Palau – The Koror State government’s financial position continues to decline as tourism recovery is still at 30% of what it was in 2019, before COVID-19. With a slow tourism recovery, the Koror State government has resorted to using its Reserved Savings to subsidize government operations and at the current rate, savings will be depleted by FY 2025.
Over 60% of Koror State’s revenue comes from tourism fees and the COVID-19 pandemic shut down that revenue stream. Koror State has been drawing money from its Reserve Savings to balance its budget since 2021 and based on its projection, the Reserve Savings will be zeroed out by FY 2025. Based on the financial projection it provided to the National Ministry of Finance in March of this year, by FY 2025, it will have a budget shortfall of $3.6 million but will only have $1.58 million left on its Reserve Savings to cover nearly half of that shortfall.
In his letters to Congress, Koror State Governor Eyos Rudimch reported that they have implemented cost-cutting measures while ensuring the maintenance of essential services and have resisted laying off people as much as possible, seeking to minimize the economic and social impact on the people employed by the State. But he said, given the current conditions, he may not have a choice unless they can find money to help the State budget until the expected full recovery in 2025.
Koror State has been seeking Olbiil era Kelulau’s authorization to borrow $15 million to cover expected budget deficits since 2021. The approval has not moved until now with draft House Joint Resolution No 11-32-7S, SD1, transmitted to the Senate in May 2022 and is finally being addressed in the Senate.
The House version approves and authorizes the Koror State Legislature to borrow $15 million of soft loans to sustain Koror State operations in FY 2024 and FY 2025. Article XI, Section 4 of the Palau National Constitution says the State Legislatures shall have the power to borrow money to finance public programs with the approval of the national congress.
The Senate version of the joint resolution changed the borrower to Koror State Government, reduced the amount from $15 million to $10 million, and required that loan documentation be provided before the final approval of the Olbiil Era Kelulau.
Senate Ways & Committee report stated that the Committee had requested the loan documentation from the Koror State Government on numerous occasions but had not received any such documents.
“Your Committee considered this loan documentation to be of vital importance in consideration of this important matter. Fifteen million dollars is a significant sum, and approval of such a large amount clearly depended upon Koror’s ability to service the loan and to use the proceeds effectively.” Senate Ways & Means Committee Report November 21, 2023.
Based on the Senate Committee Report, the Minister of Finance had indicated that Koror State could obtain a loan through the Asian Development Bank under similar terms as PPUC and that the National Development Bank of Palau was agreeable to providing the funding until the loan is secured.
Senate Committee on Ways & Means insists that a loan document with terms and conditions be provided before OEK gives its approval to Koror State to borrow the funds to support its operations.