The Marshall Islands government has been given until February 2011 to table a detailed action plan to address declining U.S. aid.
At last week's annual US-Marshall Islands Compact funding review meeting, the Marshalls delegation failed to deliver on earlier resolutions.
Funding of service sectors in the Marshall Islands, like health and education, is heavily reliant on aid.
Our correspondent in Majuro, Giff Johnson, says it's a huge challenge for the Marshall Islands to have to face up to reality.
"We've had a report put together for the Cabinet detailing on how the government could cut back its spending while increasing the amount of money it puts in a Trust Fund, which is supposed to help the Marshalls get along when U.S. funding ends in 2023. Well all of these require hard decisions and cutbacks and changes in the way people are operating. It just shows you that the government really has not effectively addressed a lot of the reform."
Last week's meeting between the two countries approved an allocation of $33 million in grants.