By: L.N. Reklai
International Monetary Fund (IMF) 2016 Article IV Consultation Report gave Palau a glowing report on its economic performance in recent years, especially FY 2015 where it pegged the growth at 9.4 percent.
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Growth is attributed to tourism arrivals and construction activities. The report also cited decline in inflation of 2.2 percent due to lower commodity prices and higher tourism receipts.
The country’s economic position is further strengthened by government’s “spending restraint and strong revenue growth” with expenditure dropping by 11% in FY 2014 to 5.5% in FY 2015, according to IMF. “Public debt remains moderate and sustainable,” stated the report.
According to the report, Palau’s future is looking well, with economic growth expected to slow down to zero in 2016 but rebounding in 2017 due to recovery of tourism and construction projects. The report expects inflation to remain at 2% and spending restraint to continue.
With the positive outlook, the report also cited risks Palau faced due to its heavy reliance on tourism, grants, external commodities and vulnerability to impacts of climate change.
IMF Executive Board recommends structural and fiscal policies to mitigate the potential risks. Some of the key recommendations include investing in infrastructures that supports tourism, establishing comprehensive tourism strategy, reform taxation regime to value added tax and strengthening civil service pension plan to reduce debt risk.
Economic diversification and improvement of business climate were cited at keys to boosting economic growth potential and reducing exposure to economic risks. [/restrict]