Palau: Economy

Palau’s economy recovered strongly last year on record tourist arrivals. Growth in the North Pacific is seen to accelerate in the near term because of favorable external conditions and stimulus from infrastructure projects, along with continued tourism growth in Palau. Rationalizing air links to the North Pacific would boost prospects for sustainable growth.

Selected economic indicators (%) - Palau 2015 2016
GDP Growth 8.0 6.0
Inflation 3.4 3.4
Current Account Balance (share of GDP) -6.4 -8.1

Source: ADB estimates.

Economic performance

Palau grew strongly by 6.9% in Fiscal Year 2014 (ended 30 September 2014). A surge in tourism and increased construction, particularly late in the fiscal year, drove growth in, which reversed economic contraction in the previous year. Following a 9.5% decline in FY2013, visitor arrivals rebounded by 13.2% to reach a record high of nearly 123,000. Particularly strong was growth in arrivals from the People’s Republic of China (PRC), which made it the largest tourist source in the last quarter of FY2014. Arrivals from two other major markets, Japan and Taipei,China, also improved. New air links with Hong Kong, China and expanded accommodation capacity boosted recovery in tourism arrivals.

Economic prospects

Growth in Palau’s gross domestic product (GDP) is projected to accelerate to 8.0% in FY2015 on increased tourism, hotel construction, stimulus from 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 double-digit rates. Tourist numbers from the PRC in particular are seen to rise further after a second airline began offering chartered flights from Hong Kong, China in September 2014. Concerns are growing, however, about how many new visitors can be accommodated in the current stock of hotel rooms and about the carrying capacity of tourist sites and public infrastructure. Growth in visitor arrivals is expected to taper off slightly in FY2016, but GDP growth is seen to remain strong at 6.0%, supported by ramped up public infrastructure construction.

Excerpted from the Asian Development Outlook 2015.