Republic of Palau: 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Palau

IMF Staff Country Reports, February 5, 2019

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Republic of Palau: 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Palau

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Bibliographic details

• Published: February 5, 2019
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9781484397916.002

Overview

• Consultation focus: ensuring long-term fiscal sustainability, making potential growth more resilient and sustainable, and preserving financial stability and facilitating credit extension.
• Main economic policy priorities identified:
  • develop a medium-term fiscal framework and strategy to help manage fiscal risks and the expiration of the Compact grants,
  • raise public investment,
  • protect social spending,
  • make growth more resilient and sustainable through other reforms,
  • preserve financial stability and integrity.
• Current fiscal policy approach: based on the legal requirement to maintain a balanced or surplus cash flow for various parts of the budget.

Key Findings

• The legal requirement to maintain a balanced or surplus cash flow has resulted in:
  • overall budget surpluses,
  • a decline in net debt.
• Despite current surpluses and declining net debt, transitioning to a medium-term fiscal framework and strategy is recommended to address future challenges, including managing fiscal risks and the expiration of Compact grants.

Policy Recommendations

• Develop and implement a medium-term fiscal framework and strategy to:
  • manage fiscal risks,
  • plan for the expiration of Compact grants.
• Raise public investment to support sustainable growth.
• Protect social spending while adjusting fiscal policy to long-term needs.
• Implement reforms to make growth more resilient and sustainable.
• Preserve financial stability and integrity to facilitate credit extension.

Fiscal Framework and Outcomes

• Legal cash-flow requirement:
  • Serves as the basis of the current fiscal policy approach.
  • Has produced overall budget surpluses and reduced net debt.
• Recommended shift:
  • Move from a strictly cash-flow balanced approach toward a medium-term fiscal framework to better address future fiscal risks and investment needs.

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