The COVID-19 Impact Mitigation Working Group consisting of the private sector and public-sector representatives presented their initial assessment of the economic impact of the COVID-19 pandemic to Palau’s national leadership yesterday.
Based on the preliminary assessment report, Palau’s government is expected to lose $45 million dollars over a two-year period, FY 2020 and FY 2021. Loss of revenue as a result of COVID-19’s considerable impact on the tourism industry and related services. The expected loss this fiscal year is $17 million and $28 million for FY 2021. This loss excludes the cost of health and relief efforts currently undertaken to address COVID-19.
The report further predictsPalau’s GDP to decline by -23% over the next two fiscal years, with the expected loss of -10% for FY 2020 and -13% for FY 2021. Tourism will take a while to rebound as the pandemic is impacting the entire world and recovery will take some time, according to Minister of Finance Elbuchel Sadang. Palau’s economy is expected to take some time to recover as a result. In contrast, ADB had,before COVID-19,forecasted Palau’s GDP growth for FY 2019 to be -5% and 2% for FY 2020. Based on the COVID-19 Impact Mitigation Working Group, the projection for this FY 2020 will be -10%, a far cry from the positive 2% growth earlier predicted.
Consequently, the government will need to readjust its budgets for FY 2020 and FY 2021 and based on the current impact forecast, the adjustments will require external financing, according to the group.
Measures recommended addressed government revenue, expenditures and financing and relief measures for businesses and individuals.
On government revenue measures, it urges careful consideration of “preserving existing revenue base”. Not all sectors are affected and demand for relief measures is expected to require funding from already reduced government revenues. One possible solution is to increase and accelerate infrastructure investments, increasing construction activities.
On expenditure, it recommended that existing government services continue in order to support private sector service and assure tax revenue for the government. Measures also include assistance to affected households and businesses. What these specific assistances maybe are still to be worked out.
Minister Sadang said that some assistance can be provided by different ministries based on existing policies but some assistance will require enabling legislation. An example given was extending some tax relief measures to businesses which can be done by the Director of Revenue & Taxation.
“There is no one size fits all solution so tax relief measures must be targeted to affected businesses and individuals,” asserted the report. Many different recommendations were offered to address different needs.
Both Senate President HokkonsBaules and House Speaker Sabino Anastacio gave their assurance that they are ready and awaiting recommendations on what needs to be done to help at this time.
General consensus from the national leadership was to look for financing from outside sources rather than using up current resources to help mitigate the impact of COVID-19.
Details on what specific assistance will be offered are not known at this time. This will be revealed once leadership have agreed to them but some that can be addressed under current laws will be announced.