Overview:
A new report by the Lowy Institute reveals that the United States, Japan, and Australia remain Palau’s top foreign aid providers, with U.S. support under the Compact of Free Association continuing to fund much of the nation’s government operations and infrastructure. The 2025 Pacific Aid Map also highlights Palau’s ongoing reliance on aid, which makes up 12% of its GDP, and shows a growing share of funding directed toward climate change and renewable energy projects.
By: Bernadette Carreon
Three countries provide most of the foreign aid to Palau: the United States, Japan, and Australia, Lowly Institute report finds.
The 2025 Lowly Institute Pacific Aid Map, released recently, tracks official development finance (ODF) from 2008 to 2023.
The report finds that the United States is Palau’s biggest aid provider by far, funding development projects through the Compact of Free Association—a special agreement that gives the U.S. military access to Palau in exchange for economic support. This Compact money pays for much of Palau’s government operations, roads, schools, and other essential services.
It also said that Palau remains among the more aid-reliant countries in the world.”
Palau has the fifth-highest official development assistance (ODA) to gross domestic product (GDP) ratio in the Pacific Islands region, with aid accounting for 12% of GDP.
Japan gave Palau $5.4 million in 2023 to help fund the government’s budget. Australia contributed $4 million in 2023 to build a solar power facility in Ngatpang. Australia also funds programs to support women’s development across the Pacific, including in Palau.
Between 2008 and 2023, Palau received an average of $55 million per year in aid from all sources.
Aid to Palau used to come mainly in the form of grants—free money that doesn’t need to be repaid, but that’s changing. Before 2014, only 7% of aid came as loans. Now loans make up about one-third of all aid.
The report also said most aid money goes to government operations and civil society projects. Palau also gets above-average funding for water systems, sanitation, and energy projects.
Climate change projects are growing, too. About 14% of aid now focuses mainly on helping Palau adapt to rising seas and extreme weather.