Palau is bracing for the impact of the escalating trade war between United States and China, cutting its proposed spending package for Fiscal Year 2019 to one percent despite an upbeat economic growth projection for next year.
In his Aug. 9 transmittal letter to the Senate and House of Delegates leaders, President Tommy Remengesau Jr. said that despite an anticipated revenue collection of $94 million for 2019, he is only proposing an appropriation of $91.5 million for Fiscal Year 2019 budget.
The minimal cut in the spending is to consider the “increasing cost of fuel as well as the risk associated with the heightened trade war between the United States and China and their impact on prices here in Palau.”
Finance Minister Elbuchel Sadang said that because of the raised tariffs, goods that people buy, many of which are imported from the U.S. would become more expensive.
“The effects will go to the people who are buying goods,” Sadang said in an interview.
Sadang also said that although Palau is experiencing a construction boom that is fueling the growth, most of the construction materials are sourced from China which could feel the pinch of the tariffs.
Recently, the US imposes an additional round of tariffs on US$16 billion (S$22 billion) worth of Chinese imports, In retaliation, China is imposing same tax on items including coal, medical instruments, waste products, cars, and buses.
Palau however is anticipating a favorable economic growth in 2019, according to the economic outlook submitted to Congress with the proposed Fy2019 budget.
The government projected a growth of three percent, but because Palau is sensitive to global market volatility, it is expecting impact for increases in tariffs and food imports if the trade war continues.
But the government is projecting that it will beat its target revenue collection for FY2019 with an increased tax collection amounting to $51.4 million revenues or eight percent higher than FY2018 collection.
Palau is also anticipating a rebound in tourism earnings and this will be reflected in the anticipated hotel occupancy tax projected revenue of $4.9 million. It is also expecting to get $2-6 million in 2019 from projected revenues from the Palau Pristine Environmental Fee (PPEF).
Sadang said despite the slowdown in the number of tourist arrivals, tourists are spending more. He also said the construction boom in Palau is also helping the growth.
Remengesau said the proposed budget also considered the ongoing efforts to finalize the approved Compact Review Agreement (CRA) funding arrangements. (Bernadette H. Carreon)