Country Operations Business Plan October 2015 Palau 2016 2018 This document is being disclosed to the public in accordance with ADB s Public Communications Policy 2011.
CURRENCY EQUIVALENTS The currency of Palau is the United States dollar. ABBREVIATIONS ADB Asian Development Bank ADF Asian Development Fund COBP country operations business plan COL concessional ordinary capital resources lending GDP gross domestic product KASP Koror-Airai Sanitation Project MAP management action plan MOL market-based ordinary capital resources lending OCR ordinary capital resources TA technical assistance NOTES (i) (ii) The fiscal year (FY) of the Government of Palau ends on 30 September. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2015 ends on 30 September 2015. In this report, "$" refers to United States dollars. Vice-President S. Groff, Operations 2 Director General X. Yao, Pacific Department (PARD) Director E. Veve, Urban, Social Development and Public Management Division, PARD Team leader Team members M. Melei, Country Specialist, PARD S. Bhattacharya, Senior Infrastructure Specialist (ICT), PARD S. Blaik, Principal Urban Development Specialist, PARD C. Edmonds, Senior Economist, PARD A. Koshiba, Development Coordination Officer, PARD A. Parker, Principal Social Sector Economist, PARD R. Rabanal, Senior Economics Officer, PARD C. Thonden, Education Specialist, PARD C. Tinio, Associate Economics and Statistics Analyst, PARD N. Usui, Senior Public Management Economist, PARD J. Wolff, Economist (Public Finance), PARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
CONTENTS Page I. CONSISTENCY OF BUSINESS PLAN WITH THE PACIFIC APPROACH 1 II. INDICATIVE RESOURCE PARAMETERS 2 III. SUMMARY OF CHANGES TO LENDING AND NONLENDING PROGRAMS 2 APPENDIXES 1. Updated Country Partnership Strategy Results Framework 3 2. List of Linked Documents 5 3. Indicative Assistance Pipeline 6 4. Assistance Program for Current Year 8 5. List of Indicative Knowledge Publications and Events 9
I. CONSISTENCY OF BUSINESS PLAN WITH THE PACIFIC APPROACH 1. Country partnership strategy. The country operations business plan (COBP) 2016 2018 for Palau is aligned with the Asian Development Bank s (ADB) Interim Pacific Approach 2015, which extends the validity of The Pacific Approach 2010 2014, and with the Midterm Review of Strategy 2020. 1 The Pacific Approach serves as the country partnership strategy for Palau. 2 The COBP aligns with the Government s Medium Term Development Strategy 2009 2014 3 and the management action plan (MAP) adopted by the Government in 2013. 4 The MAP s overarching goal is to improve the quality of life while underscoring commitment to environmentally sustainable and socially inclusive development. The COBP continues to support the Government s priorities on (i) improving public sector effectiveness, (ii) facilitating private sector development, (iii) delivering safe water and sanitation services, and (iv) improving connectivity. An updated results framework is in Appendix 1. 2. Development challenges. Palau s main development challenges include (i) creating an environment conducive to higher value tourism; (ii) making growth more inclusive; and (iii) fiscal consolidation. Despite having a successful tourism industry, Palau struggles to achieve higher value tourism. Average tourism spending remains around $500 per day, far below the over $1,000 a day in the Maldives a comparable small-island economy that is also highly dependent on tourism. A recent sharp increase in tourist arrivals has highlighted Palau s limited capacity in basic infrastructure, tourism-related services, and environmental protection. Palau needs a strategic approach to upgrading its tourism sector in keeping with its capacity. A growing tourism industry has not translated to a corresponding increase in job opportunities for the local workforce. The majority of jobs in hotels and related services are filled by foreign workers while locals continue to migrate, mainly to the United States, in search of better job opportunities and higher wages. A large portion of Palau s national budget is still covered by United States assistance through the Compact. 5 Given the expected decrease in Compact support, long-term fiscal sustainability is a key challenge. Fiscal consolidation requires actions both in revenue and expenditure. However, progress is slow. 3. Economic outlook. Gross domestic product (GDP) growth is projected to accelerate to 8.0% in FY2015 on the back of increased tourism, hotel construction, higher public infrastructure spending, and improvements in the external economic environment. Tourism stands to benefit from lower air-transport costs as visitor arrivals continue to climb at doubledigit rates. Concerns are growing, however, about how many new visitors can be accommodated in the current stock of hotel rooms and the carrying capacity of tourist sites and public infrastructure. Growth in visitor arrivals is expected to taper off slightly in FY2016, but still GDP growth is forecast to remain strong at 6.0%, supported by ramped-up public infrastructure construction. 6 4. Portfolio performance. Since joining ADB in 2003, Palau has received two loans (totaling $44.8 million) and five technical assistance (TA) projects (totaling $3.3 million). 1 ADB. 2015. Interim Pacific Approach, 2015. Manila; ADB. 2009. ADB s Pacific Approach, 2010 2014. Manila; ADB. 2014. Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific. Manila. (accessible from the list of linked documents in Appendix 2). 2 Memo approved by the Vice-President-in-Charge, Operations 2 on 1 July 2011, paragraph 2b. 3 Government of the Republic of Palau. 2009. Medium Term Development Strategy for Palau Actions for Our Future. Koror (accessible from the list of linked documents in Appendix 2). 4 The MAP endorses the thrusts of the Medium-Term Development Strategy and the Medium-Term Fiscal Strategy. 5 The Compact of Free Association defines the relationship that Palau has entered into with the United States, and includes the provision of economic assistance, including grants. 6 ADB. 2015. Asian Development Outlook 2015. Manila.
