Palau Economic Review

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Palau Economic ReviewRepublic of Palau, June, 2013

Graduate School USA, Pacific & Virgin Islands Training Initiatives

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slideGraduate School USAPacific Islands Training Initiativewww.econmap.org

Palau Economic Presentation

EconMAP Purpose and StatusEconomic UpdateFiscal & Economic Policy Issues

Fiscal and Financial ManagementTax PolicyConstraints to Sustainable GrowthCompact Administration Going Forward

2


EconMAP Purpose & Status

Background & Program

3

Economic Reviews since FY05 (2006) in FSM & RMI

Augmentation of in-house statistics offices

Inclusion of Palau since January 2012, now rolling out statistical bulletin; Economic Review to follow

Funding source through DOI/OIA (January 2015)

Addition of Palau was justified by anticipated needs under post-Compact Review arrangements.

Staffing includes Mark, Kevin & Glenn


Population

4

1986 1990 1995 2000 2005 20120

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Palauan Non-Palauan Total


Real GDP Growth

5

FY2001FY2002

FY2003FY2004

FY2005FY2006

FY2007FY2008

FY2009FY2010

FY2011FY2012

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%Real GDP


REAL GDP, FY2005 Prices

6

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY12$0

$50

$100

$150

$200

$250

206.3192.6

GDP


GDP: Private Sector & Goverment

7

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY120

20

40

60

80

100

120

120

140

160

180

200

220

240

Private Enterprise Public Admin GDP

US$

'000

US$

'000


GDP Per Capita

8

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY12$8,000

$8,500

$9,000

$9,500

$10,000

$10,500

$11,000

$11,500

GDP per capita


Consumer Price Index

9

FY01FY02

FY03FY04

FY05FY06

FY07FY08

FY09FY10

FY11FY12

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

RoP U.S.


Consumer Price Index (Quarterly)

10

2008

q2

2008

q3

2008

q4

2009

q1

2009

q2

2009

q3

2009

q4

2010

q1

2010

q2

2010

q3

2010

q4

2011

q1

2011

q2

2011

q3

2011

q4

2012

q1

2012

q2

2012

q3

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%


Employment

11

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY120

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Total Employment


Employment

12

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY120

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Public Sector National Government Private Sector

Total National Government Employees

SOEs + Agencies + State Governments


Employment

13

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY120

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Private Sector Private (less construction)


Wage Bill

14

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY1220,000

25,000

30,000

35,000

40,000

45,000

50,000

Private Sector Public Sector National Government

Tota

l Ear

ning

s $’0

00


Nominal Wage Rates

15

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY124,000

6,000

8,000

10,000

12,000

14,000

16,000



Employment by Citizenship

16

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY124,000

4,500

5,000

5,500

6,000

6,500

Palauan Employment Non-Citizen Employment

Num

ber o

f Em

ploy

ees


Wages by Citizenship

17

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY124,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

Palauan Non-Citizen

Nom

inal

Wag

e Ra

tes

$’s


Real Wage Rates

18

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY124,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000


Real

Wag

e Ra

tes

FY20

05 $

's


Real Wage Rates by Citizenship

19

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY120

2,000

4,000

6,000

8,000

10,000

12,000

Palauan Non-Citizen

Real

Wag

e Ra

tes

FY20

05 $

’s


Banking

20

Dec-09Mar-10

Jun-10Sep-10

Dec-10Mar-11

Jun-11Sep-11

Dec-11Mar-12

Jun-12Sep-12

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Deposits Claims on Private Sector

$ m

illion

s


Banking: Consumer vs. Commercial

21

Dec-09Mar-10

Jun-10Sep-10

Dec-10Mar-11

Jun-11Sep-11

Dec-11Mar-12

Jun-12Sep-12

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Consumer Commercial

$ m

illion

s


Revenues vs. Expenditures

22

FY05FY06

FY07FY08

FY09FY10

FY11FY12

40

50

60

70

80

90

100

110

Total Revenues Total Expenditures$

milli

ons


Unreserved Fund Balances

23

FY05FY06

FY07FY08

FY09FY10

FY11FY12

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

All funds General fund

$ m

illion

s


External Debt

24

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 -

5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0 65.0 70.0

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0 Outstanding Servicing

Out

stan

ding

Deb

t $'

mill

ions D

ebt Servicing $millions


External Debt

25

FY00FY01

FY02FY03

FY04FY05

FY06FY07

FY08FY09

FY10FY11

FY12

-10%

0%

10%

20%

30%

40%

50%

60%

External Debt % GDP

RMI: 60% of GDP

FSM: 28% of GDP


FY05FY06

FY07FY08

FY09FY10

FY11FY12

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Perc

ent o

f GDP

A Measure of Fiscal Self-Reliance

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Taxes

Other Domestic Revenues

-16.6%-16.9%


Policy Discussion

Fiscal & Economic Policy IssuesFiscal Policy and Public Financial ManagementTax PolicyConstraints to Sustainable GrowthCompact Administration Going Forward

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Fiscal & Economic Policy

Fiscal Policy and Public Financial Management

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Uncertainty and lack of clarity on financial outturn constrains sound decision-making

Clear need to modernize and strengthen public financial management system

Restore Palau’s capacity to produce timely and reliable financial audits, as a necessary input to…



Fiscal and Financial Management

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Achieve first-rate fiscal and budgetary management, perhaps through a Fiscal Responsibility Act, and by:

1. Repairing the balance sheet (short-term debt retirement)

2. Adjusting to renewed Compact terms3. Building reserves for near-term fiscal resilience

(Palau Budget Reserve Fund)4. Adopting a sensible long-term strategy for fiscal self-

reliance (augmenting Trust Fund)



Tax Policy

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Achieved substantial increase in tax revenues as a share of GDP recently

However, gains derived from outdated/inefficient tax policy regime (TT-inherited)

Implementation of a well-formulated, modern and efficient tax regime advisable…



Tax Policy

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Implementation of a well-formulated, modern and efficient tax regime advisable:

1. Broad-based consumption tax (VAT) and targeted excise taxes

2. Abolish BGRT, uniform import tax as first-stage VAT3. Net profits tax4. Substantial investment in tax administration modernization

and reform5. Quality of implementation more important than pace



Constraints to Sustainable Growth

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Limited Capital Stock to Support Sustained Growth (esp. Tourism Plant)Infrastructure (Power, Water, Sewer)Connectivity/Information Communication Technology (ICT)Labor Force Development and ExpansionEfficiency and Effectiveness of Financial SectorEnvironment



Compact Administration Going Forward

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New arrangements (when in place) create new demands

Advisory Group composition and role

EconMAP by design is responsive to a portion of the anticipated needs

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Questions or Comments?

Graduate School USA, Pacific & Virgin Islands Training Initiatives

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Documents

Palau Economic Review