leading to sustainable development that is underpinned by a green economy.  

Green Growth and Infrastructure Development  

In response to climate change threats discussed in 

Section 1.1, the projects/programs pipeline (Section 2.5.1) captures critical infrastructure needs that span the main and outer-islands. The IDP estimates that it will cost $1,082 million over ten years (2016 to 2025) to deliver on these 

infrastructure needs. As discussed above, around $150 million of Compact funding is currently available. With sound ‘green growth’ planning as discussed in Section 1.2, and with effective coordination amongst other donors to the FSM, the GCF can contribute to ensuring that critical infrastructure needs in the FSM are designed and implemented for resilience and minimal emissions that will enable the FSM to reach, or exceed, its conditional INDC of 35 per cent GHG reduction below BAU. 

Directly supporting green infrastructure development is the potential accreditation of Vital and FSMDB to the GCF. The accreditation of Vital could provide the catalyst to transition into cleaner energy supply in the FSM. Since 2008, the company has been the largest supplier of petroleum-based energy to the FSM. As part of its ten-year strategic plan (2015 to 2025), the company is exploring ways to broaden its energy mix by investing in renewable energy development, including solar and potentially, coconut biofuel. The company is also venturing into the development of coconut products, with the potential to generate $4 million annually in jobs and profits for outer-island and rural households while also potentially generating over $12 million in annual exports. The accreditation of the FSMDB could stimulate the domestic economy further by supporting investments in cleaner energy as well as in potentially profitable adaptation initiatives such as coconut products development. 

Green Communities: Strengthening Community-Driven Adaptation  

Further supporting the above developments is the recent accreditation of the MCT to advance adaptation efforts from a bottom-up approach; from the community level-up. The MCT is also accredited to the Adaptation Fund, and has a comprehensive ecosystems-based program which include outer-island communities. For over a decade, the organisation has been a bridge between national, States and community decision-making levels on adaptation initiatives for the FSM; and by extension, has been directly connecting international financing with community level financing for adaptation efforts in the FSM. In this regard, the MCT can play a key role in enabling community-based access to the GCF, through smaller NGOs, by supporting the development and financing of areas relevant to MCT expertise across the pipeline of projects/programs. 

Along with its numerous local NGO partners, MCT has an extensive and long-standing experience in increasing the resilience of small island communities through its on-granting mechanism. It devolves grants to State-based and other local conservation and civil society partners for capacity building and network coordination on adaptation efforts, such as climate change awareness training, vulnerability assessments and development of adaptation plans. A significant part of its sustainable financing efforts is the Micronesia Challenge program, whose endowment fund is currently around USD 19 million. The organisation is currently working with the FSM’s national and States leadership to establish processes to access the FSM’s $4.6 million portion of the Fund, while ensuring that these funds reach communities and support their conservation and adaptation efforts. 

The climate impact potential of strengthening the capabilities of the conservation and community-based NGOs in the FSM is perhaps the most sustainable of all investments. As stewards of the country’s biodiversity and natural resources (or ‘natural resilience’), island communities are not only the end beneficiaries of climate change interventions but also the building blocks of effective adaptive capacity (see Box 1 for an example of natural resilience in Kosrae State). Yet they are the most vulnerable to the negative climate impacts, including shoreline erosion, damage to reefs and fisheries, loss of agriculture and water resources, as well as of land, homes, and public infrastructure. 

While their vulnerability have been identified in a number of policy papers, intended interventions have proven difficult to implement on the ground, largely due to current limitations in financial and effective delivery mechanisms, and particularly to those living in the rural and outer-island communities.  

The recognition of the key role of conservation and other NGOs in the JSAPs indicates significant reliance on the NGO sector to implement adaptation activities. Yet, as mentioned above, limited funding and political support have constrained the capabilities of local NGOs. The accreditation of the MCT to the GCF should result in the much-needed institutional and funding strengthening of local NGOs to effectively deliver adaptation projects for, and with, communities. 

