President Surangel Whipps Jr. announced that his government is working to reduce debt and has laid out plans to pay it down.
During his State of the Republic Address, Whipps highlighted that Palau inherited over $164 million in debt when he took office.
“Debt was a significant challenge at the start of our administration, a situation further exacerbated by COVID-19. When we took office in 2021, we inherited more than $164 million in debt,” he noted.
Of the total debts, $38 million was a high-interest loan used for upgrading the national airport. In comparison, $15 million was a USDA loan to the Palau National Communications Corporation (PNCC) at a 5% interest rate.
Whipps pointed out that Palau also incurred debts to maintain government operations and to support small businesses and individuals who lost jobs during the COVID-19 pandemic.
Additionally, he mentioned the burden of pension and social security funds that were at risk of insolvency.
To mitigate some of this debt, the government reached out to the USDA and successfully reduced the interest rate on the loan to 3% in 2022.
Furthermore, they collaborated with PNCC to secure a $36 million USDA grant, helping the telecom provider bring fiber network access to homes in Palau.
He also stated that the U.S. Congress provided an additional $15 million to upgrade and clean the mobile network infrastructure of Huawei and ZTE.
“Given the size and impact of these loans, Chief Negotiator Minister Kaleb Udui Jr. negotiated a Compact Review Agreement that includes $10 million per year for six years to help pay down these debts,” he explained.
“This strategic move underscores the importance of establishing a debt management office to pay down expensive debt and develop a sustainable strategy for managing our financial obligations.”
Whipps mentioned that they have also appealed to the United States for an additional $20 million to strengthen fiscal stability further, but those funds are still on hold.
His government plans to secure loans with low interest rates, such as the 1% loan from the Asian Development Bank (ADB) for Koror State and a 2.5% loan from Saudi Arabia.
“This debt consolidation strategy is critical for ensuring sustainable debt repayment that doesn’t burden future generations,” he emphasized.
A recent World Bank report indicates that Palau’s debt levels are considered high relative to its GDP. The COVID-19 pandemic and subsequent economic downturn led to increased borrowing, resulting in a total debt-to-GDP ratio of almost 92%, according to the World Bank.