GAO: End of Compact Funds Put FSM and Marshalls at Highest Risk | News

Once the United States ceases economic aid to Freely Associated States, Palau will be far more self-sufficient than the Federated States of Micronesia and the Marshall Islands, the US Government Accountability Office said in a report.

The GAO is “a legislative branch of government agency that provides audit, evaluation, and investigative services for the United States Congress.”

Under its Compacts of Free Association with Palau, the FSMs, and the Marshalls, the United States may operate its armed forces in Compact areas and seek land for bases of operations, subject to negotiation, while excluding militaries of other countries without US authorization.

The United States has also provided economic assistance pursuant to its compacts with the FSM and the Marshall Islands since 1986, and with Palau since 1994.

This assistance comes in the form of grants overseen by the U.S. Department of the Interior, as well as programs and services provided by various U.S. agencies, and is intended to promote the economic advancement and self-sufficiency of the FAS.

Additionally, eligible SAF citizens can study, work, or live in the United States and its territories.

The United States has also provided contributions to each country’s Compact Trust Fund, and GAO was asked to provide an update on this assistance.

GAO has projected that there will be minimal disbursement risks for the Palau Compact Trust Fund before FY2044, while disbursements from the GSF and Marshall Islands Compact Trust Funds will not cover the value of its grants, which will result in annual budget variances.

The GAO report examines, among other things, the use and role of US funds and programs in individual country budgets and the projected effects of ending compact grants and certain programs and services.

Revenues from the WSF and RMI Compact Trust Funds are intended to provide income after compact grant support ends.

Palau receives disbursements from its compact trust fund, which is designed to generate income until 2045.

The WSF faces a 36% chance of zero disbursement from its compact trust fund in one or more years before FY2034, even though the fund may have a substantial balance, the GAO said.

He added that the Marshall Islands faces a 12% probability of zero disbursements from its Compact Trust Fund in one or more years before FY2034, even with an expected increasing fund balance.

GSF relied on compact sector grants and an education top-up grant, or SEG, ending in fiscal year 2023 for 28% of its spending in fiscal year 2019.

The Marshall Islands relied on compact sector grants and SEG ending in fiscal year 2023 for 21% of its spending in fiscal year 2019.

Palau relied on compact grants as well as disbursements from its compact trust fund for 13% of its fiscal year 2019 expenditures.

In fiscal year 2019, the FSM government spent $232.7 million, of which 64% came from domestic aid or other countries, 28% from compact and SEG funds, and 8% from other grants Americans.

The Marshall Islands government spent $164.8 million in the same fiscal year, of which 66% came from domestic sources or aid from other countries, 21% from compact and SEG funds, and 14% from other grants Americans.

The government of Palau spent $129 million, of which 75% came from domestic sources or aid from other countries, 13% from other US grants, and 12% from compact trust fund disbursements.

The GAO recommended that the US Secretary of State, in conjunction with the US Department of the Interior, establish timelines for constituting the Palau Advisory Group on Economic Reform.

The Department of State agreed with this recommendation.

For more information visit https://www.gao.gov/products/gao-22-104436?utm_source=outreach&utm_medium=email&utm_campaign=think+tanks_journalists

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