Consolidating for Sustainable Development 

Over the last decade, a plethora of adaptation and mitigation initiatives of various scale and focus have been implemented across the FSM States with the assistance of various agencies at the international, regional, States and community levels, and with funding support ranging from private individual donors to bilateral and multilateral donors. They are further spread across various government departments and agencies as well as across a number of NGOs. As yet, no centralised data collection and storage system is available, nor has there been a dedicated study commissioned to collate and analyse the impacts of the numerous assistance throughout the years.  

This CP has come at a time when sectoral plans on infrastructure and State-based action plans on their respective development priorities, climate change and disaster risk response have been completed through the JSAPs. The large and encompassing size of GCF projects as well as the strong stakeholder engagement requirements for developing projects, has been conducive to the consolidation of around three hundred and fifteen separate initiatives into thirteen projects/program (see Section 2.3). Within the context of the two transformative pathways discussed above, the consolidation of infrastructure priorities with the more holistic development and adaptation priorities in the JSAPs sees the FSM well-placed to transition towards green, sustainable growth. 

The extent to which consolidation will be impactful depends on the enabling pillars of visionary and committed leadership, effective coordination and sufficient capacity.^[13] Figure 5 shows how the key GCF investment approaches on transformative development, gender equality, technological innovation, and programmatic funding provide re-enforcements to these pillars. Once enabled, these pillars can propel the FSM to embark on a programmatic approach, thus in turn, enabling the country to concentrate its limited human resource capacity to fewer, albeit impactful, initiatives while also maximising access to the wider range of climate financing opportunities beyond the GCF. More importantly, it will improve planning and coordination that will ultimately result in a high level of both institutional and community adaptive capacity across all its States. 

In order to strengthen readiness and maximise access to GCF resources, leadership efforts can prioritise the development of the NAP and an accompanying Capacity Building Plan,^[14] with a particular focus on harnessing urgent, technical capacity that will: 

• Strengthen the capacity of the 

Department of Finance and 

Administration and State-level finance departments to qualify for direct budget support from overseas development assistance as well as for accreditation to the GCF.  

• Enable programmatic funding for the Country Portfolio and other multi-year, crosssectoral adaptation and mitigation initiatives by developing an integrated adaptation framework (or NAP) while concurrently strengthening ODA coordination.  
• Develop and implement a national policy on gender and vulnerable groups to enable the full realisation of the paradigm shift to low-carbon and climate-resilient development in the FSM.  

With the large size of funds available under the GCF on the one hand, and the strong environmental and social safeguards required to access funds on the other, there seems a real opportunity to establish a consolidated pathway for new, clean and green development across island communities, and with that, the great possibility of a vibrant green economy. 

1.5  ‘A Green and Prosperous FSM’ Strategic Framework 

The sustainable development model for the FSM (Figure 4) is already well-captured in the 

FSM’s climate change, disaster risk management and development strategies discussed in Section 1.2. Figure 6 translates this into a strategic framework format to guide the implementation of this CP. The framework was further shaped by contributions from stakeholders during the three stakeholders workshops (Table 6). See Annex 1 for a reference guide on its development. 

The Vision of a ‘safe and climate resilient communities prospering in a sustainable, low carbon economy’ is in accordance with the ‘green growth’ development strategy presented in the previous section.  

The Strategic 

Objectives and Programs of Action align with both the FSM development priorities and the GCF strategic adaptation and mitigation results areas.^[15] The pipeline of projects and programs (Section 2.5.1) all feed into the Programs of Action.  

The Enabling Pillars capture the key areas of improvements required at the institutional level to ensure effective implementation. 

The

Implementation Roadmap rests on the operational implementation of the Country Portfolio (Section 2.5); both with regards to the development and management of the pipeline projects and programs, and to the effective utilisation of the readiness and other supporting funds under the GCF (for instance, to assist in strengthening the Enabling Pillars). Following the sustainable development strategies outlined in the previous section, the main elements of the roadmap include: the consolidation of adaptation efforts across the JSAPs, IDP, ODA priorities; ‘green growth’, particularly through community-driven infrastructure development and clean energy investments; strengthening of the Enabling Pillars; and projects development and management, including monitoring and evaluation (M&E). 

