GAO: CNMI stuck in fiscal quagmire

The once lively district of Garapan is now a ghost town. Photo by Mar-Vic Cagurangan/Pacific Island Times

 By Jayvee Vallejera

By all measures of economic standing, the CNMI’s fiscal condition is very dire, made worse by a struggling tourism industry, slowing federal aid and persistently weak financial management practices, according to the Government Accountability Office.

The CNMI’s tourism-reliant economy has limited prospects for recovery and the challenges to meet its financial obligations have deepened, GAO stated in an economic outlook report released this week.

With the Trump administration’s penny-pinching, the CNMI cannot rely on federal aid, which was its lifesaver during the pandemic years. In 2021, federal grants accounted for 74 percent of the government’s revenue source.

The CNMI government owes millions; its only industry, tourism, has not recovered after a steep drop during the Covid-19 pandemic; its population is shrinking; and the much-touted infusion of military dollars is being hampered by the lack of skilled workers that would have meant spades on the ground and therefore more money for the CNMI economy.

The number of visitors in 2024 did increase to 228,963 from a 2021 low of 12,684, but remains well below the pre-pandemic levels, which were nearly 500,000 in 2019.

The economic impact of tourism losses was made worse by the closure of the Imperial Pacific Casino in March 2020 after three years of operation and the July 2024 closure of the Hyatt Regency Saipan.

 “According to officials, decreased revenue led to the Hyatt’s closure. Officials stated that the recent closure of the Hyatt is likely to have negative spillover effects on the island’s economy,” GAO said.

The CNMI requires at least 500,000 visitors annually to ensure economic stability and prevent future hotel closures. 

CNMI officials believe the increasing number of people leaving the islands and therefore the loss of so many skilled workers are immediate challenges to the CNMI’s economic recovery, GAO said.

According to GAO’s analysis of the CNMI’s most recent available financial statement, which is way back in fiscal year 2021, total outstanding public debt was $121.1 million, about 13 percent of the GDP for that fiscal year.

“This reflects an increase of 12 percent from $108.5 million in 2019,” GAO said.

GAO said the CNMI continues to struggle to finance its pensions, and its pension liabilities represent a fiscal risk. The CNMI reported a net pension liability of $440.8 million as of Sept. 30, 2021. That amount is about 49 percent of the territory’s GDP. 

GAO said the CNMI was forced to borrow $24.3 million from the Bank of Guam in 2020 to pay its required pension contribution that year. In November 2024, the CNMI secured a second, larger loan ($51 million) from the Bank of Guam to cover its minimum pension contribution for fiscal year 2025 and settle the balance of its first loan.

“Officials told us that efforts to diversify the economy through military investment have been impeded by the lack of available skilled local workers,” the report states.

GAO noted that the CNMI has serious and long-standing issues with the timeliness of its single audit reports and the reliability of its financial statements.

The CNMI’s single audit reports have been increasingly delayed since fiscal year 2018. Its most recently available reports, for fiscal year 2021, were issued more than 25 months late.

Also, independent auditors continue to identify a number of serious audit findings and a substantial amount of questioned costs associated with its federal award programs. If those questioned costs remain unresolved, that means the CNMI will have to return that money.

This will cause further financial strain for the territory, GAO said.

“CNMI officials foresee persistent challenges affecting their ability to issue timely financial statements in the future, specifically related to recruiting qualified staff and funding financial management system upgrades,” GAO said.

That’s a cycle that could eventually hurt the CNMI. Without current audited financial statements, the territory will struggle to reestablish a credit rating and access capital markets. That means putting the central government’s plan to float a bond to fund the CNMI’s pension liabilities at substantial risk.

CNMI officials informed the GAO that they were working to reestablish access to capital markets and to issue bonds to cover the government’s minimum pension contribution for fiscal year 2026.

The target date for this is September 2025, but the GAO said the issuance is more likely to occur in January 2026 because the CNMI does not have an active credit rating. To achieve that, however, it will first need to issue its audited financial statements for fiscal years 2022 and 2023.

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