Palau: Economy

Palau's per capita GDP of $8,941 makes it one of the wealthier Pacific Island states. Nominal GDP increased by an annual average of nearly 14% from 1983 to 1990, and by an annual rate of over 10% from 1991 to 1997. Growth turned sharply negative in 1998 and 1999 as a result of the Asian financial crisis, but a gradual rebound followed, and the economy grew by 5.6% in 2007.

Tourism (and its attendant infrastructure changes) is Palau's main industry. Its major draws are its diverse and pristine marine environment, and its above-water tropical island beauty. The number of visitors--34% from Japan, 26% from Taiwan, 18% from Korea, and 11% from the U.S.--was 85,593 in 2010, a 10% increase from 2009. Continental Airlines has direct flights to Palau from Guam and the Philippines. Delta Airlines has weekly non-stop flights from Narita, Japan to Palau. Japan Airlines runs chartered flights from Tokyo, and Korean Airlines does the same from Seoul on a seasonal basis.

Palauan tourism and environmental authorities would like to adjust the industry, simultaneously decreasing tourist volume and increasing income by attracting more high-dollar tourists.

The service sector dominates the Palauan economy, contributing more than 50% of GDP and employing more than half of the work force. The government alone employs about 30% of workers and accounts for 20% of the GDP.

Construction is an important industrial activity, contributing over 15% of GDP. Several large infrastructure projects, roads, and hotels have boosted this sector's recent contribution to GDP.

Agriculture is mainly on a subsistence level, the principal crops being coconuts, taro, and bananas. Fishing is a potential source of revenue, but the islands' tuna output dropped by over one-third during the 1990s. Fishing industry revenues are mostly from license fees from fishing vessels.

One of the government's main responsibilities is administering external assistance, and the main economic challenge confronting Palau is to ensure the long-term viability of its economy by reducing its reliance on foreign assistance.

Under the terms of the Compact of Free Association with the United States, Palau received more than $800 million in direct assistance over 15 years and exercised its prerogative to participate in a wide range of federal programs. In early September 2010, the United States and Palau concluded a 15-year comprehensive review of the Compact. A wide range of federal programs will continue for the next 15 years. By the end of 2010, the value of a trust fund set up under the Compact was approximately $160 million.

Sources:
CIA World Factbook (September 2009)
U.S. Dept. of State Country Background Notes (May 2011)