President Surangel Whipps Jr. said the government would like to avoid amassing big piles of debts to survive the COVID-related economic crisis.
Whipps told reporters last week that with the current debts that Palau has, It’s paying $6 to 7 million annually.
Palau’s external debts is close to $100 million but the government has been keeping the debt-to-GDP ratio at 30 percent.
President Whipps said the current amount of Palau’s debt is at 6 percent of the country’s annual budget.
Accumulating more debts, Whipps said also means an increased debt payment and a bigger chunk being taken out of the country’s annual budget.
“We have to balance that and not overextend ourselves,” Whipps said.
In a presidential directive last week, President Whipps said that a Fiscal Responsibility Network can strengthen the Public Financial Management with one of them is to manage debt prudently.
Finance Minister Kaleb Udui said Palau still has the ability to borrow additional funding.
“Whether we want to entertain those funding options or rather than tax reform is the decision that we have to make,” he said.
Proponents of tax reform said will improve efficiency and equity of the tax system;
According to the Asian Development Bank, the economy of Palau contracted by 13.8% in FY2020 (ended 30 September 2020).
“This is deeper than the earlier projection of a 9.5% decline in the July 2020 issue of the Pacific Economic Monitor—reflecting even stronger-than-expected adverse impacts of COVID-19 travel restrictions on business activity and household incomes. A further decline of 13.2% is seen for FY2021,” the ADB economic report stated.
It said with tourism unlikely to restart during this fiscal year tax collection will be constrained.
And additional borrowings could push Palau’s debt-to-GDP ratio to a peak of close to 80% in FY2022.
Hopes of reopening tourism however by FY2022 would result in a pre-COVID-19 level of debt- to- GDP ratio of about 30% by FY2030. (B. Carreon)

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