Getting a $60million-dollar loan to help Palau mitigate the economic impact of the COVID-19 pandemic may require certain fiscal policy changes reported Minister of Finance Elbuchel Sadang.
On Wednesday, President Remengesau signed into law RPPL 10-55, the Presidential Borrowing Act of 2020, which authorized the President of the Republic to seek and acquire a loan of up to $60 million dollars from lending institutions or governments to address the “significant social and economic impact of COVID-19 on the Republic.”
Minister Sadang reported that they have been in communication with Asian Development Bank and the World Bank. Asian Development Bank has contracted USA Graduate School to conduct a study on the impact of COVID-19 on Palau’s economy to be used as basis for decision making. USA Graduate School conducted earlier preliminary assessment on the economic impact of COVID-19 on Palau which was also used as a basis to determine the amount of money Palau will need to offset its losses this year and FY 2021.
In addition to the study, Minister Sadang also said that there will be some fiscal policy changes such as tax reforms that may be conditional requirement for the loan.
The initial assessment made by USA Graduate School as well as the Joint Leadership Mitigation Impact Working Group indicated that Palau government revenue will face a shortfall of $17 million this year and $28 million next year. Both assessments recommended the use of external funding sources to fund budget shortfalls and mitigation measures.
The loan or loans acquired under the President Borrowing Act of 2020 will fund ongoing operating budgets of national and state governments this FY 2020 and FY 2021. Portion of it will fund relief measures for the private sector and “other areas of society affected by COVID-19”.
The loan will be guarantee under the full faith and credit of Palau government and will require authorization and appropriation by the national congress.