Palau’s economy suffered a slight contraction during Fiscal Year 2017, attributed to the ongoing tourism slump according to the latest Asian Development Outlook for 2018 released yesterday.

However, the report projected a gradual tourism recovery for Fiscal Year 2018 and 2019 but stated that China’s restrictions on groups tours could affect the numbers of Chinese tourists visiting the country.

“Gradual recovery in tourist arrivals is foreseen, but there is a risk that numbers could continue to fall because the People’s Republic of China has imposed restrictions on advertisements for group tours to destinations not formally approved by the government,” it stated.

The report stated the “tourism downturn in Palau worsened, pushing the economy into a contraction of 0.5% in FY2017.”

It noted that Palau’s growth suffered a slight downturn due to declining tourist arrivals. Tourism fuels Palau’s economy noting that in 2017, tourist arrivals fell by 22.8 %, compounding a 13.1% decline in FY2016.

The closure of Jellyfish Lake and appreciation of the US dollar, according to the ADB were two of the factors attributed to the downturn.

The report added that although the number of tourists from the People’s Republic of China, by 26.8%, accounted for much of the decline, arrivals from traditional markets also fell, with Japan down 22.4% and Taipei, China down 43.2%.

Palau’s fiscal surplus similarly narrowed to the equivalent of 4.0% of GDP, from 4.7% in FY2016.

It said that the decrease in tourism sharply dragged down revenues. This contrasted with the previous year when tax revenues increased despite weak tourism because the downturn was concentrated in lower-spending market segments.

ADB also noted the slow implementation of projects funded by development partners worsened the downturn of the growth.

The report, however, said that Palau is likely to return to steady, moderate growth in FY2018 and FY2019, which will be due to private investment in new hotels and of public infrastructure projects funded by development partners.

The report also projected that expected recovery in visitor arrivals should boost tourism receipts. (Bernadette H. Carreon/Contributor)