This framework thus also provides a sound basis on which to base the monitoring and evaluation of the pipeline projects/programs, once they are progressed to proposal development stage. It should be noted, however, that this strategic framework can be greatly improved with the development of a NAP to identify more concrete goals for the Programs of Action and for the Enabling Pillars.  

2.  Country Agenda and GCF Engagement 

2.1  Institutional Arrangements 

The preparation of this CP was facilitated through the positioning of the NDA as per the current institutional set up in the FSM in which responsibility for environmental issues is shared between the FSM National Government and the four State Governments (Figure 7). The national government provides overall national coordination on nationwide policies and projects. The State governments of Chuuk, 

Kosrae, Pohnpei and Yap are relatively autonomous and have the Constitutional mandate to take the decision-making role in the development of their respective States, 

including environmental management. In the FSM, country ownership is therefore determined through States ownership.  

As the Climate Change focal point for the country, the OEEM is the operational focal point for the Global Environment Facility (GEF). A number of significant climate fund engagement have been established with other government agencies. The Secretary of the Department of 

Finance and Administration is the NDA for the Green Climate Fund, the Secretary of Foreign 

Affairs is the NDA for the Adaptation Fund while the Administrator for Overseas Development Assistance (ODA) is the ‘National Authorising Officer’ for the European Development Fund’s targeted assistance on energy development for the FSM. 

The Department of Transportation, Communication and Infrastructure is a key partner for all infrastructure-related priority projects in the Country Portfolio. 

The Department of Resources and Development is a key partner for the priority projects on Food and Water Security and Renewable Energy. The department also oversees matters on tourism development as well as terrestrial and marine conservation and biodiversity. 

The recent establishment of the CC&SD Council seeks to address these dispersed responsibilities by acting as the coordinating body for the use of climate finance in the country. 

2.2  Roles and Contributions of Key Stakeholders 

The Readiness Program Team developed this CP using a three-part series workshop over a nine-month period: introductory, validation and confirmation (see Table 6). The first part involved a three and half-day inception workshop to introduce and connect stakeholders with the NDA Office, thus defining roles and responsibilities to organise around the development of the CP and instilling the paradigm shift towards low-emission and climate-resilient development. The second part involved weeklong consultations at the Statelevel to validate project/ program priorities for inclusion into the CP along with supporting in-country processes. The third part involved the confirmation and endorsement of the CP and the supporting in-country processes for its implementation, across the States and national levels. 

Given the challenges in securing workshop attendance, the Readiness Team undertook oneon-one meetings to supplement the inception workshop and maximise stakeholder knowledge on the FSM’s engagement with the GCF (Annex 2). Challenges in securing workshop attendance is expected in the FSM where both government and non-government staff are usually over-extended, and numerous policy and planning activities are fragmented. Off-island meetings and conferences add to the unavailability of key officials/representatives to attend. 

As the CP is based on already endorsed priority projects under the JSAPs, IDP and ODA Priorities of 2016 to 2018 (discussed further in Section 3.3), key stakeholders composed of those involved in the development and implementation of these initiatives. Figure 6 provides an outline of the stakeholders involved in developing the CP. Each State government has an NDA focal point who organises State-based stakeholder consultations. The focal points provided oversight of the consolidation of priority projects/programs. At the national level, the key partners provided guidance to the NDA by their respective areas of expertise. The OEEM provided guidance on climate change, water security, and disaster risk management; the ODA division on project priorities and donor coordination; DFA on the Adaptation Fund; TC&I on infrastructure; and R&D on energy, biodiversity, agriculture and food security. R&D is also currently the executing agency for the FSM Renewable Energy project being developed with the Asian Development Bank (ADB).  

The stakeholder consultation process included other line departments (Health, Education, Justice), local government, civil society groups, intergovernmental organisations and the private sector. Given the large size and cross-sectoral nature of the pipeline projects and programs, their expected roles in the implementation of the CP will become clearer at the projects design and development stage. 

