Palau’s geography, small markets, and tourism-based economy make it vulnerable to external economic shocks, the impacts of climate change, and extreme weather events. Transport costs are high, and cargo volumes small. The small domestic market prevents the local capture of scale economies. Palauan labor is effectively fully employed, and there is a high reliance on foreign labor to meet demand.

Palauans enjoy relatively high standards of health, education, and free basic social services.

ADB will continue to support the implementation of Palau’s priority development strategy. Improving public sector effectiveness and private sector development opportunities are likely to remain key elements of ADB’s future support, along with support for key infrastructure investments that provide social benefits. .