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Palau Economic ReviewRepublic of Palau, June, 2013
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Palau Economic Presentation
EconMAP Purpose and StatusEconomic UpdateFiscal & Economic Policy Issues
Fiscal and Financial ManagementTax PolicyConstraints to Sustainable GrowthCompact Administration Going Forward
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EconMAP Purpose & Status
Background & Program
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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
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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
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Real GDP Growth
5
FY2001FY2002
FY2003FY2004
FY2005FY2006
FY2007FY2008
FY2009FY2010
FY2011FY2012
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%Real GDP
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REAL GDP, FY2005 Prices
6
FY00FY01
FY02FY03
FY04FY05
FY06FY07
FY08FY09
FY10FY11
FY12$0
$50
$100
$150
$200
$250
206.3192.6
GDP
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GDP: Private Sector & Goverment
7
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY120
20
40
60
80
100
120
120
140
160
180
200
220
240
Private Enterprise Public Admin GDP
US$
'000
US$
'000
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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
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Consumer Price Index
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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.
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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%
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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
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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
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Employment
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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)
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Wage Bill
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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
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Nominal Wage Rates
15
FY00FY01
FY02FY03
FY04FY05
FY06FY07
FY08FY09
FY10FY11
FY124,000
6,000
8,000
10,000
12,000
14,000
16,000
Private Sector Public Sector National Government
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Employment by Citizenship
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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
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Wages by Citizenship
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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
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Real Wage Rates
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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
Private Sector Public Sector National Government
Real
Wag
e Ra
tes
FY20
05 $
's
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Real Wage Rates by Citizenship
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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
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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
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Banking: Consumer vs. Commercial
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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
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Revenues vs. Expenditures
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FY05FY06
FY07FY08
FY09FY10
FY11FY12
40
50
60
70
80
90
100
110
Total Revenues Total Expenditures$
milli
ons
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Unreserved Fund Balances
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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
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External Debt
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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
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External Debt
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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
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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%
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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…
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Fiscal & Economic Policy
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)
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Fiscal & Economic Policy
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…
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Fiscal & Economic Policy
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
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Fiscal & Economic Policy
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
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Fiscal & Economic Policy
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?
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