The U.S.-Marshall Islands Joint Economic Management and Financial Accountability Committee agreed that the government needs to “develop a plan for managing annual decreases in Compact direct assistance and general fund support, and use those plans as the basis for fiscal year 2012 budget decisions.”
U.S. grant funding under a Compact of Free Association declines $500,000 annually, with a corresponding bump up in contributions to a government trust fund intended to provide financial support to the Marshall Islands when the agreement with Washington ends in 2023.
The Compact decrements affect key ministries and although this issue has been “long-discussed” since the second Compact went into effect in 2003, “it is now becoming visible,” the government’s Chief Secretary Casten Nemra said Friday.
JEMFAC, in which the U.S. government has a controlling three-to-two vote, set Aug. 1 as the deadline for the Marshall Islands government to submit a plan to Interior’s Office of Insular Affairs for review at the annual 2010 JEMFAC meeting.
Interior Department grants management official Alan Fowler, who is based at the U.S. Embassy in Majuro, said in an interview Friday that “not enough attention has been put on sustainable operations” in government with Compact funding going down and local revenues not increasing funding for health and education.
The issue facing the Marshall Islands is how to handle Compact funding step-downs if local revenues do not pick up, Fowler said.
Currently, U.S. funding accounts for two-thirds of the Marshall Islands national budget of $137 million, and more than 80 percent of the funding for the Ministries of Education and Health.
Nemra said sustainable operations of government has been the focus of government recently, with the Marshall Islands close to completing an overhaul of its tax program to improve collections of revenue.
A Comprehensive Adjustment Program Committee making recommendations for how to cut government spending, and efforts to increase other sources of local revenue, such as the increased contribution of the country’s flag of convenience ship registry, now the fourth largest in tonnage in the world.
The ship registry now injects $3 million annually to the Marshall Islands, up from $2 million last year.
Nemra said economic conditions in the world are increasing pressure on the Marshall Islands because of higher costs for goods and services. “This is a challenge we are working on,” he said.
