Palau

Key trends and development challenges

The Republic of Palau is an independent Micronesian country, comprised of 340 islands, eight of which are inhabited. With a GDP of $282 million, Palau is the fourth-smallest economy in the Pacific Islands and one of the smallest sovereign nations in the world. Palau has a population of 17,800, resulting in a GDP per capita of $15,859, ranking third in the Pacific.

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. In a global context, Palau remains among the more aid-reliant countries in the world, with its aid as a share of GDP ranking 22nd among 125 developing countries. The Palau government’s development agenda highlights the importance of sustainable management of its marine resources. At 0.786, Palau’s Human Development Index score ranks 84th out of 193 countries.

Between 2008 and 2023, annual official development finance (ODF) disbursements to Palau — including grants, loans, and other forms of assistance — averaged $55 million. The share of loans in Palau’s total incoming development assistance has increased dramatically over the past decade. Between 2008 and 2013, loans made up around 7% of incoming funds. From 2014 onwards, loans have accounted for around a third of Palau’s total incoming development assistance. The International Monetary Fund ranks Palau’s risk of debt distress as low.

Development partners and sector trends

The vast majority (88%) of ODF support to Palau in 2023 came from four development partners, led by Taiwan (28%), Japan (24%), the United States (19%), and Australia (17%).

Beyond Compact of Free Association-supported projects funded by the United States, both Japan and Australia financed key initiatives in Palau in 2023. Australia contributed $4 million to support the construction of a solar facility in Ngatpang, while Japan provided $5.4 million in budget support ODF disbursements, largely consistent with regional trends in terms of sector distribution. The government and civil society sector featured prominently, accounting for more than a third (39%) of incoming financing. Palau also sees higher-than-average spending in the water, sanitation, and energy sectors.

Since 2008, Palau has received $127 million in development financing with a “principal” focus on either climate adaptation or mitigation. Over this same period, the country has seen $166 million in development financing with a “significant” focus on climate outcomes. Over the past half-decade, Palau has seen a gradual rise in climate-targeting projects. As a share of total ODF received by Palau, “principal” climate projects made up 14% of total spending, above the regional average of 8%. Spending on “significant” climate projects in Palau made up 18% of incoming funds, above the regional average of 11%.

Between 2008 and 2023, Palau received $1.5 million in development financing with a “principal” focus on gender equality, and $124 million in development financing with a “significant” focus on gender equality. “Principal” gender equality financing constituted less than 1% of ODF received by the country, below the regional average of 2%. “Significant” marked gender financing made up 13% of incoming ODF, under the regional average of 22%. The largest project directly targeting gender equality in Palau was the multi-year Pacific Women Shaping Pacific Development program, funded by Australia.