With the support of GCF Readiness funding, the NDA has recently recruited a Projects 

Development Specialist to take CP processes forward with stakeholders. Given the large-scale work ahead, the NDA is also seeking additional technical assistance in projects/programs preparation, for example, by engaging expertise under the USAID Climate Ready program, and potentially under SPREP-JICA Pacific Climate Centre and NZ MFAT Technical Assistance.  

During the period of CP development, the nominated national entities of the MCT, FSMDB and Vital were all focused on their respective applications for accreditation to the GCF. The MCT received accreditation only recently (July 2017) and will begin to work with the NDA and Readiness Program to access GCF financing instruments, including the Enhanced Direct Access modality. Once operational as an accredited entity, their role in the execution of relevant project areas in the Country Portfolio will be prioritised. 

Table 7 below provides details of the FSM’s relationship with existing accredited entities and other  relevant partners. 

Table 7. Relationships with existing Accredited Entities and Relevant Partners 

2.3  Identification of Country Priorities for the GCF 

The CP is based on endorsed priority projects planned under the JSAPs, IDP and ODA Priorities. These have been channelled through the bi-ennial ODA Priorities submission process for 2016 to 2018, which ensures country ownership alignment (from States to national; from national to international donors, such as the GCF). Figure 8 shows the projects/programs prioritization methodology.  

Prior to consolidation, there were one hundred project concepts across the JSAPs (24 for Yap,  21 for Chuuk, 25 for Kosrae, 30 for Pohnpei), and two hundred and eleven project concepts in the IDP (53 for Yap,  35 for Chuuk, 33 for Kosrae, 57 for Pohnpei). Within the ODA bi-ennial submission process are additional projects which were not identified in the JSAPs or IDP but which are nonetheless endorsed as State or nation-wide priority projects and have thus been incorporated into the JSAP and IDP consolidation process. These included the Human Resource Development for 

Health and Education project, the establishment of a National Diagnostic Facility located in Pohnpei State, a pilot project on Supporting Entrepreneurs and Enterprise Development project, Sport Facilities improvement in Chuuk State and Tourism Sector Development in Pohnpei State (see Annex 3 for the full list on ODA Priorities). 

As part of the validation workshop, the CP Consultant facilitated a ‘first-cut’ consolidation exercise across the JSAP, IDP and ODA priorities for each State. A total of 13 large scale projects were identified (4 nation-wide, 3 for Yap, 1 for Chuuk, 3 for Pohnpei, 2 for Kosrae). At the time of the exercise (March 2017), the Chuuk JSAP was not yet endorsed^[16] and therefore only projects under the Chuuk IDP and ODA priorities were included in the consolidation. The States were also able to validate three of the four nation-wide projects which were submitted to the GCF as indicative priority projects prior to the development of the CP: Food and Water Security Program, Renewable Energy Program and the Inland Road project for Kosrae State. The fourth project on Technical Assistance for Climate Proofing Infrastructure has been re-worked to include a green growth approach. It remains as an activity under the Readiness program in the Country Portfolio (Section 2.5). The project prioritization methodology enabled a retrofit of these four priority projects, thus bringing them into coordination and consolidation with the more recently identified projects.  

The consolidated projects were identified as part of a larger FSM-GCF Proposal Approval Process (Annex 4) that ensures early alignment of the GCF’s required strategic impacts across  the mitigation and adaptation areas. For each consolidated project, the project proponent is required to complete an FSM-GCF Eligibility Assessment Form (Annex 5), which provides the opportunity for an alignment rating across both FSM development priorities and the GCF impact results areas. Only projects with a satisfactory rating are advanced through to inclusion into the CP. Given the centrality of climate change considerations in the JSAPs and IDP, all consolidated projects rated highly. 

It is important to note that with the exception of the FSM Renewable Energy Program, all projects are at ‘Ideas’ stage, with partner Accredited Entities yet to be identified and selected, and further scoping, sector-wide analysis and stakeholder consultations yet to be conducted. The ratings are therefore based on perceived or expected impacts, which are to be designed into the projects/programs as they are developed into full proposals. Similarly, fuller alignment with GCF policies, particularly with the GCF investment criteria,^[17] will be designed into the projects. At this stage, all other complementing financing options will be explored, including options for leveraging the private sector. 

