Forum Compact Peer Review Report Palau 23 June 2013 Palau Forum Compact Peer Review Report Palau Forum Compact Peer Review Report © Copyright Pacific Islands Forum Secretariat, 2013 All rights for commercial /profit reproduction, in any form, are reserved. PIFS authorises the partial reproduction or translation of this material for scientific, educational or research purposes, provided that PIFS and the source document are properly acknowledged. Permission to reproduce the document in any form, whether for commercial /profit or non- profit purposes, must be requested in writing. Original text: English PIFS Cataloguing-in-Publication Forum Compact Review report : Palau / prepared by the Palau Peer Review Team with assistance of the Pacific Islands Forum Secretariat.- Suva, Fiji : Pacific Islands Forum Secretariat, 2013. 28p. : col. ill. ; 30 cm. ISBN: 978-982-202-029-8 1. Palau – Social policy 2. Palau – Social conditions 3. Economic assistance – Palau 4. Economic policy – Palau I. Pacific Islands Forum Secretariat 338.910966 2013 dc23 Prepared by the Palau Peer Review Team with assistance of the Pacific Islands Forum Secretariat Approved by the Government of Palau, in consultation with it’s development partners. Micronesian girls and women dancing in Yap State, FSM. The Yapese dance is called Churu’ Palauan Girl performing traditional dance Cover:ii Aerial view of the Rock Islands, Palau iii Palau Forum Compact Peer Review Report Palau Forum Compact Peer Review Report Acknowledgements Acronyms At the invitation of the Government of Palau, a peer review of Palau’s national development planning, budgeting, public ADB Asian Development Bank financial and aid management systems and processes was undertaken in Palau from 15 to 23 May 2013. The Government of AusAID Government of Australia Aid Agency Palau invited representatives from two Forum Island Countries, Tonga (Ms Natalia Palu-Latu), the Republic of the Marshall BBP Bureau of Budget and Planning Islands (Ms Maybelline Andon-Bing) and one development partner, AusAID (Mr ‘Alopi Latukefu) to make up their Peer CROP Council of Regional Organizations in the Pacific Review Team. The Palau Peer Review Team was supported by personnel from the Pacific Islands Forum Secretariat. EU European Union The Peer Review would not have been possible without the efforts of a number of people and organisations to whom the FAA Funds Availability Analysis Peer Review team would like to express their sincere gratitude: FEIN Facility for Economic and Infrastructure Management Project FICs Forum Island Countries • The Government of Palau for taking the initiative to undertake a peer review; FSM Federated States of Micronesia • HE the President of Palau, Hon. Ministers of Health and Community and Cultural Affairs, members of the Olbiil Era FY Fiscal Year Kelulau (OEK)1 , the Governor of Koror State, senior staff of the national Government of Palau, development partners, GAO General Accounting Office private sector and non-government organisations who shared freely their experiences and insights; • Mr. Casmir Remengesau, Director of the Bureau of Budget and Planning, and Mr Jeffrey Anton, Director of the Bureau GEF Global Environment Facility of Foreign Affairs and their staff for their hospitality, their help in preparing the schedule and for guiding and informing GDP Gross Domestic Product the team throughout; and IACG Inter-Agency Coordinating Group • The Governments of Tonga, the Republic of the Marshall Islands, and Australia, for agreeing to release us to serve on IMF International Monetary Fund this Peer Review Team. KPIs Key Performance Indicators MAP Management Action Plan All financial figures are in US dollars. MDG Millennium Development Goals NMDP National Master Development Plan M&E Monitoring and Evaluation MTBF Medium Term Budget Framework MTDS Medium Term Development Strategy MTFS Medium Term Fiscal Strategy NGOs Non-Governmental Organizations ODA Official Development Assistance OEK Olbiil Era Kelulau – Palau’s National Congress PEFA Public Expenditure and Financial Accountability PIFS Pacific Islands Forum Secretariat PBB Performance Based Budget PFM Public Financial Management PFTAC Pacific Financial and Technical Assistance Centre RMI Republic of the Marshall Islands ROC Republic of China TA Technical Assistance UN United Nations UNDP United Nations Development Program UNFCCC United Nations Framework Convention on Climate Change US United States Man swimming with barracudas USP University of the South Pacific 1 Olbiil Era Kelulau (OEK) is Palau’s National Congress, and translated “House of whispered decisions”. iv v Palau Forum Compact Peer Review Report Palau Forum Compact Peer Review Report Contents Acknowledgments iv Acronyms v Message from His Excellency, the