ADB to Help Palau Move toward Self-Reliance

MANILA, PHILIPPINES - Over the next three years, ADB will help Palau in its transition to a more sustainable and self-reliant economy through policy advice and technical assistance (TA) grants.

The Pacific Islands nation’s economy relies heavily on the public sector, which has been largely funded by external assistance from the United States; Japan; and Taipei,China. However, this external assistance may decline substantially with the completion of the Compact of Free Association between the country and the US in 2009.

“There are widespread concerns over the consequences of the completion of the compact,” says Philip Erquiaga, ADB's Director General for the Pacific region. “While some progress is being made to prepare the economy for potential fiscal adjustment, this is slower than what is deemed necessary.”

As such, the sustainability of Palau’s current high income levels and high standard of living is uncertain. Its economy is highly dependent on imports, and has virtually no manufacturing sector. The Government accounts for more than a third of total employment and 60-65% of gross national product. There are few exports outside tourism, reflecting the country’s narrow production base, small population, and remoteness from major markets.

“Based on its updated strategy and program for the country covering 2007-2009, ADB’s assistance will focus on strengthening economic and fiscal management, promoting policies for private sector development, and facilitating sound infrastructure development and management,” adds Kiyoshi Taniguchi, an ADB Country Programs Specialist and Team Leader for Palau.

In 2007, a $600,000 TA grant will help the Government enhance policies for economic, financial, and infrastructure management. The TA will also assess Palau’s capacity to absorb debt and access international capital markets. To help protect Palau’s pristine environment, a $300,000 TA will prepare a water supply and sanitation project in Babeldaob, the capital.