KOROR, PALAU (18 April 2024) — The economy of Palau is expected to improve in 2024 and 2025, according to the Asian Development Outlook (ADO) April 2024, ADB’s flagship economic publication.

After 4 consecutive years of economic contraction, Palau’s economy is projected to grow by 6.8% in 2024, picking up further to 8% in 2025. The positive outlook is largely driven by a significant growth in tourism. The report says visitor arrivals grew in the 2023 fiscal year by 279.1%, buoyed by the resumption of flights from Taipei,China and Macau. The construction sector will rebound, and new public infrastructure projects will also contribute to economic growth.

"Palau's tourism sector is performing strongly, but improved public sector management remains key to using the financial assistance anticipated under the North Pacific economies’ renewed Compacts of Free Association with the United States to improve the quality of public services and build resilience,” said ADB Pacific Department Deputy Director General Hideaki Iwasaki. “It is critical that public investment management is upgraded, the quality of public investments enhanced, and risks managed to ensure the medium-term outlook for Palau remains positive.”

The ADB report says Palau, along with the other North Pacific economies of the Federated States of Micronesia (FSM) and the Marshall Islands, have begun implementing domestic resource mobilization measures to help build fiscal self-sufficiency. Palau introduced a package of tax reforms, including a business profits tax and a reduced wage tax for certain income levels. The reforms update the previous inefficient tax regime while also broadening the revenue base and promoting equity.

Inflation is expected to ease slightly from 5.5% in 2024 to 3.7% in 2025 as domestic factors push up prices.

The North Pacific economies of FSM and the Marshall Islands improved as business activity picked up during their first full year without pandemic-related mobility restrictions. Growth in the FSM economy is projected at 3.1% in 2024, moderating slightly to 2.8% in 2025. The Marshall Islands economy is projected to expand by 2.7% in 2024 and 1.7% in 2025.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

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