Medium-Term Expenditure Planning PALAU Presented By: Darren & Chandler

Republic of Palau Population: 17,501 (2012 Mini Census) Nominal GDP (FY2014): $249.1million Annual Budget for FY2016: $84,459,200 Expenditures account for 36% of GDP (FY2014) Sources of Funds: Taxes Grants Other Revenue (permits, licenses, fees, etc.) Compact Funds

Main Public Expenditures Use of Goods and Services-10% of GDP Utilities and Communications Medical Supplies Contract Services Building & Construction Compensation of Employees-15.3% of GDP Wages Medical Savings Account Social Security Pension Plan Compensation of employees: Employer contributions to MSA, SS, CSPP

Expenditure Challenges/Pressures Wage Bill 15.3% of GDP 38% of FY2014 Budget Budget Reserve Fund $1 million every fiscal year Rebuilding after natural disasters Typhoon Haiyan expenditures: $4.6 million in FY14 External Debt 28.3% of GDP Most of the debt service is maintained by SOE sector, about 10% national government.

Future Costs Subsidy Programs for Low-Income Future Debts FY2016: $1.6million for fixed and low income households for electrical power consumption Future Debts National government assumes debt responsibility if SOE defaults. Infrastructure repairs and maintenance Future Development Expenditures New Correctional Facility (Prison) Relocation of the national hospital Relocation of landfill (dumpsite)

Hierarchy for medium Term Fiscal Planning National Development Strategies (NDS): guide the overall prioritisation of budgets and resource allocations Medium Term Fiscal Strategies (MTFS): identify the overall macroeconomic & related fiscal policies/strategies & priorities derived from the (NDS) for resources to be mobilised Medium Term Fiscal Framework (MTFF): takes the strategies from the MTFS and presents aggregate, medium-term macroeconomic & fiscal targets (revenue & expenditure) together with assessments of policy risks & vulnerabilities to ensure a stable budget position Medium Term Budget Framework (MTBF); with the MTFF as a starting point the MTBF disaggregates expenditure to agencies and indicates resource allocations based on NDS priorities Medium Term Expenditure Framework (MTEF); agencies take the MTBF resource allocations and allocate according to sector/agency performance targets

National Medium Term Development Strategies (MTDS) Sector Policies & Strategies Macroeconomic policy: GDP, BoP, income, employment, CPI Medium Term Fiscal Strategies (MTFS) Fiscal Policy and Strategies aligned to MTDS Broad Targets for Fiscal Indicators/Ratios/Benchmarks Medium Term Fiscal Framework (MTFF) Forecasts for Revenue & Expenditure based on MTFS & MTDS Macroeconomic Policy Medium Term Expenditure Framework (MTEF) Detailed costing/output item & performance budget allocations Medium Term Budget Framework (MTBF) Line Ministry prioritised programs/projects Firm Expenditure Ceilings for Line Ministries

Why are these MTFF/MTBF Needed in Palau? The economy of Palau has experienced low rates of economic growth in the last three/four years affected revenue flows to the government and has weakened the budget situation; there is a need to: Improve economic performance; Restore budget sustainability; Ensure better information for policy making and prioritization of resource allocation for the future These objectives can be supported by a medium term fiscal framework and an MTBF a set of basic economic and fiscal forecasts/targets derived from a sound fiscal strategy; leading to Better coordination between finance and LMs; Better budget planning and management by LMs Sound economic & fiscal management

Thank You!!