In some cultures, people predict the future by killing animals such as chickens or goats and look at the guts or stomach contents to see what the future may hold. Thankfully, that particular process will not be necessary in this case.
The feeling in my gut tells me that this new year, 2022, will be the worst year for Palau in terms of financial well-being compared to 2020 and 2021. These come from my observations and assumptions from reports such as the Palau Economic Brief FY 2021, Budgets of 2020, 2021, and 2022 and news from around the world.
To unveil the mystery behind my gut feeling, we will look at some of the reasons why I believe in a bleaker 2022. In 2020 when the COVID-19 was first announced as a pandemic and Palau closed down its borders, Palau lost 100% of its tourism industry but the loss only start occurring in March of 2020. The losses in FY 2020 were mitigated in part by CROSS Act, a $20 million relief package that provided temporary jobs for those who lost their jobs, for businesses affected by the pandemic, unemployment benefits, and power utility subsidies. External assistance such as grants and aids from donors and allies also helped. In July of 2020, Palau began receiving the Pandemic Unemployment Assistance from the United States CARES Act. The original amount of the grant was $19.7 million and by August of 2020, $11 million has been disbursed to 1,300 people flowing into the local economy.
Palau government had projected $66 million in revenue for FY 2020 but by July of 2020, with only 65% collected, the government revenue was short $23 million and used a loan and Reserve Funds to fund the budget shortfall. Loan financing, CROSS Act, CARES Act, plus construction projects such as the completion of Global Village made 2020 less painful than expected.
For FY 2021, construction slowed, tourism did not return for the entire year and reserves from FY 2020 plus external financing went to fund the budget. Fortunately, WIOA pandemic unemployment benefits continued under the CARES Act Extension and the enactment of the America Rescue Plan. Both continued to pay pandemic unemployment assistance to 1,200 individuals while CROSS Act funded the employment of over 2,200 individuals. By the end of FY 2021, over $32 million from both US pandemic unemployment assistance programs and about $11 million from CROSS Act have gone into the local economy.
Donor funding for COVID-related assistance flowed into the economy as well in 2021. The growing presence of the US military also contributed to the local economy. 2021 was not as bad as expected.
Public sector employees were not affected in both 2020 and 2021. There were no reductions or cuts to public employee salaries. Despite some individual hardships, the overall feel was that it was not as bad as anticipated. Records of funeral collections nearly every week, show collections over $50k to over $100k. Most were closer to $100k.
When we entered FY 2022, we still had WIOA disbursements ongoing due to slow processing and earlier disruption of WIOA operations. But the remaining funds under the American Rescue Plan are set to be disbursed by the end of this 1st Qtr. of FY 2022(December 2021). The 1,200 that were getting money from WIOA will no longer receive unemployment assistance.
Moving into the calendar year 2022, WIOA will be disbursing money to those who were earlier rejected by the program, an estimate of about 400 people. The good news is that the reimbursements of the income tax and social security deductions of 1,200 people that were receiving benefits will be disbursed this 2nd Qtr. (between January to March) of this year.
CROSS Act will also continue until March but the number of individuals under the program has dropped to below 800. This means that by 3rd Qtr. of 2022, the number of people that will be without steady income could be anywhere from 1,200 to 2,000. The government is aggressively trying to match these unemployed with employers but not many businesses are up to hiring employees as many businesses are still closed or have reduced operations.
Tourism is starting to pick up but Palau’s key markets, Japan, Korea, and China are still close with no direct flights to Palau. Taiwan is open but the number of visitors is less than half of their previous numbers. With new variants of COVID out there, low vaccination rates in Palau’s key markets, the recovery may not be fast enough to offset the loss of the US pandemic assistance.
Many foreign employees have been repatriated home since 2021. This is reflected in the reductions of payments to the Social Security Administration and Healthcare Fund. It is also reflected in less income tax collected. That’s fewer people spending locally and fewer people paying into our social security systems.
The government has a budget for this FY 2022, funded in part by the last concessionary loan from ADB and Compact Funds. It is expected to cut costs, keeping 10% below its authorized expenditures.
What do these all mean, you ask? Well, think of a large pizza shared by 10 people. The size of each slice will be big but let us say that same pizza is reduced to a size small, but still shared by 10 people. The sizes of the slices will be quite small. This is too simplistic an example but it is my gut feeling for this new year. There will be much thinner slices for everyone.
Now, it may not turn out as bad. Earlier projections were grim but as it turned out, the injection of US pandemic employment assistance and the CROSS Act helped mitigate the impact on our economy and our people’s livelihood.
Perhaps the tourism recovery plan will work better than expected. There may be other factors not yet known that will come in to help us keep afloat until full recovery occurs but until then, my gut feeling says it is going to get worse before it gets better.
So, cut your costs, prioritize your expenses, hold on to your savings and pray for the best. Until then, Happy New Year to all and Best Wishes! Or maybe I’m just be hungry, I don’t know.