The Asian Development Bank (ADB) has approved policy-based loans amounting to $25 million to help Palau’s economy rebound from the coronavirus disease (COVID-19) pandemic.

The Recovery through Improved Systems and Expenditure Support Program will help strengthen public financial management in the country, reduce fiscal risks, and support private sector development to restore sustained and equitable economic growth.

“This support will help Palau’s tourism-dependent economy bounce back from the impact of COVID-19 and drive it toward a more sustainable fiscal path,” said ADB Public Sector Economist Rommel Rabanal. “This, in turn, will translate to improved living standards for current and future generations of Palauans.”

The assistance is the first phase of a program developed in partnership with the Government of Palau to implement key reforms to safeguard fiscal sustainability and support recovery from the pandemic. As part of the program, the government is introducing overarching fiscal responsibility legislation that will guide efforts to strengthen management of public revenue, expenditure, debt, and fiscal buffers. Further private sector development, which will be critical for longer-term growth, is supported by the program through improvements in regulatory frameworks covering business registrations, public–private partnerships, and international arbitration.

Subprogram 1 supports reforms that will help reduce fiscal risks from weak management of public revenue and expenditure. Since COVID-19 impacts have necessitated substantial borrowing, greater domestic resource mobilization, more efficient public spending, and improved debt management will be vital to create sufficient fiscal space to service debt. Subprogram 1 supports the design and development of a tax reform package and the development of a bill for external debt management which will help strengthen the review of economic implications of new borrowing, while improving debt transparency.