Palau financial future secured, Trust Fund changed to perpetual fund

KOROR,20 SEPTEMBER 2018 (ISLAND TIMES) – “I believe we can now be confident about Palau’s future, especially having addressed those concerns economists have had about the possibility of Palau depleting its trust funds and not be able to sustain itself in the future,” expressed Palau President Remengesau Jr following the report that United States have agreed to change Palau’s Trust Fund status from sinking funds to perpetual funds.

The change of fund status will mean that money invested should be enough to continue to earn income for government beyond year 2023.  Palau’s Trust Fund status was initially a sinking fund.

At a meeting with Palau’s national leaders, Minister of Finance Elbuchel Sadang reported that the Compact Review Agreement signed in 2010 was very restrictive.  Out of the approved US$250-million-dollar package, US$21 million went to weather and post office.  US$120.850 million was to be direct assistance disbursed to Palau each year until 2024. US$30.250 million was to be invested in the Trust Funds, US$28 million was allocated to infrastructure maintenance, US$40 million was for Capital Improvements and US$10 million was to pay previous debts.

Just recently United States to change the status of the Palau Compact Fund to perpetual fund and agreed to transfer US$14 million from the US$28 allocated to maintenance to the Trust Fund.  It also agreed to add to Trust Fund US$20 million from the US$40 million CIP funds and the US$10 million for previous debts bringing a total new infusion to Trust fund of over US$60 million.

This increase in new money invested in the Trust Fund will ensure that Palau is able to draw down from the Compact earnings after 2045 to supplement its government operations

US also approved upfront payment to Palau US$22 million from Direct Assistance in addition to US$13.147 million.

Furthermore, Minister Sadang reported that President Remengesau has approved US$12 million dollars from the CIP account to resurface the Koror/Airai road, fund to repair of Angaur port and upgrade of the Ministry of Finance Financial Management System.

Reason to request change was due to the restrictive terms of the Compact Review Agreement of 2010 said Minister Sadang.

Of the US$28 million infrastructure maintenance fund, Palau could only access US$2 million a year and only for infrastructures built by the United States.  This would mean only airport, compact road and now the new weather station. Palau also has to match this by US$250,000 each quarter.

Of the US$40 million funding for capital improvement project, US approval of each project bid is required and funding for a project will be on reimbursable basis.

With agreement ratified after 10 years, Palau will only get remaining balance from the direct assistance funds.  Of the original US$229 million less the US$131.47 million already disbursed to Palau since 2011, Palau will have remaining $97 million to be disbursed each year.

Palau government sought to work with United States to find ways to address the potential negative impacts.

Recent positive responses from U.S. government had Remengesau expressing confidence at leadership meeting about next year’s supplemental budget needs with these new unexpected funds coming down the pipeline.

More Stories