## IMF Executive Board Concludes 2016 Article IV Consultation with the Republic of Palau

_IMF News, October 19, 2016_

## Source details

**Canonical URL:** [IMF Executive Board Concludes 2016 Article IV Consultation with the Republic of Palau](https://www.imf.org/en/news/articles/2016/10/19/pr16461)

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## Bibliographic details
- Published: October 19, 2016

---

### Recent economic performance
- 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.

### Outlook and risks
- Growth projections:
  - FY2016: 0.0 (growth expected to slow temporarily to zero as tourist arrivals decline)
  - FY2017: 5.0 (growth expected to rebound as tourism recovers with entry of new hotels and construction picks up)
  - FY2018: 4.0
  - FY2019: 3.0
  - FY2020: 2.0
- Inflation projected to remain low at 2 percent as commodity prices stabilize.
- Current account and fiscal projections:
  - Current account deficit expected to rise due to larger infrastructure-related imports.
  - Fiscal position projected to improve further on continued spending restraint.
- Key downside risks:
  - Reliance on tourism, grants, and commodity imports.
  - Slowdown in key trading partners.
  - Further U.S. dollar appreciation.
  - Natural disasters and climate change.
  - Higher commodity prices increasing food and fuel import costs.
  - Failure to implement a strategy for sustainable tourism development could reduce medium-term growth.
- Policy response if risks materialize: Palau will have to rely on fiscal and structural policies.

### Executive Board assessment and recommendations
- 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:
  - Ensure fiscal sustainability.
  - Preserve financial stability.
  - Boost potential growth.
- Fiscal measures and medium-term needs:
  - Additional efforts needed over the medium term to ensure fiscal self‑sufficiency when the Compact grants expire.
  - Fiscal adjustment should build on revenue and expenditure progress, including:
    - Replacing the gross revenue tax with a value added tax.
    - Reorienting infrastructure investment to support the tourism industry and enhance resilience to natural disasters and climate change.
  - 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.
  - Improve public financial management and strengthen the civil service pension system to contain fiscal risks and ensure debt sustainability.
- Financial sector:
  - Banking system remains sound and well supervised.
  - Directors welcomed steps to preserve financial stability and facilitate domestic credit expansion.
  - Encouraged continued efforts to relax the ceiling on credit rates.
  - Encouraged broadening Financial Institutions Commission oversight to include non‑bank financial institutions.
- Structural priorities:
  - Economic diversification and improving the business climate to reduce vulnerabilities and boost potential growth.
  - Develop a comprehensive strategy to ensure sustainable tourism development, supported by adequate infrastructure investment.
  - Improve the regulatory environment and strengthen coordination among national and state governments.

### Selected economic indicators and key statistics
- 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$):
  - 2013/14: 250.9
  - 2014/15: 287.4
  - 2015/16 Est.: 296.0
  - 2016/17 Proj. 2/: 318.6
  - 2017/18: 341.2
  - 2018/19: 362.0
  - 2019/20: 380.3
  - 2019/21: 395.7

- Real GDP growth (percent change):
  - 2013/14: 4.2
  - 2014/15: 9.4
  - 2015/16: 0.0
  - 2016/17: 5.0
  - 2017/18: 4.0
  - 2018/19: 3.0
  - 2019/20: 2.0

- GDP deflator (percent change):
  - 2014/15: 5.2
  - 2015/16: 4.7
  - 2016/17: 2.5

- Consumer prices (percent change; period average):
  - 2014/15: 2.2

- Tourist arrivals (number of visitors):
  - 2013/14: 125,674
  - 2014/15: 168,767
  - 2015/16: 148,515
  - 2016/17: 158,911
  - 2017/18: 166,857
  - 2018/19: 173,531
  - 2019/20: 178,737
  - 2019/21: 184,099

- Central government (In percent of GDP):
  - Revenue:
    - 2013/14: 43.3
    - 2014/15: 40.6
    - 2015/16: 39.6
    - 2016/17: 41.8
    - 2017/18: 40.8
    - 2018/19: 40.3
    - 2019/20: 39.8
    - 2019/21: 39.4
  - Taxes and other revenue:
    - 2013/14: 24.4
    - 2014/15: 25.4
    - 2015/16: 24.8
    - 2016/17: 25.5
    - 2017/18: 26.1
    - 2018/19: 26.0
    - 2019/20: 25.9
    - 2019/21: 25.8
  - Grants:
    - 2013/14: 18.9
    - 2014/15: 15.3
    - 2015/16: 14.8
    - 2016/17: 16.3
    - 2017/18: 14.3
    - 2018/19: 13.9
    - 2019/20: 13.6
  - Expenditure:
    - 2013/14: 35.6
    - 2014/15: 41.6
    - 2015/16: 42.7
    - 2016/17: 36.7
    - 2017/18: 36.5
    - 2018/19: 36.0
  - Expense:
    - 2013/14: 35.4
    - 2014/15: 30.9
    - 2015/16: 30.3
    - 2016/17: 30.2
    - 2017/18: 30.1
    - 2018/19: 30.0
    - 2019/20: 29.9
  - Net acquisition of nonfinancial assets:
    - 2013/14: 4.4
    - 2014/15: 11.3
    - 2015/16: 12.5
    - 2016/17: 9.5
    - 2017/18: 6.7
    - 2018/19: 6.5
    - 2019/20: 6.1
  - Current fiscal balance (excluding grants) 4/:
    - 2013/14: -11.0
    - 2014/15: -5.5
    - 2015/16: -4.7
    - 2016/17: -4.0
  - Net lending (+)/borrowing (–):
    - 2013/14: 3.5
    - 2014/15: -2.0
    - 2015/16: -0.9
    - 2016/17: 1.2
    - 2017/18: 3.3
    - 2018/19: 3.4

