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IMF Country Report No. 19/43
REPUBLIC OF PALAU
2018 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE REPUBLIC OF PALAU
February 2019
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2018 Article IV consultation with Palau, the following documents have been released and are included in this package:
Press Release summarizing the views of the Executive Board as expressed during its February 1, 2019 consideration of the staff report that concluded the Article IV consultation with the Republic of Palau
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 1, 2019, following discussions that ended on November 7, 2018, with the officials of the Republic of Palau on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on January 15, 2019.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for the Republic of Palau
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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REPUBLIC OF PALAU
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION
January 15, 2019
Key Issues
Outlook and risks. Palau, a small state in the Pacific, is heavily dependent on tourism and grants. Economic activity slowed down significantly due to lower tourism over the past two years. Growth is expected to pick up with a rebound in construction activities and tourism from FY2018 through 2020. The overall fiscal balance remained in surplus primarily owing to low capital expenditure and expected to improve further with the disbursement of the recently-ratified Compact grants. The outlook is generally favorable although subject to downside risks.
The discussions focused on:
Ensuring long term fiscal sustainability
Develop a medium-term fiscal framework and strategy that can accommodate high revenue volatility and risks from the expiration of the Compact grants in FY2024.
Implement a revenue-enhancing tax reform, including the introduction of the VAT and cuts in current spending to create room for higher public investment and fiscal buffers.
Contain quasi-fiscal risks from public enterprises through strengthening public financial management.
Making potential growth more resilient and sustainable
Implement a high-end tourism strategy to promote sustainable eco-tourism and lower volatility in the sector.
Develop the infrastructure planning needed to support the rapidly growing tourism industry and enhance resilience to natural disasters and climate change.
Preserving financial stability and facilitating credit extension.
Strengthen and broaden financial regulation and supervision. Adopt a cautious approach to cryptocurrencies and ensure that adequate AML/CFT measures are in place to mitigate the financial integrity risks.
Facilitate credit extension by easing the interest rate ceiling on commercial loans and helping small and medium-sized enterprises to prepare business plans.
Approved By
Thomas Helbling (APD) and Yan Sun (SPR)
Discussions took place in Koror during October 25–November 7, 2018. The mission team comprised Ms. Kinoshita (Head, APD), Mr. Lee (APD), and Mr. Sullivan (APD). Mr. Amor (OED) also participated in the discussions. Ms. Ibrahim (APD) provided editorial assistance. The team met with Minister of Finance Sadang, other senior government officials, and representatives of the Congress, private sector, and donor community. A press release at the end of the mission was published on November 7, 2018.
Contents
CONTEXT
RECENT DEVELOPMENTS, OUTLOOK AND RISKS
KEY POLICY ISSUES
A. Ensuring Fiscal Sustainability
B. Making Potential Growth More Resilient and Sustainable
C. Preserving Financial Stability and Facilitating Credit Extension
D. External Sector Assessment
E. Other Issues
STAFF APPRAISAL
FIGURES
1. Real Sector Developments
2. Tourism Sector Developments
3. External Sector Developments
4. Fiscal Sector Developments
TABLES
1. Selected Economic Indicators
2. Medium-term Projections, 2015/16–2023/24
3. Balance of Payments, 2012/13–2019/20
4. National Government Operations, 2012/13–2019/2020
5. Assets and Liabilities of Deposit Money Banks, 2010/2011–2016/17
6. Banks’ Financial Soundness Indicators, 2014–2018
APPENDICES
I. Enhancing Resilience to Climate Change
II. Staff Policy Advice, 2016 Article IV Consultation
III. External Sector Assessment
IV. Risk Assessment Matrix (RAM)
V. Medium Term to Long Term Fiscal Sustainability
VI. Tax Reform
VII. Debt Sustainability Analysis
VIII. Tourism and Diversification
IX. Financial Sector Reforms
X. Labor Market and Minimum Wages
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REPUBLIC OF PALAU
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
January 15, 2019
Prepared By
Asia and Pacific Department
(In consultation with other departments)
Contents
FUND RELATIONS
RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSITUTIONS
STATISTICAL ISSUES
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Press Release No. 19/32
FOR IMMEDIATE RELEASE
February 5, 2019
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