Palau’s economy is recovering moderately despite the continuing tourism decline, with growth boosted by construction related to infrastructure projects, according to the International Monetary Fund (IMF) 2018 Article IV Mission report.
An IMF team, led by Ms. Yuko Kinoshita on Nov. 7 held a media briefing to conclude it’s visit to Koror from October 25 to November 7 to conduct the 2018 Article IV Consultation.
The economy has suffered a slump in 2017 with an economic growth decline by 3.7 percent, which was attributed to the downturn in tourism and low construction activities.
“Growth is expected to have picked up moderately to 0.4 percent in FY 2018, as construction related to infrastructure projects has resumed. Growth is projected to increase further to 2 percent in FY 2019,” Kinoshita stated.
The IMF projected that by 2019, tourism activities should have picked up and that the ratification of Palau’s financial package from the United States under the Compact would have infused capital investments into the country.
IMF stressed the need for Palau to implement a “comprehensive tourism strategy on high-value and environmentally sustainable tourism, while filling in infrastructure gaps.”
It is also recommended that Palau diversify its product and not focus on one source market.
“While Palau’s economic growth rate has been volatile due to its strong reliance on tourism, there is room for greater geographical diversification of the source markets of tourists and the tourism locations and products within Palau, which would help reduce sectoral and macroeconomic volatility,” the IMF assessment said.
Domestic factors such as failure to implement the comprehensive high-value and sustainable tourism strategy could derail economic growth.
“The team supports the authorities’ efforts to adopt a broad strategy for sustainable tourism development, while protecting the environment and upgrading infrastructure to increase resilience to natural disasters and climate change,” the IMF report noted.
Palau, a small island nation is also susceptible to natural disasters, “including those related to climate change, could weaken fiscal and external positions,” the report stated.
External factors can also challenge Palau’s economy and be weakened by global trends, including in the U.S. and China trade war, tightening of global financial conditions, and US dollar appreciation. (Bernadette H. Carreon)