Republic of Palau Medium Term Fiscal Strategy Rational and Description Fiscal Years 2021-24

Republic of Palau Economic and Fiscal Update FY 2022

The economic and fiscal update is required under the Fiscal Responsibility and Debt Management Act. The objectives of fiscal policy for the current administration have been specified in the Fiscal Strategy issued by the President and shared with the OEK and the public as required by law under the Fiscal Responsibility and Debt Management Act (FRDMA). These objectives and policies form the basis for the design of the annual budgets specified in the FRDMA and follow the cycle indicated in the flow chart. This economic and fiscal update (referred to as the Update) is an integral part of the budget cycle. The initial step required is the creation and maintenance by the Ministry of a Medium-Term Economic and Fiscal Model: “MTEF-mod”. The model provides the economic forecasts and fiscal envelope (the resources available to government to fund the budget), which underlies the economic and fiscal forecasts presented in this report.

Private Sector Assessment for Palau: Policies for Sustainable Growth Revisited (ADB)

In 2014 and 2015, Palau’s economy expanded strongly, with real gross domestic product (GDP) rising by 5.3% and 8.2%, respectively.1 The country’s per capita GDP also increased and, at the end of the fiscal year (FY) 2015, it was in excess of $16,000—the highest among the developing member countries of the Asian Development Bank (ADB) in the Pacific region. Although growth is forecast to be lower in 2016 because of a slowdown in tourist arrivals, it is expected to resume in 2017.

This strong performance, however, masks some urgent issues that could threaten the sustainability of Palau’s economy and compromise its long-term prosperity. The country’s economy is founded upon tourism, and the exceptional growth of the past
2 years is primarily due to an explosion in visitor numbers. The rapid expansion has placed significant strain on the carrying capacity of Palau’s pristine natural sites, and is threatening to overwhelm the country’s infrastructure.

2018 Article IV Consultation - Press Release; Staff Report; And Statement by the Executive Director for the Republic of Palau (IMF)

This document published by the Republic of Palau is being provided as background to the Palau Economic Advisory Group (EAG).

2021 Article IV Consultation - Press Release; Staff Report; And Statement by the Executive Director for the Republic of Palau (IMF)

This document published by the Republic of Palau is being provided as background to the Palau Economic Advisory Group (EAG).

Palau: Pacific Tourism Sector Snapshot (PSDI)

The Republic of Palau is a global leader in sustainable tourism, offering visitors a pristine natural environment, and well-developed tourism infrastructure. Palau’s world-class diving and the famous Rock Islands and Jellyfish Lake are at the core of its tourist offering, but the country is also home to lush inland nature reserves and a range of accommodation and restaurants.

Palau’s economy is driven by tourism. Tourism receipts contribute an estimated 38% of Palau’s gross domestic product (GDP) (Pacific Tourism Organisation [SPTO] 2020). Tourism employment was estimated at 2,690 in 2018 (SPTO 2019)—representing 45% of the country’s total employment—however, only 24% of tourism jobs, or 650 positions, were held by Palauans (Graduate School USA 2019).

The Government of Palau aims to transition the tourism sector to focus on sustainability and higher-yield visitors. Significant policy initiatives—such as limiting charter flights and changing immigration laws to protect the environment—demonstrate the government’s commitment to this goal. However, key challenges remain to be addressed, including local labor shortages, infrastructure constraints, and preventing future environmental degradation.

Economy Profile: Palau - Doing Business 2020 (World Bank)

This document published by the Republic of Palau is being provided as background to the Palau Economic Advisory Group (EAG).