Palau Correspondent

KOROR, Palau — President Surangel S. Whipps Jr. submitted Palau’s fiscal 2022 budget to Congress on July 12, while the economy is still expected to reel from the effects of a closed republic.

“Our tourism-based economy continues to be battered by the COVID-19 pandemic,” he wrote in his accompanying letter to congressional leaders. “Though I am optimistic that the coming months will offer opportunities to reopen with care, it will take time for our economy to recoup all that we have lost.”

The proposed financial package authorized $89 million, but only appropriated $82 million for government operations. The 2022 proposed budget is 14% below fiscal 2021’s, which was $103 million.

  The shortfall was expected.

  Palau’s government operations continue to be funded by what Whipps calls “borrowed money.”

  The proposed budget bill projects $48 million to be sourced from local revenue, and $34 million expected from external sources. From that $34 million, $19 million will be from the Asian Development Bank’s Policy-Based Loan and $15 million will come from the Compact Trust Fund, according to the Fund Availability Analysis Report.

  The debt service expense goes up by 18% in the fiscal 2022 proposed budget, from $2.9 million in 2021 to $3.47 million in 2022; the increase is to help pay for the ADB loan.

Whipps also urged lawmakers to pass the tax reform bill together with the budget measure. The tax reform bill is one of the conditions of receiving the ADB loan.

“The fiscal 2022 budget bill is based on revenue projections from the current tax structure and anticipates $15 million as the last installment of the ADB Policy-Based Loan.

“In addition to the revenue benefits inherent with the passage of the tax reform bill, it is time for us to transition from our antiquated system and bring equity to our tax structure,” he said.

  Figures for government expenditures will remain similar to 2021 numbers, but cuts were made in subsidies to the Palau Public Utilities Corp.’s pension plan and Social Security contributions; the subsidy will be reduced from $3,908,950 to $1,955,000, a 50% reduction, if the proposed budget bill passes.

The president’s version of the budget measure also proposed the removal of $1 million for the utility corporation’s Lifeline Subsidy. mbj