The FSM public sector plays a central role in the economy as the administrator of the Compact funds. The national and state-level governments employ over one-half of the country's workers and provide services accounting for more than 40% of GDP. Real wages nationwide have been flat for the past decade, as has the number of jobs in the economy (about 15,500.)  Private sector jobs pay about half as much as public sector jobs; however, both national and state government salaries continue to fall in real terms.

The fishing industry is highly important. Foreign commercial fishing fleets pay over $20 million annually for the right to operate in FSM territorial waters. These licensing fees account for nearly 30% of domestic budgetary revenue. Additionally, exports of marine products, mainly re-exports of fish to Japan, account for nearly 85% of export revenue.

Visitor attractions include SCUBA diving in each state, World War II battle sites, and the ancient ruined city of Nan Madol on Pohnpei. Some 15,000 tourists visit the islands each year. However, the tourist industry has been hampered by a lack of infrastructure and limited commercial air connections. The Asian Development Bank has identified tourism as one of FSM's highest potential growth industries.

Farming is mainly subsistence, and its importance is declining. The principal crops are coconuts, bananas, betel nuts, cassava, and sweet potatoes. Less than 10% of the formal labor force and less than 7% of export revenue come from the agriculture sector. Manufacturing activity is modest, consisting mainly of two garment factories in Yap.

The large inflow of official assistance to FSM allows it to run a substantial trade deficit--imports outstrip exports by a seven-to-one ratio--and to have a much lighter tax burden than other states in the region (11% of GDP in FSM compared to 18%-25% elsewhere). The government borrowed against future Compact disbursements in the early 1990s, yielding a significant external debt that now tops $60 million. In 2005, the FSM Government and Congress took positive steps to revamp and rationalize the nationwide tax system to improve collections and more fairly distribute the tax burden.