2 Additionally, Palau has benefited from regional TA projects supporting public-sector management, education, economic management, and private-sector development. The first investment project for Palau was approved in late 2013, so implementation is underway. An emerging challenge is the capacity of the Government to manage large projects, both selffunded and development partner-supported. II. INDICATIVE RESOURCE PARAMETERS 5. Palau is a Group B developing member country, and eligible for concessional ordinary capital resources lending (COL) and market-based ordinary capital resources lending (MOL). 7 The indicative resources available during 2016 2018 for sovereign operations amount to $26.47 million. This comprises $8.91 million for COL and $17.56 million for MOL. The final country allocation will depend on the available resources, and the outcome of country performance assessments. In addition, cofinancing and funding from other sources, including the subregional pool under concessional resources and MOL regional cooperation and integration set-aside, will be actively explored. 6. No lending is proposed for 2016 2018 (Appendix 3) as the Government will focus on implementing the Koror-Airai Sanitation Project (KASP), approved in November 2013, and the proposed North Pacific Regional Connectivity Project, programmed for 2015 (Appendix 4). Additional lending for KASP may be considered in subsequent programming discussions. 7. Indicative TA for 2016 2018 is $500,000. In 2016, additional financing of $200,000 to support tourism development will be made through the ongoing regional TA project supporting sector and thematic analyses for policy development. 8 Another $200,000 to support public administration reforms will be added to the regional TA project to strengthen public sector management in the North Pacific. 9 A TA project to promote the application of information and communication technology to enhance service delivery is in the pipeline for 2017. A TA project to strengthen water and sanitation management is programmed for 2015. 8. ADB will also include Palau in new regional TA projects where feasible. Palau will continue to benefit from ongoing regional TA projects supporting public-sector management, public financial management, economic management, statistics, private-sector development, and labor market performance. The list of indicative knowledge publications and events is in Appendix 5. III. SUMMARY OF CHANGES TO LENDING AND NONLENDING PROGRAMS 9. Due to the delay in establishing the Belau Submarine Cable Company, the proposed North Pacific Regional Connectivity Project shifted from 2014 to 2015 with a private sector consortium now likely to participate in the project. This is a joint project, with ADB financing Palau s share ($25.0 million) and the World Bank financing that of the Federated States of Micronesia. ADB financing comprises $8.53 million from COL and $16.47 million from MOL. 10 7 Terminology reflects combination of ADF lending operations with the OCR balance sheet that will take effect on 1 January 2017. For 2016, COL and MOL stated here should be understood as ADF lending and OCR lending. 8 ADB. 2014. Technical Assistance for Sector and Thematic Analyses in Policy Development. Manila. 9 ADB. 2013. Technical Assistance for Strengthening Public Sector Management in the North Pacific. Manila 10 ADB financing includes $2 million from the regional ADF facility and $11.5 million from OCR set-aside.
