Palau Private Sector Assessment recommends solutions

By: L.N. Reklai

June 2, 2016 (Koror) “The deck is stacked against Palauans,” stated Paul Holden, Lead Economist of Pacific Private Sector Development Initiative during the presentation of Palau Private Sector Assessment Report.

Limited access to finance, difficulty in starting a business and poor performance of State owned telecom enterprises are noted as obstacles against Palauan entrepreneurs.


Interest rate ceiling on lending to businesses is cited as a major contributor to foreign banks not lending to businesses. “They cannot charge interest rates that reflect the riskiness of lending,” the report states.

This means that the international banks are sending large percentage of reserves outside the country and lending only small portion locally.  Current law puts a ceiling of 2% above U.S. prime rate as the maximum that foreign bank can charge for commercial loans.

The report further recommends replacing current Gross Receipt Tax with Value Added Tax regime.  “Gross Receipt Tax has severe distortive effects on the way resources are allocated in Palau,” added report.

To address the “front” issue, the report calls for an electronic business registry where all business details are registered in an electronic system registry.  Enforcement of existing laws and regulations, can also resolve many of current tourism related challenges Palau faces, stated Holden. [/restrict]