{
  "title": "IMF Executive Board Concludes 2021 Article IV Consultation with Palau",
  "publication": "IMF News, December 9, 2021",
  "sourceUrl": "https://www.imf.org/en/news/articles/2021/12/09/pr21368-palau-imf-executive-board-concludes-2021-article-iv-consultation-with-palau",
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  "summary": "The Executive Board concluded the Article IV consultation with Palau on November 29, 2021.",
  "publishDate": "2021-12-09",
  "sections": [
    {
      "heading": "Summary of the Article IV consultation outcome",
      "content": "- The Executive Board concluded the Article IV consultation with Palau on November 29, 2021.\n- Directors welcomed the authorities’ comprehensive policy response to the pandemic, noting it helped limit health and economic impacts.\n- An economic recovery is underway supported by a high vaccination rate (about 90 percent of the total population fully vaccinated) and a gradual resumption of tourism, but the outlook remains subject to elevated uncertainty and downside risks, including a protracted pandemic, a domestic outbreak, natural disasters, and potential reductions in concessional financing following Palau’s graduation from the OECD’s list of countries eligible for official development assistance."
    },
    {
      "heading": "Economic impact of COVID-19 and near-term outlook",
      "content": "- Real GDP contracted by 9.7 percent in FY2020 and is estimated to have further declined by 17.1 percent in FY2021.\n- Real GDP is projected to rebound by 9.4 percent in FY2022 and grow 18.3 percent in 2022/23, then 2.9 percent in 2023/24 and 2.7 percent in 2024/25.\n- Inflation: consumer prices (period average) show year series in table; inflation is expected to pick up on the back of elevated international fuel prices.\n- Tourist arrivals fell from 41,674 in 2019/20 to 3,167 in 2020/21; projected to recover to 24,708 in 2021/22 and 85,710 in 2022/23, then 89,996 in 2023/24, 94,496 in 2024/25, and 99,220 in 2025/26.\n- Expenditure per tourist arrival (US$) rose from 1,257 in 2019/20 to 1,273 in 2020/21 and is projected to increase gradually to 1,432 in 2025/26.\n- The current account widened substantially due to the sharp decline in tourism receipts."
    },
    {
      "heading": "Fiscal outcomes and medium-term fiscal stance",
      "content": "- Large fiscal deficits and a rapid increase in public debt resulted from the pandemic economic fallout and fiscal response.\n- Central government revenue (percent of GDP) fell from 46.3 in 2019/20 to 41.2 in 2020/21 and is projected at 38.0 in 2021/22, rising gradually to 38.9 in 2024/25.\n- Grants (percent of GDP) were 23.4 in 2019/20 and 24.2 in 2020/21; projected at 21.0 in 2021/22 and declining to 13.6 by 2025/26.\n- Expenditure (percent of GDP) rose to 58.3 in 2019/20 and 65.8 in 2020/21; projected at 53.9 in 2021/22 and falling to 37.1 in 2025/26.\n- Current fiscal balance (excluding grants) moved from -28.3 in 2019/20 to -39.2 in 2020/21; projected at -28.6 in 2021/22 and improving to -6.9 by 2025/26.\n- Current fiscal balance (including current grants) was -12.1 in 2019/20, -2.6 in 2020/21, 0.0 in 2021/22, and projected 1.6 in 2022/23 and 3.7 in 2023/24.\n- Net lending (+)/borrowing (–) was -19.5 in 2019/20 and -12.6 in 2020/21; projected at -3.2 in 2021/22 and improving to 1.9 in 2024/25.\n- General government debt: 34.4 in 2016/17, 37.0 in 2017/18, 62.1 in 2018/19, 85.7 in 2019/20, 90.3 in 2020/21, and projected 74.0 in 2021/22, 71.1 in 2022/23, 66.7 in 2023/24."