Appendix 1 3 UPDATED COUNTRY PARTNERSHIP STRATEGY RESULTS FRAMEWORK (Board endorsement of the Interim Pacific Approach: 2015; COBP: October 2015) Country Development Goals A sustained and widespread improvement in general standards of living while preserving cultural and environmental values for the people of Palau. Sectors Selected by ADB ADB Indicative Resource Sector Outcomes that Allocation in the Next Government Sector ADB Contributes to and ADB Areas of Pipeline and Strategic Objectives Indicators Intervention Priorities 1. Public Sector Management (Core Area: Other; Drivers of Change 2: Governance and Capacity Development) Undertake reforms to ensure a cost-conscious and highly productive government Outcome: Improve public sector effectiveness to achieve the medium-term fiscal strategy Indicator 1: A multiyear perspective is adopted for fiscal planning, expenditure policy, and budgeting Baseline: None Target: Adoption of multiyear framework for FY2016 Current value: None Ongoing Strengthening Public Sector Management (TA 8581-REG) Private sector development initiative (TA 8378) Pacific economic management (TA 8565) Proposed Support to public administration reforms (through TA8581) Support to tourism sector development (through TA8819) $0.4 million, 44.4% of total COBP envelope, of which: ESG 50% GEM 0% PSD 50% RCI 0% Changes from CPS or Last COBP None Changes from CPS or Last COBP Additional financing to support (i) tourism sector development ($200,000), and (ii) public administration reforms ($200,000) will be processed in 2016. The additional financing will be made to TA8819 and TA8581 respectively. 2. Water Supply and Other Urban Infrastructure and Services (Core Area 1: Infrastructure) Make critical investments in sanitation, water, and power, and prioritize maintenance Outcome: Deliver safe water and sanitation services to Palauans. Ongoing Koror Airai Sanitation Project (Loan 3060/3061) Position Palau as the island of choice for environmentally conscious visitors and realize higher Indicator 1: Water supply reliability is measured as % of days when water is supplied. Baseline: 95.0% (2009) Water and Sanitation Sector Management TA $0.0 million, 0.0% of total COBP envelope, of which: ESG 0% GEM 0% PSD 0%
4 Appendix 1 Sectors Selected by ADB Government Sector Objectives returns to the nation from tourism Sector Outcomes that ADB Contributes to and Indicators Current: 95.0% (2015) Target: 99.9% (2019) ADB Areas of Intervention ADB Indicative Resource Allocation in the Next Pipeline and Strategic Priorities RCI 0% $500,000 approved by end 2015. Changes from CPS or Last COBP 3. Information and Communication Technology (Core Area 1: Infrastructure) Reduce the cost and increase the availability of ICT services needed to support social and economic development Outcome: Decrease in cost and increase in quality internet service Indicator 1: Retail price of fixed internet service for 2 Mbps connection decreased by at least 15% Baseline: $6,000/2 Mbps (2014) Current: $6,000/2 Mbps (2014) Target: $5,000/2 Mbps (2018) Indicator 2: Performance of fixed-line internet has increased in terms of average bandwidth per user by 60% Baseline: 192 kbps (2014) Current: 192 kbps (2014) Target: 310 kbps (2018) Ongoing North Pacific Regional Connectivity Project (to be approved November 2015) Proposed TA for ICT application for service delivery $0.5 million, 55.6% of total COBP envelope, of which: ESG 50% GEM 0% PSD 25% RCI 25% $25.0 million approved by end of 2015 ADB = Asian Development Bank; COBP = country operations business plan, CPS = country partnership strategy, ESG = environmentally sustainable growth, GEM = gender equity and mainstreaming, ICT = information and communication technology, kbps = kilobits per second, Mbps = megabits per second, PSD = private sector development, RCI = regional integration, REG = regional, TA = technical assistance. Sources: Asian Development Bank estimates.
Appendix 2 5 LIST OF LINKED DOCUMENTS http://www.adb.org/documents/cobp/?id=pal-2016 1. ADB's Approach to Assisting the Pacific (2010 2014) 2. Interim Pacific Approach, 2015 3. Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific 4. Medium-Term Development Strategy for Palau, 2009 2014 5. Strategic Analysis for the Country Operations Business Plan, 2016 2018
6 Appendix 3 Poverty Targeting INDICATIVE ASSISTANCE PIPELINE Table A3.1: Lending Products, 2016 2018 Strategic Agendas and Drivers of Change Year of PPTA/ PDA Cost ($ million) ADB a ADF Grants Project/Program Name Sector Division Total MOL COL Total Gov t 2016 None 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2017 None 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2018 None 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cofinance ADB = Asian Development Bank, ADF = Asian Development Fund, COL = concessional OCR lending, Gov t = government, MOL = market-based OCR lending, OCR = ordinary capital resources, PDA = project design advance, PPTA = project preparatory technical assistance. a Reflecting the approved combination of ADF lending operations with the OCR balance sheet that will become effective on 1 January 2017. Source: Asian Development Bank estimates.
