Asian Development Bank presented a draft report to Palau’s national leadership on Wednesday, January 22, of a study it commissioned for the three Freely Associated States (FAS) including Palau. The study looked at economic trends of the three countries over the past Compact periods, impact of each country’s Compact on their economy and the potential outcomes of the next compact review with United States by the each of the three countries based on three possible scenarios.
The report is not meant to advise the FAS country on what to do according to the presentation by the ADB but to provide information that all parties including United States have to know when they do begin negotiations.
For Palau, the study looked at the initial Compact period from FY 95 to FY 09 and Compact Review Agreement Period (CRA) from FY 10 to FY 24. It looked at Compact money transfers during these periods, GDP growth during the same period, Compact transfers as part of the GDP over the same periods and population out-migration over the same periods.
Looking at the data and economic trends, the study shows different outcomes based on loss of compact transfers, country’s adjustment to compact extension, and country’s preparedness for potential shocks.
In the report, it showed that Palau had achieved positive economic growth over the 24 year period while receiving less inreal transfers from the Compact. In other words, Palau’s economy has grown over the years despite declining funds from the Compact.
Furthermore, the report shows that Palau’s dependence on Compact transfers have been declining and is expected to further drop to 5% by the end of the CRA period.
Out-migration of Palauans is expected to continue through to year 2024 with estimated 7,974 leaving the island. Palau’s out-migration is estimated to be at 1.7% annually.
Despite positive outlook, especially compared with other FAS countries, the report notes that Palau’s economy is greatly dependent on tourism. Due to the volatile nature of tourism industry and the vulnerability of Palau to severe climate impact, Palau needs to have fiscal policies that build resiliency against economic volatility and environmental vulnerability. Fiscal policies are recommended to be institutionalized.
President Remengesau revealed that United States have recently expressed desire to start negotiations as soon as possible. Although, he believed this was not possible, he said the report helps Palau greatly in its preparation for the negotiations. (L.N. Reklai)