Palau Correspondent

This children’s playground in Koror is one of several public facilities that remain closed in Palau.

Photo by Richard Brooks

KOROR, Palau — The Palau government will tap into the financial packages being offered by multilateral banks and international donors to cushion the nation from the economic fallout of the coronavirus.

Presidential Press Secretary Olkerril Kazuo said legislation is being drafted to authorize the president to take out loans to soften the blow of the coronavirus impact to businesses and government operations.

According to a March 31 assessment on the Impact of COVID-19 to the Palauan economy by the Graduate School of USA and Economic Monitoring Analysis Program, there is a financing need of about $46 million through fiscal 2021.

The assessment forecasts there will be a deficit of $18 million in fiscal year 2020, widening to a deficit of $22 million by fiscal 2021.

It is also expected that total tax revenue will fall by $11 million in fiscal 2020 and a further $19 million in fiscal 2021. 

 The report credited Palau for its strong fiscal position having $31 million in deposits and more than $20 million in reserves available for emergency purposes, but the impact of COVID-19 will be “larger than previous shocks; thus, a fiscal response will need to be designed and implemented on an urgent basis,“ the assessment stated.

 While deposits and general fund reserve provide some cushion to fund the fiscal gap, that will not be enough.

“…. scope for support from this source is limited and the government cannot operate effectively on a zero-balance account,” the report said.

The assessment added while some grant assistance is available for Palau — such as the ADB Asia Pacific Disaster Response Fund — the nation should consider a loan to bolster its defenses against the economic impact.

It further added that the World Bank and the IMF could also be approached for lending activities directly responsive to the cyclical deficit challenge.

Palau can also look to Taiwan as a valuable partner in the COVID-19 crisis.

The assessment said that given the need of the nation to  preserve economic and financial stability, “a $25 to $30 million standby facility, coupled with additional timely support from Palau’s donor partners, could provide the comfort and counter-cyclical stimulus that Palau needs to be able to manage the projected resource gap and economic impact of COVID-19.”

Although Palau has no confirmed COVID-19 cases, the impact of the pandemic to the tourism-reliant economy would be staggering.

 In fiscal 2019, Palau had 90,000 foreign visitors, with the tourism sector contributing 20% to its gross domestic product.

The employees in the tourism sector will also be hardest hit with job losses, as 20% of all workers are employed in tourism-related activities.

Tourism numbers dropped by half in February and significantly more in March.

With termination of flights for the month of April, the review forecast that for fiscal 2020 there will be only 44,075 visitors, which represents a 51% reduction from fiscal 2019.

The assessment also predicts a bleak tourism number still by FY2021.

It has further assumed fiscal year 2021 travel restrictions will remain in place and the overall number of visitors to Palau will remain negligible.

“With people still going to be afraid to travel,” the projections assume visitors for fiscal 2021 with being further reduced by 89 percent reduction compared to the same period of fiscal 2020. mbj