Appendix 3 7 Table A3.2: Nonlending Products and Services, 2016 2018 Assistance Type ADB Sources of Funding Others Amount ($ 000) Source Amount ($ 000) Assistance Name Sector Division Source 2016 None 0.0 0.0 0.0 Total 0.0 0.0 0.0 2017 ICT Application to Service Delivery ICT PAUS CDTA TASF 500.0 0.0 500.0 Total 500.0 0.0 500.0 2018 None 0.0 0.0 0.0 Total 0.0 0.0 0.0 ADB = Asian Development Bank; CDTA = capacity development technical assistance; ICT = information and communication technology; PAUS = Urban, Social Development, and Public Management Division; TASF = Technical Assistance Special Fund. Source: Asian Development Bank estimates. Total ($ 000)
8 Appendix 4 ASSISTANCE PROGRAM FOR CURRENT YEAR Table A4.1: Lending Products, 2015 Project/Program Name Sector Poverty Targeting Strategic Agendas and Drivers of Change Division Year of PPTA/ PDA Total OCR Cost ($ million) ADB ADF Loans Grants Total Gov t Cofinance North Pacific Regional Connectivity Project ICT GI ESG/GCD/ IEG/KNS/ PAR/PSD/ RCI PAUS 2013 50.00 16.47 a 8.53 b 0.00 25.00 tbc 25.00 Total 50.00 16.47 8.53 0.00 25.00 tbc 25.00 ADB = Asian Development Bank; ADF = Asian Development Fund; ESG = environmentally sustainable growth; GCD = governance and capacity development; GI = general intervention; Gov t = government; ICT = information and communication technology; IEG = inclusive economic growth; KNS = knowledge solutions; OCR = ordinary capital resources; PAR = partnerships; PAUS = Urban, Social Development, and Public Management Division; PDA = project design advance; PPTA = project preparatory technical assistance; PSD = private sector development; RCI = regional integration. a include $11.5 million from OCR set-aside. b include $2.0 million from ADF regional facility. Source: Asian Development Bank estimates. Table A4.2: Nonlending Products and Services, 2015 Assistance Name Sector Division Assistance Type Sources of Funding ADB Others Amount Source ($ 000) Source Amount ($ 000) Total ($ 000) Water and Sanitation Sector Management WUS PAUS CDTA TASF 500.0 0.0 500.0 Total 500.0 0.0 500.0 ADB = Asian Development Bank; CDTA = capacity development technical assistance; PAUS = Urban, Social Development, and Public Management Division; TASF = Technical Assistance Special Fund; WUS = water and other urban infrastructure services. Source: Asian Development Bank estimates.
Appendix 5 9 LIST OF INDICATIVE KNOWLEDGE PUBLICATIONS AND EVENTS Table A5.1: Knowledge Publications and Events for 2016 Title of Publication or Event Subject Type Department or Sector Group or Thematic Group Technical Assistance Asian Development Outlook Economics Publication ERCD, PARD Asian Development Outlook Update Economics Publication ERCD, PARD Pacific Economic Monitor (July) Economics Publication PARD TA8565-REG Pacific Economic Monitor (December) Economics Publication PARD TA8565-REG Asia Clean Energy Forum Energy Event organization SDCC Water Week Water and sanitation Event organization SDCC Private Sector Assessment Private sector Publication PARD TA8378-REG development Palau Economic Symposium Economics Event organization PARD TA8565-REG Labor market assessment and action plan Labor market Publication PARD TA8794-REG Total number of publications = 6 Total number of events = 4 ADB = Asian Development Bank, ERCD = Economic Research and Regional Cooperation Department; PARD = Pacific Department; SDCC = Sustainable Development and Climate Change Department. Note: Publications may include databases, multimedia, and other forms of documentation. Events may include event organization and training or capacity development. Source: Asian Development Bank.
10 Appendix 5 Table A5.2: Knowledge Publications and Events Delivered in 2015 Title of Publication or Event Subject Type Department or Sector Group or Thematic Group 2015 Pacific Energy Update Launch Energy Event organization PARD Technical Assistance Dissemination activities for the Aid for Trade Report for WTO Industry and Trade Event organization ERCD TA8655-REG Leveraging Benefits of Asia s Integration and Growth for Pacific Economics Publication PARD Economies Launch Pacific Economic Monitor (December 2015 issue) Economics Publication PARD TA8565-REG Pacific Economic Monitor (July 2015 issue) Economics Publication PARD TA8565-REG Pacific Transport Update 2014 Launch Transport Publication PARD Pacific Update Conference Economics Event organization PARD TA8565-REG Training for microfinance institutions on client protection principles Finance Event organization SDCC Trainings for policymakers, insurance supervisors, and other Finance Event organization SDCC TA8643-REG insurance stakeholders Palau Economic Symposium Economics Event organization PARD TA8565-REG Clean Energy Forum Energy Event organization SDCC Water Week Water and sanitation Event organization SDCC ADO Roadshow Economics Publication/Event ERCD organization Total number of publications = 5 Total number of events = 9 ADB = Asian Development Bank, ADO = Asian Development Outlook; ERCD = Economic Research and Regional Cooperation Department; PARD = Pacific Department, SDCC = Sustainable Development and Climate Change Department, WTO = World Trade Organization. Note: Publications may include databases, multimedia, and other forms of documentation. Events may include event organization and training or capacity development. Source: Asian Development Bank.
Appendix 5 11 Table A5.3: Innovation, Advanced Technology, and Pilot Initiatives to be Implemented in 2016 None Item Nature Project Number Sector or Theme Division Total number of innovation, advanced technology, and pilot initiatives = 0 Source: Asian Development Bank.