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Ms. Shari Boyce, Mr. Sergei Dodzin, Ezequiel Cabezon, Mr. Fazurin Jamaludin, Mr. Yiqun Wu, and Ms. Rosanne Heller

Abstract

This issue of the Asia & Pacific Small States Monitor focuses on the challenges facing Asia and Pacific small states associated with natural disasters and climate change. Most tourism-oriented economies experienced a robust increase in arrivals, partly reflecting country-specific factors. Among commodity exporters (Bhutan, Solomon Islands, and Timor-Leste) and other Asia and Pacific small states, growth remains uneven: robust activity in Bhutan was driven mainly by hydropower-related construction activities; Solomon Islands experienced a continuing decline of logging stocks and a short-term disruption of gold production; and Timor-Leste’s ongoing depletion of oil reserves has led to a tighter budget constraint and lower government spending in the non-oil sector.

Ms. Shari Boyce, Mr. Sergei Dodzin, Ezequiel Cabezon, Mr. Fazurin Jamaludin, Mr. Yiqun Wu, and Ms. Rosanne Heller

Abstract

Context: Bhutan is a small, until recently fast-growing, lower middle-income country with deep economic ties to India and a peg to the Indian rupee. Growth in Bhutan was robust during the last Five-Year Plan (2008/09 to 2012/13), driven by the development of the hydropower sector (exporting electricity to India) and a credit-fueled private consumption boom.

Mr. Adriaan M. Bloem and Cor Gorter

On February 16-20, the IMF’s Statistics Department hosted the first in a series of meetings to discuss updates to the System of National Accounts 1993. The manual sets standards for the measurement of GDP and serves as a reference guide for most economic and financial statistics. Impetus to update it stems from changes in the economic environment over the past decade, advancements in methodological research, and efforts to further harmonize various macroeconomic statistics.

International Monetary Fund

The key findings of the Republic of Palau’s 2010 Article IV Consultation shows that the single most important issue in Palau remains fiscal policy, including its effect on medium-term growth, as fiscal consolidation proceeds. The global financial crisis followed on the heels of a massive terms-of-trade shock, leading to a sharp curtailment of foreign direct investment and private credit. Tourism tumbled following an airline bankruptcy, and construction activity fell as major infrastructure projects reached completion.

International Monetary Fund. Asia and Pacific Dept

This 2014 Article IV Consultation highlights that after two years of strong expansion, growth is estimated at about zero percent in the fiscal year 2013 (FY2013, ending in September) in the Republic of Palau owing to declines in construction and tourism. Inflation moderated to 2¾ percent (annual average) in FY2013 thanks to stable international food and fuel prices, and it is expected to stay at about 3 percent in FY2014. Growth is projected to increase to 1¾ percent in FY2014 and to 2¼–2½ percent over the medium term driven by the recovery in tourism and infrastructure developments.

International Monetary Fund. Asia and Pacific Dept

Palau is a middle-income micro state in the Pacific (population: 18,000) that relies heavily on tourism and grants, and is exposed to natural disasters. The economy grew strongly at 9.4 percent in FY2015 led by robust tourism and construction activity, but the surge in tourist arrivals strained infrastructure and was tilted to low budget tourism. The fiscal position has improved, but further efforts are needed to ensure long-term fiscal sustainability. The outlook is favorable although subject to significant downside risks. The discussions focused on

International Monetary Fund. Asia and Pacific Dept

2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Palau

International Monetary Fund
The economy has recovered following the stabilization of commodity and food prices. The Article IV discussions focused on policies to secure a sustained recovery and achieve long-term economic and fiscal sustainability. The recovery will likely remain weak, and the consolidated fiscal surplus is expected to decline in the near term. Long-term sustainability could be achieved through increasing the fiscal surplus. The reliability, coverage, and timeliness of economic statistics need to be improved to guide policies. The global crisis has increased the urgency of major fiscal and structural reforms.
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper describes Palau’s fiscal challenges and policy options to achieve long-term fiscal sustainability. Palau relies heavily on compact grants, and without continued fiscal consolidation over the medium term, the fiscal position will become unsustainable after these grants expire in FY2024. The fiscal sustainability analysis uses an intertemporal budget constraint model to show that reducing the current deficit excluding grants by about 8 percentage points of GDP during FY2014–19 would ensure Palau’s long-term fiscal sustainability. The paper also discusses the role of tourism in Palau and identifies policy priorities to further promote this sector and sustain growth.