As per the Country Portfolio in Section 2.5, the FSM has urgent, large scale needs to achieve resilient and transformative development. The GCF has a comparative advantage relative to other donors particularly in the area of grants-based, large-scale finance dedicated to adaptation and mitigation that are commensurate with both the country’s needs and its present financial management capacity. As exemplified in this CP, it is already proving to be a consolidating force for the large numbers of adaptation priority projects across the FSM States; prior to the GCF-funded validation workshops, many officials and other stakeholders in the States were not aware of the projects under the JSAPs, IDP and ODA priorities list.  

2.4  Private Sector Engagement 

While private sector mobilisation is a key part of the GCF agenda, the extent of private sector engagement in the context of the FSM is currently limited to projects/programs which have a private sector development component, rather than for projects that are generated by private sector actors. As outlined in Section 1.3, the private sector in the FSM is relatively small and under-developed. In this regard, the opportunities to mobilize private-sector led projects and co-investments with corporations under the GCF Private Sector Facility is currently outside of the scope of private sector capabilities in the FSM. However, this situation may change with the possible accreditation of Vital and the FSMDB in the coming year. 

2.5  Country Portfolio 

The country portfolio is organised into two sections. Section 2.5.1 presents an overview of the pipeline for projects and programs. These are, in turn, organised into nation-wide and Stateslevel subsections. Table 9 provides a summary of the pipeline projects/programs. Section 2.5.2 presents an overview of pipeline activities related to project/program preparation, to the country readiness program, and to the accreditation of nationally nominated entities. 

2.5.1 Country projects/programs pipeline 

Initial approach to prioritization 

With the exception of the FSM Renewable Energy Program, all pipeline projects are at ‘Ideas’ stage (refer, Figure 9). 

At this ‘initial’ programming stage of the CP, prioritization is based on the readiness of project proponents to develop their respective projects/ programs. Once climate impact potential of projects have been made clearer during the projects development stage, additional criteria can be added to the prioritization process, such as: climate impact or ‘transformative’ potential and urgency of need. During the projects development stage, the foregrounding of climate impact potential of projects/ programs can be supported in three ways: 1. through the confirmation of the preliminary scoring/assessment on the GCF Impact results areas in the EAForm; 2. through their alignment with the Programs of Action under the Strategic Framework; and 3. with the development of the GGS and the NAP that would then make available any green growth and sectoral data analysis/quantification in relation to climate impact scenarios.  

The Readiness Program will facilitate the next steps for selecting appropriate accredited entities. 

Initial approach to sectoral considerations 

Sectoral consultations were not found to be applicable in the development of this initial CP for two reasons. Firstly, the small size of the FSM on the one hand, and the current fragmented management of a large number of climate change and development initiatives on the other, renders attempts at ‘transformative development’ to be necessarily cross-sectoral. The consolidation process of priority projects across the IDP, JSAPs and ODA priorities was thus cross-sectoral in nature, resulting in for example, the activities under the priority sectors of fisheries and agriculture being consolidated under the ‘Food and Water Security’ program. Secondly, as discussed in Section 1.4, there has been limited, coordinated sectoral planning undertaken in the FSM to date. However, the sectoral data analysis/quantification in relation to climate impacts and scenarios as part of the development of a NAP along with the information needs of the design process of the priority projects, should strengthen sectoral planning in the FSM in the near future. 

Initial approach to consolidation 

Yap State’s “Resilient Transport and Private Sector Development in the Main and Outer- islands of Yap Program” is a consolidation of its Resilient Outer-islands Transport Response and Private Sector Development ($15, 259, 058) and Resilient Transport and Private Sector 

Development ($81,120,215) projects. The “Resilient Infrastructure for Health and Education Delivery Program” is a consolidation of its Resilient Health Infrastructure project ($13,729,704) and Resilient Education Infrastructure project ($10,3297,04). 

