Palau’s Minister of Finance Elbuchel Sadang is confident that Palau’s economy will weather out the impact of corona virus nCoV threat.

The suspension of direct flights from China for the whole month of February, which is normally a high season for China’s tourism market, translates to about $142,000 loss in government revenue this February.

“Taking this action to stop direct flights from China is better for Palau and the loss can easily be recovered. If we don’t take this action, the cost could be much higher for Palau if one case is reported here,” stated Minister Sadang in an interview with Island Times.

The $142,000 revenue loss estimate is based on the one airline currently servicing this route, number of passengers per month, number of flights, length of stay, visitor nights, number of room sold and average room rates.  The estimate also takes into account business gross receipt tax, PPEF and airport fees and charges.

Last year February, Palau received 4,070 visitors from China, a number nearly double that of Japan, the second largest visitor market with 2,040.  The loss of high number of visitors from China does not bother Minister Sadang who said that the numbers do not necessary translate to high revenue.  “For example,” he said, “their tourism numbers dropped by 25% but the drop in revenue was only 8%, meaning that either they don’t spend much here or taxes are not reported properly.”

“We can easily recover this loss in other areas or in a worst-case scenario, we can cut expenses to balance the budget,” added Sadang.

Corona virus nCoV is expected to impact the travel industry, not only in Palau but around the region where recently Chinese visitor market have grown exponentially.  It is expected to affect other markets such as Japan and Taiwan as travelers seek to avoid crowded areas due to fear of exposure to the virus.

The nCoV threat is also putting global markets on edge, with U.S. Equity markets dropping according to press release from Raymond James Pacific Group.  Raymond James and Associates Asia Pacific Group, Palau’s current COFA Board of Trustees Adviser says the volatility is short term and that they remain optimistic about 2020.

In FY 2020 Unified Budget, it identified $15 million from COFA as revenue source.  Latest report from the 1st Quarter of this FY 2020 showed that the government collected 23% of the projected revenue and this did not include COFA draw down. “We did not need the fund because we collected enough to cover the 1st Quarter expenses,” stated Sadang.  “We will not draw down the fund unless we need to because we want it to gain interest income,” he added of the invested Compact Trust Funds.  To what degree the COFA investments will be affected is still to be seen. “While volatility is likely to continue to weigh on these sectors in the near term until the virus is contained, overall, we remain constructive in our 2020 outlook. Moreover, some consolidation in the near term may present opportunities to accumulate favored sectors,” stated Raymond James & Associates Pacific Group.

Sadang remain confident saying that activities such as national construction projects and Our Oceans Conference 2020 among others will contribute to Palau’s positive outlook for 2020.

Palau has taken steps to prevent entry of virus to Palau by suspending all direct flights from China and working closely with CDC and WHO, to monitor and implement measures to prevent introduction of the virus to Palau. (L.N. Reklai)