KOROR (Island Times/Pacnews) — Palau’s government trust funds have suffered major losses in the current fiscal year, largely attributed to the global ripple effects of recent U.S. tariff policies that have unsettled financial markets worldwide.
The most striking impact has been on the Compact of Free Association Trust Fund, which saw its value fall by over $42 million between the beginning of the 2025 fiscal year on October 1, 2024, and April 8, 2025.
The fund started the fiscal year at $421,977,957 but dropped to $379,640,870 in just over six months — a loss of $42,337,087.
The decline was most severe in early April, when the trust fund plunged by $35 million in just eight days. The COFA Trust Fund stood at $406,874,250 on March 31, 2025, but by April 8, it had dropped to $379.6 million. This sharp loss reflects heightened investor anxiety amid the escalating U.S. trade and tariff tensions that have rattled both stock and bond markets.
The COFA Trust Fund is a vital financial reserve intended to support Palau’s government operations after the expiration of direct economic assistance under the Compact agreement with the United States. It is largely invested in U.S. equities and bonds, making it especially vulnerable to volatility in American financial markets.
The COFA Board, which reports quarterly to the Palau President and the Olbiil Era Kelulau (Palau National Congress), had previously indicated the fund was holding relatively steady at $411 million at the end of the first quarter on Dec. 31, 2024. But the second quarter ended with a marked dip, and the early April nosedive underscores the market’s sensitivity to U.S. fiscal and trade policy shifts.
Other public funds invested in the U.S. markets have also been affected. The Civil Service Pension Plan dropped from $25 million to $23 million during the same period. Additionally, several national and state institutions — including the Social Security Administration, Health Care Fund, Palau Community College, and state governments — have investments in U.S. financial markets and are likely experiencing similar losses, though full reports have not yet been released.
Global analysts have tied the recent volatility to aggressive U.S. tariff hikes on key trading partners, which have disrupted international trade flows and spooked investors. The bond market has also been impacted as the U.S. Federal Reserve adjusts interest rate expectations in response to inflationary pressures fueled in part by tariff costs.
For Palau, the financial strain raises concerns about the sustainability of long-term public investments and underscores the importance of diversified portfolio management.
Meanwhile, the COFA Board is preparing to brief national leadership on mitigation strategies and potential adjustments to the investment approach, particularly as market uncertainty remains high heading into the second half of the fiscal year.
