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 $218 million, it is the sixth-smallest economy in the Pacific, and accounts for 0.7% of regional GDP. Palau has a population of 18,000 (2022), resulting in a GDP per capita of $12,000, ranking third in the Pacific.

Palau has the fifth-highest Official Development Assistance (ODA) to Gross National Income (GNI) ratio in the Pacific Islands region, with aid accounting for 23% of national income. In a global context, Palau remains among the most aid-reliant countries in the world, ranking seventh among 127 developing countries for its ODA/GNI ratio. The Palau government’s development agenda highlights the importance of sustainable management of its marine resources. At 0.797, Palau’s Human Development Index score ranks 71st out of 193 ranked countries.

Between 2008 and 2022, annual Official Development Finance (ODF) disbursements to Palau — including grants, loans, and other forms of assistance — averaged $47 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 6% 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 (95%) of ODF support to Palau has come from five development partners, led by the United States (32%), Japan (28%), the Asian Development Bank (24%), Australia (9%), and Taiwan (2%).

ODF disbursements in Palau were largely consistent with regional trends in terms of sector distribution. The government and civil society sector featured prominently, accounting for 39% of incoming financing. Palau also sees higher than average spending in the water and sanitation and energy sectors.

Since 2008, Palau has received $58 million in development financing with a “principal” focus on either climate adaptation or mitigation. Over this same period, the country has seen $71 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 make up 11% of total spending, above the regional average of 9%. Similarly, spending on “significant” climate projects in Palau makes up 13% of incoming funds, in line with the regional average.

Between 2008 and 2022, Palau received $1 million in development financing with a “principal” focus on gender equality, and $150 million in development financing with a “significant” focus on gender equality. “Principal” gender equality financing constituted 0.2% of ODF received by the country, well below the regional average of 2%. Conversely, “significant” marked gender financing made up 19% of incoming ODF, slightly under the regional average of 21%. The largest project directly targeting gender equality in Palau was the multi-year Pacific Women Shaping Pacific Development program, funded by Australia.