This 2012 Article IV Consultation reports that Palau’s growth is expected to be favorable at 3 percent in FY2012 and to average 2 percent over the medium term. The outlook is clouded by an unsettled global environment, and downside risks dominate. Highly dependent on tourism, imports of food and fuel, and foreign aid, Palau remains vulnerable to external headwinds and has limited policy space to counter these risks. The authorities have made commendable efforts to reduce the current fiscal deficit markedly during FY2010–11, but the deficit remains sizable.
The key findings of the Republic of Palau’s 2010 Article IV Consultation shows that the single most important issue in Palau remains fiscal policy, including its effect on medium-term growth, as fiscal consolidation proceeds. The global financial crisis followed on the heels of a massive terms-of-trade shock, leading to a sharp curtailment of foreign direct investment and private credit. Tourism tumbled following an airline bankruptcy, and construction activity fell as major infrastructure projects reached completion.
The report discusses the needed fiscal adjustment under the no Compact renewal and Compact renewal scenarios, respectively. The report also discusses the IMF estimates and projections of the Republic of Palau's selected social indicators, 1995 and 2000–07; gross domestic product during 2002–07; national government debt and debt service, 1999/00–2006/07; national government budgetary operations, 2001/02–2007/08; national government expenditure, 2001/02–2006/07; details of assets and liabilities; operating accounts of the national development bank of palau; financial positions of the civil service pension fund, 2000/01; 2006/07, etc.