By Pacific Island Times News Staff
The freely associated states may face annual fiscal gaps because their expenditures are likely outpace their compact trust funds under the yet-to-be renewed economic provisions of the Compact of Free Association, according to the Government Accountability Office.
GAO recommended that the Department of the Interior work develop a trust fund distribution policy with the Federated States of Micronesia, the Marshall Islands and Palau to address the funds’ sustainability.
The U.S. government is renegotiating the expiring provisions of the the compact.
The U.S. Department of the Interior is scheduled to have provided, in total, $3.7 billion to FSM and $2.5 billion to the Marshall Islands by 2023 and $803 million to Palau by 2024.
The FAS are among the world’s smallest countries, with a combined population of about 176,000 as of 2018: 104,268 in FSM; 54,556 in RMI; and 17,543 in Palau. FSM is a federation of four states: Chuuk, Kosrae, Pohnpei, and Yap. What GAO Found
The U.S. contributes to trust funds provided pursuant to Compacts of Free Association with the Federated States of Micronesia, the Marshall Islands and Palau. These funds are meant to provide long-term budgetary support after certain grant assistance ends after fiscal year (FY) 2023 for FSM and RMI and after FY 2024 for Palau.
FSM. FSM relied on compact sector grants and a supplemental education grant ending in FY 2023 for 28 percent of expenditures in FY 2019. GAO projects that disbursements from FSM’s compact trust fund will not cover all of the value of these grants, resulting in annual fiscal gaps. Because of rules governing the compact trust fund, FSM faces a 36 percent likelihood of zero disbursements from its compact trust fund in one or more years before FY 2034, even though the fund may have a substantial balance.
RMI. RMI relied on compact sector grants and a SEG ending in FY 2023 for 21 percent of expenditures in FY 2019. GAO projects that disbursements from RMI’s compact trust fund will not cover all of the value of these grants, leading to annual fiscal gaps. Because of rules governing the compact trust fund, RMI faces a 12 percent likelihood of zero disbursements from its compact trust fund in one or more years before FY 2034, even with a projected increasing fund balance.
Palau. Palau relied on compact grants as well as disbursements from its compact trust fund for 13 percent of expenditures in FY 2019. GAO projects minimal disbursement risks to Palau’s compact trust fund before FY 2044. As of September 2021, the Department of State, working with Interior, had not established timeframes to constitute the Palau Advisory Group on Economic Reform, which the Palau Compact Review Agreement stipulates is to recommend reforms to enhance long-term economic sustainability.
More details to follow.