Palau’s inflation for Fiscal Year 2022 and 2023 hit a historical high of 13 percent, according to the latest International Monetary Fund (IMF) concluded the Article IV consultation with Palau.
The report stated that the inflation increase can be attributed to import prices for food and fuel due to Russia’s war in Ukraine and supply chain disruptions.
IMF also noted that the introduction of VAT, the Palau Goods and Services Tax (PGST), and the one-off utility tariff adjustment have contributed to the high inflation.
However, IMF projects that by FY2024, inflation will go down to 5.9 percent in FY2024, as the impact of one‑off price increases subsides.
It noted though, that Palau is still recovering from the pandemic, which resulted in significant output loss, high external debt, and inflation
After contracting by 2.0 percent in FY2022, economic activity is estimated to have stalled, growing by 0.8 percent in FY2023,” it stated.
IMF also reported that the recovery in the tourism sector has been slow due to a lack of flights, tighter travel restrictions in Palau’s source markets in East Asia, and the appreciation of the US dollar post-pandemic.
“After expanding to support the economy during the pandemic, fiscal policy has been significantly tightened towards its pre‑pandemic balanced position,” it stated.
After the consultation, the IMF Executive Directors welcomed the improving economic outlook of Palau.
“ Recognizing that the uncertainty around the outlook is elevated, Directors encouraged the authorities to maintain their prudent policies and reform momentum to secure a sustainable economic recovery while addressing long-term growth bottlenecks and preparing for climate shocks,” it said.