The Chuuk State project is a consolidation of 12 separate projects under its IDP. At the time of consolidation, the Chuuk JSAP was not yet endorsed and was therefore excluded. Inclusion can be undertaken at the projects development stage. 

Further consolidation or re-arrangement of activities within these projects are probable at projects development stage. 

Cost-estimate considerations 

The total financing required for the pipeline projects/programs is approximately US$1.4 billion over the next seven years to 2024. This amount is over five times the national GDP for 2015, and as an overall cost, would not be eligible for GCF financing. At present, GCF financing is confined to the climate impact aspects of infrastructure projects, such as making infrastructure and roads climate-resilient. Co-financing arrangements along with improved government fiscal revenue-making and more effective use and access of both Compact and non-Compact grants is expected to cover the gaps in total financing. Improved fiscal management can ensure that fiscal surplus (primarily from fishing fees and corporate tax earnings) is used to invest in adaptation and green growth efforts. Improved access to Compact grants will see a rise in capital grants, particularly around the $150 million worth of infrastructure grants in the coming years. Improved access to non-Compact grants is possible through improved coordination of overseas development assistance. 

It is important to note also that total financing is based on estimated costs which are likely to be outdated at the time of projects development given that the JSAPs and IDP were completed in 2015. Significant fluctuations in estimated costs should also be expected at the time of developing the projects given that some projects will either no longer be required due to having been fully  financed by another fund/s, or have been completed. Technical factors may also see that some projects are no longer relevant or need to be re-designed.  

     Table 8: Summary of Priority Projects/Programs 

Table 9: Country Projects/Programs Pipeline 

complex within which intergovernmental 

development at tourism sites are eco-

Section 2.5.2 Pipelines for Project Preparation, Country Readiness Program and         Accreditation 

Table 10: Country Projects/Programs Preparation Pipeline 

Table 11: Country Readiness Program Pipeline 

the Country Portfolio.The TA will work 

Table 12: Accreditation Pipeline 

3.  Country Program Implementation and Sustainability Plan 

3.1  Implementation Timeline and Institutional Arrangements 

CP implementation begins immediately with oversight from the NDA and with the following guidance to: 

1. progress the projects/programs pipeline on an ‘as ready basis’. 
2. facilitate any further consolidation or rearrangement of projects/programs in the pipeline. 
3. update the other areas of the Country Portfolio regarding requests to access resources under the FSM-GCF Readiness Program, including accreditation assistance and project preparation on an ‘as needs basis’. 
4. develop a Communications Strategy by March 2018, ready for implementation by April 2018. 
5. facilitate the completion of the M&E results framework for this CP across the States and National government in August/September 2018. 
6. ensure that this CP is updated in September/October 2018, and yearly thereafter.  
7. ensure that State and National consultations are undertaken as part of the annual update of the CP. 

The institutional arrangement for implementation of the CP is based on the implementation roadmap of the Strategic Framework (Section 1.5). As per Figure 10, the NDA and GCF State Focal Points will manage the CP’s M&E system. The agencies responsible for keeping the IDP, JSAPs and ODA Priorities updated will inform projects design and development over the course of proposal development. The State Governors and the CC&SD Council represent the enabling pillar of ‘leadership’, ensuring that coordination and capacity needs are met. The NDA and the CC&SD Council represent the pillar of ‘coordination’, ensuring that coordination occurs at the high levels of government as well as at the operational level of the CP. The NDA and ODA division represents the pillar of ‘capacity’, ensuring that funding for capacity needs are coordinated.                                                                      

Accountability for implementing the CP and its M&E results framework at State level lies with the State Leadership and the State GCF Focal Points. 

Accountability for implementing the CP and its M&E results framework at national level lies with the NDA. The NDA will assume the overall program coordination role, working closely with the State GCF focal points and its key national government partners: OEEM, ODA, DFA, R&D and TC&I (PMUs/PMOs). 

Accountability for ensuring that the CP is fully implemented lies with the CC&SD Council. 