President of Palau viii Message from the Secretary General of the Pacific Islands Forum ix Introduction 1 Background 4 Key Findings 6 Planning 6 Budgeting and Performance Management 12 Aid Management 16 Recommendations 20 Next Steps 22 Annex 1: Cairns Compact: Palau Peer Review Terms of Reference 24 Annex 2: Palau Government, Peer Review & Support teams 28 Rock Islands, Palau vi vii Palau Forum Compact Peer Review Report Palau Forum Compact Peer Review Report Message from His Excellency, the President of Palau Message from the Secretary General of the Pacific Islands Forum Secretariat In 2009, Pacific Islands Forum Leaders, through the Cairns Compact on Strengthening Development Coordination (Forum Compact), committed to improving the coordination and use of government and donor resources available in their countries, to better achieve the Millennium Development Goals (MDGs). The peer reviews of Forum islands countries’ systems and processes for planning, budgeting, and public financial and aid management, is a key Forum Compact initiative. The Republic of Palau is the tenth Forum Island Country to volunteer to the Peer Review process, which was undertaken in May 2012. As an upper middle-income country, with one of the highest per capita incomes in the Pacific region, Palau is well on track to achieving most of its MDGs, by 2015. While Palau’s development and economic indicators are good, it is conscious of a few challenges that it needs to address such as planning for annual reductions in expenditure, with the gradual phasing out by 2024 of the financial component of US Compact assistance. Therefore, this peer review has been a valuable exercise to assist Palau on its journey towards self reliance, good governance and accountability, and improving the quality of life of its people. Overall, the Report highlights Palau’s good performance on economic, social and environmental development. It offers 14 recommendations to bring together Palau’s existing systems and processes and to make more effective use of available resources. The challenge facing the Government of Palau is to consider how best to implement the recommendations and continue to reform its systems, with the assistance of development partners. I wish to thank the Governments of the Republic of the Marshall Islands, Tonga and Australia for their continued support and commitment to improving development effectiveness in our region, by allowing senior officials from their governments to serve on the Palau Peer Review team. Mr President, I assure you that this report comes with the Forum Secretariat’s firm commitment to the Government of the Republic of Palau to facilitate the support from the governments and development partners in the region to implement and monitor the progress of your Peer Review recommendations. Tuiloma Neroni Slade Secretary General Pacific Islands Forum Secretariat viii ix Palau Forum Compact Peer Review Report Palau Forum Compact Peer Review Report Introduction 1. The Forum Compact on Strengthening Development 4. Palau has an elaborate governance system, patterned on the Coordination in the Pacific is a development compact agreed American model in which the National Government is responsible by Forum Leaders and endorsed by key development partners for national public services while States have the authority to at the Pacific Islands Forum Leaders’ annual meeting in Cairns, impose and collect state fees or levies for maintaining state August 2009. The Compact sets out collective actions by services. A Council of Chiefs, drawn from traditional chiefs, Forum Island Countries (FICs) and development partners to advises the executive branch on matters concerning traditional strengthen coordination and the use of development resources customs and culture. There are 16 States, which form a second at the national and regional level. The actions taken are in tier of government each with its own legislature and Governor. line with international best practices as expressed in the Paris The National and State legislatures consist of two chambers, the Declaration on Aid Effectiveness, the Accra Action Agenda, the House of Delegates and the Senate. Legislative power is vested Busan Partnership for Development Cooperation and the Pacific in both the executive administration and congress. Therefore, Principles on Aid Effectiveness. the power of the legislature to approve budget expenditure and/or key policy measures can potentially lead to protracted 2. Peer reviews are a key part of this package of development negotiations between the executive and legislature branches, coordination initiatives. They review and focus action on ways impacting on the timely implementation of programmes. Given that FICs, with support of development partners, use their