High Tourism Arrivals Drive Economic Growth In Palau

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Pacific Islands Development Program, East-West Center With Support From Center for Pacific Islands Studies, University of Hawai‘i

New hotels to open in 2017 will boost slow growth

KOROR, Palau (Marianas Variety, April 1, 2016) – Driven by high tourism arrivals, Palau’s economy has experienced high growth despite economic growth slowing down in other nations in the Pacific, according to the latest Asian Development Bank forecast for 2016.

The forecast said that Palau’s growth is only at 3 percent this year, and the slowdown is due to the capacity constraints of the country’s tourism sector. The ADB however sees growth in 2017 with 7 percent Gross Domestic Product growth.

The report also said that although there is a surge in tourism, there is a weak transmission of the tourism arrivals to related economic activity. However, with new hotels expected to open by 2017, there will be an increase in growth.

"The expected 9.2 percent increase in rooms is seen to enable business expansion in hotels and restaurants, retail trade, transportation and communication. Infrastructure work such as the Koror-Airai sanitation project and a submarine broadband cable are expected to further spur growth," the forecast stated.

The ADB report also said that compared to the other North Pacific countries, the Federated States of Micronesia and the Republic of the Marshall Islands, Palau "is arguably the best placed — through strong growth in tourism — to achieve sustainability."

The report cited that Palau is seeking to better manage its fast-growing tourism industry by controlling and coordinating multiple policy levers through policy changes in foreign investment, public investment, taxation, small business development, environmental management, "to translate high visitor demand into a flow of higher-value tourists and more local capture of their expenditure."

It added that an effective policy implementation and enforcement may prove to be a challenge for Palau, and that attracting higher-value tourists will "require political commitment, effort from the whole government, and an improved public understanding of the issues and the difficult choices they pose."

"The growth outlook in Palau remains positive because of tourism," it said.

Palau’s inflation fell to 2.2 percent in 2015 due to lower international food and fuel prices. But the tobacco tax hike pushed up prices of tobacco by 14.6 percent.

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