{
  "title": "IMF Executive Board Concludes 2016 Article IV Consultation with the Republic of Palau",
  "publication": "IMF News, October 19, 2016",
  "sourceUrl": "https://www.imf.org/en/news/articles/2016/10/19/pr16461",
  "canonical": "https://www.imf.org/en/news/articles/2016/10/19/pr16461",
  "overlayPath": "/en/news/articles/2016/10/19/pr16461/index.md",
  "summary": "Sources: Palau authorities; and Fund staff estimates and projections. 1/ Fiscal year ending September 30. 2/ Staff projections. 3/ Incorporates the authorities' revised estimates of GDP and balance of payments, and the audited government financial statements. 4/ Defined as tax and other revenue less",
  "publishDate": "2016-10-19",
  "sections": [
    {
      "heading": "Recent economic performance",
      "content": "- The Executive Board concluded the Article IV consultation on September 9, 2016.\n- Economy grew strongly in FY2015 (ending September 30, 2015) at 9.4 percent, driven by a 35 percent expansion in tourist arrivals and construction activity.\n- Inflation declined to 2.2 percent in FY2015.\n- The external position improved due to lower commodity prices and higher tourism receipts.\n- The current fiscal deficit (current expenditure less domestic revenue) fell from 11 percent of GDP in FY2014 to 5.5 percent in FY2015.\n- Public debt remains moderate and sustainable."
    },
    {
      "heading": "Outlook and risks",
      "content": "- Growth projections:\n  - FY2016: 0.0 (growth expected to slow temporarily to zero as tourist arrivals decline)\n  - FY2017: 5.0 (growth expected to rebound as tourism recovers with entry of new hotels and construction picks up)\n  - FY2018: 4.0\n  - FY2019: 3.0\n  - FY2020: 2.0\n- Inflation projected to remain low at 2 percent as commodity prices stabilize.\n- Current account and fiscal projections:\n  - Current account deficit expected to rise due to larger infrastructure-related imports.\n  - Fiscal position projected to improve further on continued spending restraint.\n- Key downside risks:\n  - Reliance on tourism, grants, and commodity imports.\n  - Slowdown in key trading partners.\n  - Further U.S. dollar appreciation.\n  - Natural disasters and climate change.\n  - Higher commodity prices increasing food and fuel import costs.\n  - Failure to implement a strategy for sustainable tourism development could reduce medium-term growth.\n- Policy response if risks materialize: Palau will have to rely on fiscal and structural policies."
    },
    {
      "heading": "Executive Board assessment and recommendations",
      "content": "- Directors welcomed robust growth and improved fiscal and external positions driven by tourism and construction expansion.\n- Directors noted exposure to natural disasters and climate change, and heavy reliance on tourism and grants, underscoring downside risks.\n- Emphasis on continued sound macroeconomic policies and structural reforms to:\n  - Ensure fiscal sustainability.\n  - Preserve financial stability.\n  - Boost potential growth.\n- Fiscal measures and medium-term needs:\n  - Additional efforts needed over the medium term to ensure fiscal self‑sufficiency when the Compact grants expire.\n  - Fiscal adjustment should build on revenue and expenditure progress, including:\n    - Replacing the gross revenue tax with a value added tax.\n    - Reorienting infrastructure investment to support the tourism industry and enhance resilience to natural disasters and climate change.\n  - Strengthen the fiscal framework by targeting a public sector net worth position as the fiscal anchor, while using the current fiscal balance as an operational target.\n  - Improve public financial management and strengthen the civil service pension system to contain fiscal risks and ensure debt sustainability.\n- Financial sector:\n  - Banking system remains sound and well supervised.\n  - Directors welcomed steps to preserve financial stability and facilitate domestic credit expansion.\n  - Encouraged continued efforts to relax the ceiling on credit rates.\n  - Encouraged broadening Financial Institutions Commission oversight to include non‑bank financial institutions.\n- Structural priorities:\n  - Economic diversification and improving the business climate to reduce vulnerabilities and boost potential growth.\n  - Develop a comprehensive strategy to ensure sustainable tourism development, supported by adequate infrastructure investment.\n  - Improve the regulatory environment and strengthen coordination among national and state governments."