3.2  Reporting

Following the institutional arrangement above, the State GCF focal point reports to the State Governor. The NDA reports to the CC&SD Council. The CC&SD Council reports to the President of the FSM.  

Reporting includes an annual report on the M&E results. The M&E framework is detailed below. 

3.3  M&E System: Results Framework and Context 

The results framework for this CP consists of a Master framework and States and nationalbased frameworks. It has three main monitoring areas: strategic, institutional and administrative. Strategic monitoring involves the progress made towards ensuring that Statebased and nation-wide plans supporting climate change adaptation and infrastructure are developed and/or up to date. Institutional monitoring refers to the progress made on the enabling pillars of leadership, coordination and capacity. Administrative monitoring involves the progress made of projects/programs towards a No Objection Letter (NOL).  

Accountability for ensuring that projects are progressed will lie with the ‘executing agency’ of the project or program. The ‘executing agency’ will assume the executive decision-making role, working closely with the NDA, and if a State-based project, with both the NDA and the State GCF focal point. The ‘executing agency’ will also assume the executive decision-making role for engagement of accredited entities. For example, the FSM Department of Resources and Development is the executing agency of the FSM 

Renewable Energy program, while the Accredited Entity is the Asian Development Bank, and the implementing entities are the State power utilities.  

The States and national-based frameworks feed into the Master framework. The States-based results framework are maintained by the State GCF Focal Points. The national-based and Master framework are controlled and maintained by the NDA. The template spreadsheet of the Master and States-based results frameworks is in Annex 6.^[18][19]

The M&E results framework is to be understood within a ‘pre-climate impact results’ context. At this ‘readiness stage’ of the CP, the results being measured are not based on projects performance. Rather, they are foundational results; those that provide the basis to deliver on the eight GCF strategic impact mitigation and adaptation result areas (or GCF Results Management Framework).^[20] A new framework will need to be established once the pipeline projects and programs are producing results. Each project or program will then have its own 

M&E results framework which incorporate the requirements under the GCF Results Management Framework. The country will thus be ‘ready’ to fully contribute to greater adaptation and mitigation goals once projects and programs are rolled out. 

3.4  Management Needs 

The ongoing management of the CP requires staffing of the NDA office to progress the development of the Country Portfolio and associated processes, which have been established in this first year of the readiness phase. 

At a minimum, a long term position for an FSM-GCF Program Coordinator or similar, is required. This position would oversee the day to day operations and coordination needs of the NDA office, including the ongoing update of the Country Portfolio and the administration of the FSM-GCF Proposal Approval Process. The position would also mobilise assistance to undertake the annual review and update of the CP, and ensure that the CP Review Log, located at the start of this document, is to be completed after each annual review, or earlier as required. 

A short term consultant with expertise in program management and M&E is needed to support the update of the CP with any new developments related to economic circumstances and climate change issues, new information on the viability or costs of the Country Portfolio options, and other matters of relevance such as: 

• Updating and refining of the Strategic Framework with a completed NAP, or as required by more current needs;  
• Updating the M&E System and associated templates and processes; 
• Visiting each State to conduct monitoring and provide training to refresh State-based users of the M&E system, and to facilitate completion of the States-based M&E results framework. 

Implementation of the CP is stakeholders-driven, and as such necessitates the development and implementation of a Communications Strategy in the coming months of readiness activities. The Communications strategy would assist in coordination between the States and national governments and stakeholders, while providing much needed education and awareness to the greater public to build understanding and support for the implementation and sustainability needs of the CP. The strategy would include a built-in communications M&E results framework to monitor and assess the effectiveness of outreach modes and materials including media articles and broadcasting outputs. 

3.5  Mechanisms for Keeping the Future, Present: 

The two re-enforcing mechanisms for CP implementation and sustainability are the CC&SD Council and the M&E system. As the body responsible for the successful implementation of the CP, the CC&SD Council ensures that this Implementation and Sustainability Plan is appropriately funded and adjusted as necessary for relevance and for continued active engagement by key stakeholders. The annual M&E reports serve to guide Council support.