Republic of Palau

The 2025 Article IV Consultation discusses that Palau’s economic recovery is underway with an improving fiscal balance, declining debt, and well-contained inflation, though debt is still high. The growth outlook remains robust despite exposure to global uncertainty and extreme weather events. Policy priorities include further reducing debt, while improving tax administration following the successful tax reform, and managing fiscal risks, particularly through the swift implementation of pension reforms. Enhanced financial oversight, vigilant management of risks arising from digital initiatives, and tailored reforms to address challenges in financial intermediation and the payment system are important for supporting financial stability and development. Achieving high and sustained growth will require continued efforts to diversify the economy, strengthen capacity building, promote resilience-enhancing investments, attract skilled labor, and foster foreign investment that benefits the domestic economy. Structural policies should aim to diversify the economy, upgrade the tourism sector, attract foreign direct investment, and retain skilled workers. Holistic reform planning and coordinated implementation efforts are key to success. Climate-related policies can be better integrated into development planning and public financial management processes.