Latest Economic Brief by USA Graduate School on the impact of the COVID-19 pandemic on Palau’s economy indicates that the impact is not as severe as predicted but the economic recovery will take longer than expected.
Report showed that even though private sector bore the brunt of the economic impact with tourism literally drying up in FY 2020 and construction projects reduced, government assistance such as CROSS Act, foreign assistance like CARES Act and loan financing from ADB, made the impact less severe than earlier predicted.
Government temporary re-employment program mitigated the projected job losses. Private sector retained their employees on reduced hours with assistance of government support.
“Mitigation programs had large beneficial impacts on household incomes. Without the CROSS and CARES mitigation programs and unemployment benefits, household incomes were projected to have fallen by 11 percent, FY19-FY21, resulting in rising levels of poverty in both the Palauan and foreign sectors of the workforce,” states the report.
Furthermore, it stated, “Overall, the magnitude of the coordinated government and donor response has been both timely and significant. The government and donor community should both take credit for rapid and apparently effective mitigation efforts.”
Report also noted that Palau’s prudent fiscal from 2014 to 2018 which reported annual surpluses helped to cushion the impact of COVID-19 but with tourism recovery expected back by mid 2022 to 2023, Palau will need about a $86 million in financing or 36% of total GDP to finance the government through the crisis.
To obtain this necessary financing, Palau will need to adopt necessary policies including Fiscal Responsibility Law, External Debt Management and the adoption of the new tax reform among others. Under the policy based loan, Palau will need to adopt the tax reform bill in order to access remaining loan to finance the FY 2022 budget shortfall.