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  • By Mar-Vic Cagurangan

Emerging from isolation: While remaining coronavirus-free, Palau bears the brunt of global pandemic

Palau Vice President Raynold Oilouch and former senator Surangel Whipps will face off in the Nov. 3 presidential election, and the candidate who wins the top political post will inherit the leadership of a nation that is struggling to reemerge from isolation.

Palau quickly shut down its borders at the onset of the Covid-19 pandemic. It is among the very few countries that have kept clear of the pandemic, which has triggered an economic carnage around the world.

"We have been fortunate to remain free of Covid-19 cases. But we are certainly not free of the consequences of this pandemic,” President Tommy Remenegsau said during the United Nations General Assembly General Debate on Sept. 23.

“This pandemic has put Palau into a level of isolation we have not known for many, many years. We struggle with disruptions to supply chains for food and essential medicines. We struggle to connect patients with life-saving medical treatment, for which we previously relied on off-island providers in larger countries.”

The Asian Development Bank has projected Palau’s economy to contract by 9.5 percent in 2020 and 12.8 percent in 2021. A separate forecast released in June by the Graduate School USA's Economic Monitoring and Analysis Program projected Palau to experience a 22.3 percent decline in GDP and a loss of 3,128 jobs, primarily in the private sector.

Tourism, the backbone of Palau’s economy, comprises about 80 percent of the nation’s total GDP and employs over 75 percent of the workforce. The closure of Palau’s borders due to the Covid-19 pandemic has paralyzed its visitor industry.

“Sometimes we hear people say that health is more important than money, and that is certainly true,” Remengesau said. “But a national economy is not ‘money,’ it is the system that determines quality of life, and that delivers critical public services. It is the environment, healthcare, education. It is food on the table.”

Prior to the pandemic, Palau’s fiscal year 2020 first-quarter arrival numbers were on track to boost more than 30 percent and estimated to attract 116,000 visitors, according to Economic Monitoring and Analysis Program. The revised forecast for the coronavirus-stricken year projected a 51 percent drop in tourism, and a further 89 percent reduction in fiscal year 2021.


“We struggle to keep families united, to keep college students in school, and to keep family breadwinners working,” said Remengensau, who is capping his two-term presidency this year. “Private sector unemployment is approaching 50 percent, and it will take years to recover what we have lost in months.”

Palau has been unable to receive the level of foreign assistance it needs due to its high-income categorization that needs to be corrected, Remengesau said.

With a projected GPD of $283.99 million in 2018, is on the World Bank's list of high-income economies, a label often interchanged with "first world."

"The truth is, Palau's high-income categorization is, in many ways, unrealistic. It does not match the facts on the ground, or reflect our tremendous vulnerability as a small economy," Remengesau said.

He said the incorrect listing "has to be addressed” because the current rules deny Palau adequate assistance that it desperately needs.

“The unified response from the international community should extend to our small island circumstances,” Remengesau said. “This means access to concessional finance, and to innovative financial support, so that we too can prepare to recover from the economic crisis that the pandemic has brought. To rebuild the fiscal space for investing in sustainable development that the pandemic has wiped out.”

This month, the former U.S. trust territory is marking its 26th year as an independent nation. Palau receives annual grant assistance under the Compact of Free Association with the United States. In 2018, the U.S. Congress authorized the 2010 Compact Review Agreement, which includes the deferred payment of over $120 million in Compact grants.

The U.S. and Palau negotiation teams are currently reviewing the Compact’s funding provisions that are set to expire in 2024.

“Due to the renewed economic assistance terms of the Compact, it is projected that Palau’s Compact Trust Fund will achieve its original objective of replacing Compact assistance beyond 2044. ADB will continue to concentrate its assistance on improving public sector performance and promoting private sector development in Palau,” ADB said.

In July, ADB extended a $20 million loan to Palau to help the nation prepare for the Covid-19 crisis and respond to its impact on the economy.

"While Palau remains free of Covid -19 as of July 29, ADB’s program will help the government upgrade the country’s health sector by financing the purchase of ventilators for Belau National Hospital, establishing a Covid-19 hotline for public inquiries, and funding overtime and hazard pay for frontline health workers," ADB said.

Palau joined the Asian Development Bank in 2003. The young nation was classified as an ADB developing member country in December 2005. "Since 2005, ADB has committed loans totaling $84.8 million, a grant of $0.2 million, and technical assistance worth $3.8 million for Palau, according to ADB.

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