ADB Economic Outlook
The ongoing recovery in Palau’s tourism sector has contributed to the island nation’s economic growth in the Fiscal Year 2024, according to the Asian Development Bank’s (ADB) latest economic forecast for Asia and the Pacific: April 2025.
“Palau’s economy experienced a growth of 6.6% in FY2024, primarily driven by the ongoing recovery in the tourism sector,” the report stated.
Forecasts for Palau were finalized before new United States (US) tariffs were announced on 2 April.
Although international arrivals during FY2024 reached only 58.9% of pre-pandemic FY2019 levels, many key segments of the tourism market are showing significant recovery, with continued growth expected. International arrivals from Taipei, China, accounted for 80.7% of the FY2019 level, while visitors from North America and other regions have exceeded pre-pandemic numbers.
The report also noted that in FY2024, the number of visitors from the People’s Republic of China, which represents the largest share of tourists, doubled compared to FY2023.
Boosting economic growth through tourism, new direct flights from Australia were introduced in November 2024, along with additional flights from Japan.
The forecast further stated that growth is set to increase to 9.5% in FY2025 and then slow to 4.5% in FY2026.
The tourism recovery of Palau will further benefit from the Pacific Mini Games 2025, COFA and Taipei, China-funded construction projects, and a rise in public sector minimum wages.
Inflation in FY2024 dropped to 3.7% as the impact of the Palau Goods and Services Tax faded, PGST or VAT.
International food and non-alcoholic beverage prices rose by 1.4%, helping to offset an 8.2% increase in domestic goods and services.
Utilities and housing costs increased by 1.5%, while transportation surged by 6.6%, and accommodation rose by 11.2% due to recovering tourism demand. Prices are expected to rise by 2.5% in FY2025 and 2.6% in FY2026 due to anticipated increases in import costs from major trading partners.
The ADB also noted that tourism recovery has increased revenue, leading to an estimated 3.4% GDP surplus in FY2024.
Annual COFA grants will help manage rising public expenditure, including planned wage increases in FY2025. These grants will also assist with debt servicing, specifically for fiscal consolidation. (By: Bernadette Carreon)