    },
    {
      "heading": "Financial sector, structural reforms, and resilience",
      "content": "- Directors recommended accelerating financial sector reforms to support financial deepening, including:\n  - Enhancing SMEs’ capacity to absorb credit and addressing structural determinants of low credit creation.\n  - Strengthening risk-based supervision, including for non-bank financial institutions.\n  - Improving the AML/CFT framework as a high priority.\n- Structural reforms to support sustained growth: pursue greater diversification of tourism source markets, streamline processes for foreign investment, improve the business environment, and enhance human capital to encourage private investment within and outside the tourism sector.\n- Directors emphasized strengthening resilience to climate change and timely implementation of Palau’s climate change adaptation and mitigation strategy, including tapping into climate risk financing.\n- Directors agreed that capacity building will enhance macroeconomic management."
    },
    {
      "heading": "Selected economic indicators and key statistics (highlights from Table 1)",
      "content": "- Nominal GDP for FY2020: US$258 million\n- Population (2019): 17,457\n- GDP per capita for FY2020: US$14,784\n- Quota: SDR 3.1 million\n- Nominal GDP (million US$): 257.7 (2019/20), 216.2 (2020/21), 242.7 (2021/22, proj.), 294.9 (2022/23, proj.), 305.5 (2023/24, proj.), 316.7 (2024/25, proj.), 327.7 (2025/26, proj.)\n- Real GDP growth (percent change): -9.7 (2019/20), -17.1 (2020/21), 9.4 (2021/22, proj.), 18.3 (2022/23, proj.), 2.9 (2023/24, proj.), 2.7 (2024/25, proj.)\n- Tourist arrivals (number of visitors): 41,674 (2019/20), 3,167 (2020/21), 24,708 (2021/22, proj.), 85,710 (2022/23, proj.)\n- Tourism receipts (in million US$): 50.9 (2019/20), 3.9 (2020/21), 31.3 (2021/22, proj.), 112.8 (2022/23, proj.)\n- Trade balance (in million US$): -147.8 (2019/20), -117.0 (2020/21), -128.1 (2021/22, proj.), -150.9 (2022/23, proj.)\n- Current account balance (including grants, in million US$): -124.4 (2019/20), -120.8 (2020/21), -109.6 (2021/22, proj.), -68.7 (2022/23, proj.)\n- International Investment Position: -256.3 (2019/20), -364.2 (2020/21), -438.5 (2021/22, proj.), -470.3 (2022/23, proj.)\n\nIMF Communications Department — Press Release No. 21/368 (December 9, 2021).\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- IMF COVID-19 Hub\n- Policy Tracker\n- Financial Assistance\n- Questions & Answers\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/2021/12/09/pr21368-palau-imf-executive-board-concludes-2021-article-iv-consultation-with-palau"
    }
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    "Published: December 9, 2021",
    "The Executive Board concluded the Article IV consultation with Palau on November 29, 2021.",
    "Directors welcomed the authorities’ comprehensive policy response to the pandemic, noting it helped limit health and economic impacts.",
    "An economic recovery is underway supported by a high vaccination rate (about 90 percent of the total population fully vaccinated) and a gradual resumption of tourism, but the outlook remains subject to elevated uncertainty and downside risks, including a protracted pandemic, a domestic outbreak, natural disasters, and potential reductions in concessional financing following Palau’s graduation from the OECD’s list of countries eligible for official development assistance.",
    "Real GDP contracted by 9.7 percent in FY2020 and is estimated to have further declined by 17.1 percent in FY2021.",
    "Real GDP is projected to rebound by 9.4 percent in FY2022 and grow 18.3 percent in 2022/23, then 2.9 percent in 2023/24 and 2.7 percent in 2024/25.",
