Koror State is seeking to lease Ngerchong Island to the highest bidder to raise revenue to address the dire financial crisis brought about by the COVID-19 pandemic and slower-than-expected tourism recovery.
A resolution passed by the 12th Koror State Legislature urged Governor Eyos Rudimch to work with Koror State Public Land Authority to seek “potential investor (s)” to invest in “an upscale resort” and marina facilities at Ngerchong Island and pay competitive rent, “stimulate the economy and generate tax revenue” to Koror State Government.
“Through Koror State leadership meetings, it is apparently clear that Koror State Government is experiencing financial difficulties due to the setback and the extremely slow recovery of Palau’s tourism industry resulting from the COVID-19 Pandemic that created economic disruptions throughout the world, including Palau,” states the KSL resolution.
In addition, the resolution said, “Faced with financial hardship, the Koror State Government has requested approval from the National Government to borrow money to support its budgetary shortfall, but such request has encountered delay due to extremely slow response from the National Government.”
The State Legislature is responsible for exploring other options, and in this case, it’s requesting the Governor and Koror State Public Land Authority to lease Ngerchong Island, seeking a new source of revenue for the state.
Koror State’s annual budget this year is approximately $9 million; of that, $5 million is funded by the State’s reserves savings. Koror State has been dipping into reserves to balance the budget since 2021. At the current rate of withdrawal, the reserve fund can be exhausted by the year 2026.
Prior to 2020, tourism revenue represented over 60% of the total revenue collected by the State. This revenue source dried up in the 3rd quarter of 2020, the entire 2021, 2022, and is slowly coming back in 2023, although barely reaching 20 percent of the 2019 numbers.
“Recovery has been very slow. We can see some slight tourism activities, but they are not enough…we are hoping that with all the activities by the ROP, we will see more visitors,” said Governor Eyos Rudimch of the tourism forecast for Koror State.
Koror State has been asking for the national government’s approval to get a loan. They obtained technical assistance in 2021 to help them put together the needed information for a loan package. Governor Rudimch said they’ve been asked again to provide documents and applications for the loan. He said that is taking a while, which is probably why the Koror State Legislature is looking for other options.
An earlier report by Koror State shows projected budget deficits at -$4.4 million in FY 2023, -$3.9 million in FY 2024, -$3.6 million in FY 2025, and -$3.2 million in FY 2026. Drawdown from the State’s reserves shows a declining amount each year, and by FY 2026, the State cash reserves will be zero. In fact, for FY 2025, the remaining cash reserve will be $1.58 million while the budget deficit will be -$3.6 million, leaving Koror State short of -$2.02 million to meet its operating expense.