- In millions of U.S. dollars:
  - Compact Trust Fund (CTF) balance:
    - 2013/14: 199.2
    - 2014/15: 183.9
    - 2015/16: 188.9
    - 2016/17: 194.2
    - 2017/18: 201.8
    - 2018/19: 208.9
    - 2019/20: 215.9
    - 2019/21: 222.8
  - Government cash and deposits 5/:
    - 2013/14: 9.6
    - 2014/15: 23.4
    - 2015/16: 30.6
    - 2016/17: 39.1
    - 2017/18: 44.7
    - 2018/19: 52.8
    - 2019/20: 63.0
    - 2019/21: 72.8
  - Government cash and deposits (In percent of GDP):
    - 2013/14: 3.8
    - 2014/15: 8.1
    - 2015/16: 10.4
    - 2016/17: 12.3
    - 2017/18: 13.1
    - 2018/19: 14.6
    - 2019/20: 16.6
    - 2019/21: 18.4

- Balance of payments 3/:
  - Trade balance:
    - 2013/14: -158.2
    - 2014/15: -142.4
    - 2015/16: -148.4
    - 2016/17: -164.8
    - 2017/18: -176.1
    - 2018/19: -177.0
    - 2019/20: -180.8
    - 2019/21: -184.6
  - Exports (f.o.b.):
    - 2013/14: 19.1
    - 2014/15: 14.5
    - 2015/16: 11.9
    - 2016/17: 16.1
    - 2017/18: 17.7
    - 2018/19: 18.7
    - 2019/20: 19.6
    - 2019/21: 20.6
  - Imports (f.o.b.):
    - 2013/14: 177.3
    - 2014/15: 156.8
    - 2015/16: 160.3
    - 2016/17: 179.4
    - 2017/18: 192.2
    - 2018/19: 194.7
    - 2019/20: 199.5
    - 2019/21: 204.2
  - Tourism receipts:
    - 2013/14: 129.3
    - 2014/15: 150.4
    - 2015/16: 139.0
    - 2016/17: 153.2
    - 2017/18: 163.2
    - 2018/19: 172.3
    - 2019/20: 180.1
    - 2019/21: 188.3
  - Current account balance:
    - Including grants:
      - 2013/14: -29.5
      - 2014/15: -1.5
      - 2015/16: -15.6
      - 2016/17: -22.4
      - 2017/18: -28.3
      - 2018/19: -22.8
      - 2019/20: -21.1
      - 2019/21: -19.3
    - Excluding grants:
      - 2013/14: -74.4
      - 2014/15: -42.3
      - 2015/16: -56.1
      - 2016/17: -62.2
      - 2017/18: -66.3
      - 2018/19: -60.6
      - 2019/20: -58.3
      - 2019/21: -55.8

- International Investment Position:
  - 2013/14: 245.4
  - 2014/15: 272.1
  - 2015/16: 280.3
  - 2016/17: 295.2
  - 2017/18: 318.4
  - 2018/19: 345.4
  - 2019/20: 372.9

- Assets:
  - 2013/14: 467.1
  - 2014/15: 511.0
  - 2015/16: 539.4
  - 2016/17: 569.7
  - 2017/18: 599.8
  - 2018/19: 632.2
  - 2019/20: 667.1
  - 2019/21: 702.0

- Liabilities:
  - 2013/14: 221.7
  - 2014/15: 239.0
  - 2015/16: 267.3
  - 2016/17: 289.3
  - 2017/18: 304.6
  - 2018/19: 313.8
  - 2019/20: 321.7
  - 2019/21: 329.1
  - Of which: External debt:
    - 2013/14: 70.6
    - 2014/15: 64.2
    - 2015/16: 77.4
    - 2016/17: 90.0
    - 2017/18: 92.6
    - 2018/19: 88.9
    - 2019/20: 83.7
    - 2019/21: 77.9

- Additional indicators (selected):
  - -11.8
  - -0.5
  - -5.3
  - -7.0
  - -8.3
  - -6.3
  - -5.6
  - -4.9
  - -29.7
  - -14.7
  - -19.0
  - -19.5
  - -19.4
  - -16.7
  - -15.3
  - -14.1
  - 97.8
  - 94.7
  - 91.9
  - 88.0
  - 86.5
  - 90.8
  - 94.3
  - 28.1
  - 22.4
  - 28.2
  - 27.1
  - 24.6
  - 22.0
  - 19.7

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 expense.
5/ Includes unspent external loans.

*IMF Communications Department, Press Release No. 16/461 (October 19, 2016).*

---


## References

- [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)

_Source: https://www.imf.org/en/news/articles/2016/10/19/pr16461_