    "Inflation: consumer prices (period average) show year series in table; inflation is expected to pick up on the back of elevated international fuel prices.",
    "Tourist arrivals fell from 41,674 in 2019/20 to 3,167 in 2020/21; projected to recover to 24,708 in 2021/22 and 85,710 in 2022/23, then 89,996 in 2023/24, 94,496 in 2024/25, and 99,220 in 2025/26.",
    "Expenditure per tourist arrival (US$) rose from 1,257 in 2019/20 to 1,273 in 2020/21 and is projected to increase gradually to 1,432 in 2025/26.",
    "The current account widened substantially due to the sharp decline in tourism receipts.",
    "Large fiscal deficits and a rapid increase in public debt resulted from the pandemic economic fallout and fiscal response.",
    "Central government revenue (percent of GDP) fell from 46.3 in 2019/20 to 41.2 in 2020/21 and is projected at 38.0 in 2021/22, rising gradually to 38.9 in 2024/25.",
    "Grants (percent of GDP) were 23.4 in 2019/20 and 24.2 in 2020/21; projected at 21.0 in 2021/22 and declining to 13.6 by 2025/26.",
    "Expenditure (percent of GDP) rose to 58.3 in 2019/20 and 65.8 in 2020/21; projected at 53.9 in 2021/22 and falling to 37.1 in 2025/26.",
    "Current fiscal balance (excluding grants) moved from -28.3 in 2019/20 to -39.2 in 2020/21; projected at -28.6 in 2021/22 and improving to -6.9 by 2025/26.",
    "Current fiscal balance (including current grants) was -12.1 in 2019/20, -2.6 in 2020/21, 0.0 in 2021/22, and projected 1.6 in 2022/23 and 3.7 in 2023/24.",
    "Net lending (+)/borrowing (–) was -19.5 in 2019/20 and -12.6 in 2020/21; projected at -3.2 in 2021/22 and improving to 1.9 in 2024/25.",
    "General government debt: 34.4 in 2016/17, 37.0 in 2017/18, 62.1 in 2018/19, 85.7 in 2019/20, 90.3 in 2020/21, and projected 74.0 in 2021/22, 71.1 in 2022/23, 66.7 in 2023/24.",
    "Directors recommended accelerating financial sector reforms to support financial deepening, including:",
    "Structural reforms to support sustained growth: pursue greater diversification of tourism source markets, streamline processes for foreign investment, improve the business environment, and enhance human capital to encourage private investment within and outside the tourism sector.",
    "Directors emphasized strengthening resilience to climate change and timely implementation of Palau’s climate change adaptation and mitigation strategy, including tapping into climate risk financing.",
    "Directors agreed that capacity building will enhance macroeconomic management.",
    "Nominal GDP for FY2020: US$258 million",
    "Population (2019): 17,457",
    "GDP per capita for FY2020: US$14,784",
    "Quota: SDR 3.1 million",
    "Nominal GDP (million US$): 257.7 (2019/20), 216.2 (2020/21), 242.7 (2021/22, proj.), 294.9 (2022/23, proj.), 305.5 (2023/24, proj.), 316.7 (2024/25, proj.), 327.7 (2025/26, proj.)",
    "Real GDP growth (percent change): -9.7 (2019/20), -17.1 (2020/21), 9.4 (2021/22, proj.), 18.3 (2022/23, proj.), 2.9 (2023/24, proj.), 2.7 (2024/25, proj.)",
    "Tourist arrivals (number of visitors): 41,674 (2019/20), 3,167 (2020/21), 24,708 (2021/22, proj.), 85,710 (2022/23, proj.)",
    "Tourism receipts (in million US$): 50.9 (2019/20), 3.9 (2020/21), 31.3 (2021/22, proj.), 112.8 (2022/23, proj.)",
    "Trade balance (in million US$): -147.8 (2019/20), -117.0 (2020/21), -128.1 (2021/22, proj.), -150.9 (2022/23, proj.)",
    "Current account balance (including grants, in million US$): -124.4 (2019/20), -120.8 (2020/21), -109.6 (2021/22, proj.), -68.7 (2022/23, proj.)",
    "International Investment Position: -256.3 (2019/20), -364.2 (2020/21), -438.5 (2021/22, proj.), -470.3 (2022/23, proj.)",
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