The Asian Development Bank (ADB) revised its economic growth for Palau for 2018 to 3 percent to 1 percent due to a slow down in Palau’s recovery in tourism adding that 2019 economic performance is also projected lower “due to uncertainties surrounding tourism.”

The third quarter of Fiscal Year 2018 has posted a 9.8 percent drop in tourism arrivals in Palau, making three consecutive years of visitors decline slowing down the country’s recovery from tourism downturn and affecting its economic growth, according to the latest ADB Economic Outlook 2018 update.

The report stated that the recovery from tourism declines “has been slow and uneven” which contributes to a decrease in growth projection for FY 2018.

The economic outlook report also noted that the Chinese and Japan markets, “the two largest sources of tourists in Palau—recorded the sharpest declines, with arrivals from Japan hit by the termination of Delta Air Lines flights from Tokyo in May 2018.”

The indefinite suspension of Palau Pacific Airways (PPA) of operations in July has also “sharply reduced passenger numbers and caused mounting financial losses for the Koror-based carrier.

Despite the downturn, the report said the private and public investments in Palau will help prevent further decline in economic growth.

ADB has previously forecast a 3 percent growth for Palau for FY2018, but with the ongoing tourism decline, it cut its projection at 1 percent growth.

ADB said economic growth for FY2019 is also projected lower due to “uncertainties surrounding tourism, growth is similarly projected lower in FY2019 than previously forecast.”

Inflation in the first three quarters of FY2018 averaged 1.7 percent year on year, pushed up by higher costs for imported food and beverages.

But “ a likely slowdown in tourism and economic activity in general” will bring the inflation rate.

The report also said that Palau’s weak tourism  “is seen to widen current account deficits with tourism receipts likely falling below expectations, surpluses in the service account will offset a smaller fraction of Palau’s persistently large merchandise trade deficit.”

The ADB also revised account deficit projections from 16 percent Gross Domestic Product (GDP) to 20 percent for FY2018 and 2019.

As a small nation, Palau imports more products that it exports.

Earlier, Finance Minister Elbuchel Sadang said construction boom in Palau is seen as driving economic growth for 2019 despite a slight tourism slump in 2018, according to the country’s next fiscal year’s economic outlook.

The 2019 economic outlook, which was submitted with the proposed Fiscal year 2019 spending package, stated that next year’s economic development is expected to be “favorable,” projecting an economic growth of three percent.

Ongoing infrastructure projects will spur the growth and contributed to an increase in labor demand.

In the face of a decline in tourism activities in 2018, Palau is anticipating a rebound in tourism and this will be reflected in the anticipated hotel occupancy tax projected revenue of  $4.9 million. According to the projected revenues, the Palau Pristine Environmental Fee (PPEF) is also expected to bring in $2-6 million in 2019.

Sadang also said the tourism decline, however, did not impact revenues.

Visitors spending are up, he said as reflected by the increase in collection of gross revenue taxes, exceeding target collection by 17 percent as of August 31, 2018.

The government also projected a three percent economic growth for Palau for Fiscal Year 2018. (Bernadette H. Carreon)