    },
    {
      "heading": "Selected economic indicators and key statistics",
      "content": "- Nominal GDP for FY2015: US$287 million\n- Population (2015): 17,885\n- GDP per capita for FY2015: US$16,070\n- Quota: SDR 3.1 million\n\n- Nominal GDP (million US$):\n  - 2013/14: 250.9\n  - 2014/15: 287.4\n  - 2015/16 Est.: 296.0\n  - 2016/17 Proj. 2/: 318.6\n  - 2017/18: 341.2\n  - 2018/19: 362.0\n  - 2019/20: 380.3\n  - 2019/21: 395.7\n\n- Real GDP growth (percent change):\n  - 2013/14: 4.2\n  - 2014/15: 9.4\n  - 2015/16: 0.0\n  - 2016/17: 5.0\n  - 2017/18: 4.0\n  - 2018/19: 3.0\n  - 2019/20: 2.0\n\n- GDP deflator (percent change):\n  - 2014/15: 5.2\n  - 2015/16: 4.7\n  - 2016/17: 2.5\n\n- Consumer prices (percent change; period average):\n  - 2014/15: 2.2\n\n- Tourist arrivals (number of visitors):\n  - 2013/14: 125,674\n  - 2014/15: 168,767\n  - 2015/16: 148,515\n  - 2016/17: 158,911\n  - 2017/18: 166,857\n  - 2018/19: 173,531\n  - 2019/20: 178,737\n  - 2019/21: 184,099\n\n- Central government (In percent of GDP):\n  - Revenue:\n    - 2013/14: 43.3\n    - 2014/15: 40.6\n    - 2015/16: 39.6\n    - 2016/17: 41.8\n    - 2017/18: 40.8\n    - 2018/19: 40.3\n    - 2019/20: 39.8\n    - 2019/21: 39.4\n  - Taxes and other revenue:\n    - 2013/14: 24.4\n    - 2014/15: 25.4\n    - 2015/16: 24.8\n    - 2016/17: 25.5\n    - 2017/18: 26.1\n    - 2018/19: 26.0\n    - 2019/20: 25.9\n    - 2019/21: 25.8\n  - Grants:\n    - 2013/14: 18.9\n    - 2014/15: 15.3\n    - 2015/16: 14.8\n    - 2016/17: 16.3\n    - 2017/18: 14.3\n    - 2018/19: 13.9\n    - 2019/20: 13.6\n  - Expenditure:\n    - 2013/14: 35.6\n    - 2014/15: 41.6\n    - 2015/16: 42.7\n    - 2016/17: 36.7\n    - 2017/18: 36.5\n    - 2018/19: 36.0\n  - Expense:\n    - 2013/14: 35.4\n    - 2014/15: 30.9\n    - 2015/16: 30.3\n    - 2016/17: 30.2\n    - 2017/18: 30.1\n    - 2018/19: 30.0\n    - 2019/20: 29.9\n  - Net acquisition of nonfinancial assets:\n    - 2013/14: 4.4\n    - 2014/15: 11.3\n    - 2015/16: 12.5\n    - 2016/17: 9.5\n    - 2017/18: 6.7\n    - 2018/19: 6.5\n    - 2019/20: 6.1\n  - Current fiscal balance (excluding grants) 4/:\n    - 2013/14: -11.0\n    - 2014/15: -5.5\n    - 2015/16: -4.7\n    - 2016/17: -4.0\n  - Net lending (+)/borrowing (–):\n    - 2013/14: 3.5\n    - 2014/15: -2.0\n    - 2015/16: -0.9\n    - 2016/17: 1.2\n    - 2017/18: 3.3\n    - 2018/19: 3.4\n\n- In millions of U.S. dollars:\n  - Compact Trust Fund (CTF) balance:\n    - 2013/14: 199.2\n    - 2014/15: 183.9\n    - 2015/16: 188.9\n    - 2016/17: 194.2\n    - 2017/18: 201.8\n    - 2018/19: 208.9\n    - 2019/20: 215.9\n    - 2019/21: 222.8\n  - Government cash and deposits 5/:\n    - 2013/14: 9.6\n    - 2014/15: 23.4\n    - 2015/16: 30.6\n    - 2016/17: 39.1\n    - 2017/18: 44.7\n    - 2018/19: 52.8\n    - 2019/20: 63.0\n    - 2019/21: 72.8\n  - Government cash and deposits (In percent of GDP):\n    - 2013/14: 3.8\n    - 2014/15: 8.1\n    - 2015/16: 10.4\n    - 2016/17: 12.3\n    - 2017/18: 13.1\n    - 2018/19: 14.6\n    - 2019/20: 16.6\n    - 2019/21: 18.4\n\n- Balance of payments 3/:\n  - Trade balance:\n    - 2013/14: -158.2\n    - 2014/15: -142.4\n    - 2015/16: -148.4\n    - 2016/17: -164.8\n    - 2017/18: -176.1\n    - 2018/19: -177.0\n    - 2019/20: -180.8\n    - 2019/21: -184.6\n  - Exports (f.o.b.):\n    - 2013/14: 19.1\n    - 2014/15: 14.5\n    - 2015/16: 11.9\n    - 2016/17: 16.1\n    - 2017/18: 17.7\n    - 2018/19: 18.7\n    - 2019/20: 19.6\n    - 2019/21: 20.6\n  - Imports (f.o.b.):\n    - 2013/14: 177.3\n    - 2014/15: 156.8\n    - 2015/16: 160.3\n    - 2016/17: 179.4\n    - 2017/18: 192.2\n    - 2018/19: 194.7\n    - 2019/20: 199.5\n    - 2019/21: 204.2\n  - Tourism receipts:\n    - 2013/14: 129.3\n    - 2014/15: 150.4\n    - 2015/16: 139.0\n    - 2016/17: 153.2\n    - 2017/18: 163.2\n    - 2018/19: 172.3\n    - 2019/20: 180.1\n    - 2019/21: 188.3\n  - Current account balance:\n    - Including grants:\n      - 2013/14: -29.5\n      - 2014/15: -1.5\n      - 2015/16: -15.6\n      - 2016/17: -22.4\n      - 2017/18: -28.3\n      - 2018/19: -22.8\n      - 2019/20: -21.1\n      - 2019/21: -19.3\n    - Excluding grants:\n      - 2013/14: -74.4\n      - 2014/15: -42.3\n      - 2015/16: -56.1\n      - 2016/17: -62.2\n      - 2017/18: -66.3\n      - 2018/19: -60.6\n      - 2019/20: -58.3\n      - 2019/21: -55.8\n\n- International Investment Position:\n  - 2013/14: 245.4\n  - 2014/15: 272.1\n  - 2015/16: 280.3\n  - 2016/17: 295.2\n  - 2017/18: 318.4\n  - 2018/19: 345.4\n  - 2019/20: 372.9\n\n- Assets:\n  - 2013/14: 467.1\n  - 2014/15: 511.0\n  - 2015/16: 539.4\n  - 2016/17: 569.7\n  - 2017/18: 599.8\n  - 2018/19: 632.2\n  - 2019/20: 667.1\n  - 2019/21: 702.0\n\n- Liabilities:\n  - 2013/14: 221.7\n  - 2014/15: 239.0\n  - 2015/16: 267.3\n  - 2016/17: 289.3\n  - 2017/18: 304.6\n  - 2018/19: 313.8\n  - 2019/20: 321.7\n  - 2019/21: 329.1\n  - Of which: External debt:\n    - 2013/14: 70.6\n    - 2014/15: 64.2\n    - 2015/16: 77.4\n    - 2016/17: 90.0\n    - 2017/18: 92.6\n    - 2018/19: 88.9\n    - 2019/20: 83.7\n    - 2019/21: 77.9\n\n- Additional indicators (selected):\n  - -11.8\n  - -0.5\n  - -5.3\n  - -7.0\n  - -8.3\n  - -6.3\n  - -5.6\n  - -4.9\n  - -29.7\n  - -14.7\n  - -19.0\n  - -19.5\n  - -19.4\n  - -16.7\n  - -15.3\n  - -14.1\n  - 97.8\n  - 94.7\n  - 91.9\n  - 88.0\n  - 86.5\n  - 90.8\n  - 94.3\n  - 28.1\n  - 22.4\n  - 28.2\n  - 27.1\n  - 24.6\n  - 22.0\n  - 19.7\n\nSources: Palau authorities; and Fund staff estimates and projections.\n1/ Fiscal year ending September 30.\n2/ Staff projections.\n3/ Incorporates the authorities' revised estimates of GDP and balance of payments, and the audited government financial statements.\n4/ Defined as tax and other revenue less expense.\n5/ Includes unspent external loans.\n\nIMF Communications Department, Press Release No. 16/461 (October 19, 2016).\n\n---\n\n\n References\n\n- Republic of Palau and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2016/10/19/pr16461"
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    "Published: October 19, 2016",
    "The Executive Board concluded the Article IV consultation on September 9, 2016.",
    "Economy grew strongly in FY2015 (ending September 30, 2015) at 9.4 percent, driven by a 35 percent expansion in tourist arrivals and construction activity.",
    "Inflation declined to 2.2 percent in FY2015.",
    "The external position improved due to lower commodity prices and higher tourism receipts.",
    "The current fiscal deficit (current expenditure less domestic revenue) fell from 11 percent of GDP in FY2014 to 5.5 percent in FY2015.",
    "Public debt remains moderate and sustainable.",
    "Growth projections:",
    "Inflation projected to remain low at 2 percent as commodity prices stabilize.",
    "Current account and fiscal projections:",
    "Key downside risks:",
    "Policy response if risks materialize: Palau will have to rely on fiscal and structural policies.",
    "Directors welcomed robust growth and improved fiscal and external positions driven by tourism and construction expansion.",
    "Directors noted exposure to natural disasters and climate change, and heavy reliance on tourism and grants, underscoring downside risks.",
    "Emphasis on continued sound macroeconomic policies and structural reforms to:",
    "Fiscal measures and medium-term needs:",
    "Financial sector:",
    "Structural priorities:",
    "Nominal GDP for FY2015: US$287 million",
    "Population (2015): 17,885",
    "GDP per capita for FY2015: US$16,070",
    "Quota: SDR 3.1 million",
    "Nominal GDP (million US$):",
    "Real GDP growth (percent change):",
    "GDP deflator (percent change):",
    "Consumer prices (percent change; period average):",
    "Tourist arrivals (number of visitors):",
    "Central government (In percent of GDP):",
    "In millions of U.S. dollars:",
    "Balance of payments 3/:",
    "International Investment Position:",
    "Assets:",
    "Liabilities:",
    "Additional indicators (selected):",
    "[Republic of Palau and the IMF](http://www.imf.org/external/country/PLW/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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