Private sector assessment for Palau: high-end tourism best option for economic growth

Strong economic growth is masking urgent infrastructure and environmental challenges that threaten the long term sustainability of Palau’s economy, says our private sector assessment published today.

Private Sector Assessment for Palau: Policies for Sustainable Growthwarns that the rapid growth of low-end tourism could damage Palau’s famed natural environment and World Heritage sites, which are pivotal to maintaining tourism as the country’s leading source of revenue.

The report was launched by the President of Palau Tommy Remengesau at Palau’s 4th Annual Economic Symposium, which was attended by more than 200 government and private sector representatives.

PSDI Lead Economist and report co-author Paul Holden used the keynote address at the symposium to present findings and recommendations from the report, while PLCO Private Sector Development Specialist Liliana Warid joined a panel discussion.

“Figures showing GDP growth of 5.3% in 2014 and 8.2% in 2015 do not capture the risks that increased tourism numbers bring to popular tourist sites,” said Ms Warid. “To sustain economic growth and build on the success of earlier business environment reforms, Palau should seek to reduce overall tourist numbers while increasing individual tourist spending.”

PSDI Lead Economist Paul Holden presents in Koror.

The report calls for the creation of a comprehensive national tourism policy and the building of infrastructure that will encourage high-end tourism. It also recommends business laws be amended so an online business registry can be established and a modern business licensing system developed.

Other recommendations in Private Sector Assessment for Palau include further reforms to the finance sector to build the capacity of the National Development Bank of Palau and reducing the financial burden of inefficient state-owned enterprises by having them operate on commercial principles. The report also suggests measures to promote women’s equal access to economic opportunities.

The report builds on a private sector assessment PSDI produced for Palau in 2007, noting the Government of Palau has demonstrated a strong commitment to private sector-led growth in the past decade. The report highlights improved financial regulation, the establishment of a secured transactions framework, and the formation of the Economic Advisory Group comprised of senior government and private sector representatives as particular achievements.

Research for the report was gathered from in-depth consultations with a broad selection of government and private sector representatives.