The renewed Compact of Free Association agreements were signed in 2023.
Photo: AFP / Mandel Ngan
A United States government report has revealed a slow breakdown in funding mechanisms for the Freely Associated States (FAS).
The renewed Compact of Free Association (COFA) agreements signed in 2023 with Palau, the Federated States of Micronesia (FSM), and the Republic of the Marshall Islands (RMI) provide them with more than US$6 billion over 20 years. In exchange, the US has exclusive military access.
However, the Government Accountability Office (GAO) released a study this month, finding that the US has been notably late on compact fund payments in recent years, while the states themselves are also late on their audit reports.
“Most documents that FSM, RMI, and Palau are required to submit were not submitted on time,” it reads.
“Since 2019, all three countries’ required single audit reports – critical to US compact oversight efforts – have been late.”
The audit reports, some of which “are still outstanding”, are described as “critical” to the US tracking of how compact funding is spent. But the states told the GAO they are struggling to make use of the funding, due to lateness and on-the-ground realities.
“FAS officials told GAO that project implementation has encountered obstacles such as delayed compact funds disbursement, rising construction costs, and labour shortages.”
But it is also reported that a hiring freeze by the Trump Administration in January last year has delayed the implementation of a special unit to oversee the compact funding beyond 2029.
All three countries have allocated most of their compact funding to health and education as of last year, namely building and renovating schools and hospitals. Letters from the Palau and FSM governments made special note of “delays in the disbursement of compact funds”.
That lateness increases the burden of construction costs while worsening labour shortages linked to a steady population decline in all three states over the last decade.
“According to the officials, the islands’ geographic remoteness makes it difficult to maintain a competitive bidding process, given the limited number of companies interested in, or capable of, completing projects,” the report reads.
“Further, global inflationary pressure on the construction sector, particularly increases in material prices and shipping fees, has dramatically increased project costs and made projects difficult to start.”
“The need to import foreign workers from elsewhere in the region, such as the Philippines and Fiji, has increased the projects’ costs.”
Meanwhile, states noted a near-complete loss of grants under other assistance programmes, such as from the Centres for Disease Control and Prevention.
“According to the officials, they had to find new sources of funding or reduce programs supported by this assistance.”
The Marshall Islands recently declared a state of emergency over fuel supplies, with Finance Minister David Paul telling RNZ Pacific they were “at the mercy of the market”.
In FSM, a recent International Monetary Fund report highlighted an economic slowdown linked to rising import costs and a weak private sector.
