Compact of Free Association: Proposed U.S. Assistance to Palau and Its Likely Impact Page: 2 of 25
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A G A O COMPACT OF FREE ASSOCIATION
Accountability * Integrity * Reliability
H ighlightsmeProposed U.S. Assistance to Palau and Its Likely
____I _I _ _S Impact
Highlights of GAO-11-559T, a testimony
before the Committee on Energy and Natural
Resources, U.S. SenateWhy GAO Did This Study
The Compact of Free Association
between the United States and the
Republic of Palau, which entered into
force in 1994, provided for several
types of assistance aimed at
promoting Palau's self-sufficiency
and economic advancement. Included
were 15 years of direct assistance to
the Palau government; contributions
to a trust fund meant to provide
Palau $15 million each year from 2010
through 2044; construction of a road
system, known as the Compact Road;
and federal services such as postal,
weather, and aviation. U.S. agencies
also provided discretionary federal
programs related to health,
education, and infrastructure. In
2008, GAO projected total assistance
from 1994 though 2009 would exceed
$852 million.
In September 2010, the United States
and Palau signed an agreement (the
Agreement) that would, among other
things, provide for additional
assistance to Palau and modify its
trust fund.
This statement describes (1) the
Agreement's provisions for economic
assistance to Palau, (2) its impact on
the trust fund's likelihood of
sustaining scheduled payments
through 2044, and (3) the projected
role of U.S. assistance in Palau
government revenues. GAO reviewed
the Agreement; examined Palau's
recent single audit reports and
budget projections; and assessed
trust fund balances and disbursement
plans under various assumptions and
investment returns.
View GAO-11-559T or key components.
For more information, contact David Gootnick
at (202) 512-3149 or gootnickd@gao.gov.What GAO Found
The Agreement would provide steadily decreasing assistance totaling
approximately $215 million from 2011 through 2024 (see figure). This would
include the following:
* direct economic assistance ($107.5 million) for government operations,
* infrastructure project grants ($40 million) to build mutually agreed
projects,
* infrastructure maintenance fund ($28 million) for maintaining the
Compact Road, Palau's primary airport, and certain other major U.S.-
funded projects,
* fiscal consolidation fund ($10 million) to assist Palau in debt reduction,
and
* trust fund contributions ($30.25 million) in addition to the $70 million
contributed under the compact.
Assistance to Palau Specified in the Agreement
Dollars (in millions)
30
25
20
15
10
5
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Fiscal year
Trust fund contributions : Fiscal consolidation fund Infrastructure project grants
- Infrastructure maintenance fund Direct economic assistance
Source: GAO analysis of the Agreement between the Government of the United States of America and the Government of
the Republic of Palau Following the Compact of Free Association Section 432 Review.
Under the Agreement, the United States would contribute to the trust fund
from 2013 through 2023, and Palau would delay its withdrawals by $89 million
from 2010 through 2023. GAO projects that with these changes the fund would
have a 90 percent likelihood of sustaining payments through 2044, versus 25
percent without these changes.
Estimates prepared for the Palau government project declining reliance on
U.S. assistance under the Agreement-from 28 percent of government
revenue in 2011 to under 2 percent in 2024-and growing reliance on trust
fund withdrawals and domestic revenues. The estimates show trust fund
withdrawals rising from 5 percent to 24 percent, and domestic revenues rising
from 40 to 59 percent, of total government revenue. According to the
estimates, U.S. assistance from 2011 though 2024 would total $427 million,
with discretionary federal programs accounting for about half of that amount.
United States Government Accountability Office
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United States. Government Accountability Office. Compact of Free Association: Proposed U.S. Assistance to Palau and Its Likely Impact, text, June 16, 2011; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc290966/m1/2/: accessed March 29, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.