ECONOMY
Palau's per capita GDP of $7,921 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 there has been a gradual rebound in recent years and the economy grew by 5.4% in 2005.
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--75% of whom come from Taiwan, Japan, and the U.S.--exceeded 82,000 in 2006, a 2% increase from 2005. Continental Airlines and Far Eastern Transport (FAT), have direct flights to Palau from Guam, Taiwan, and the Philippines. Japan Airlines runs chartered flights from Tokyo; Korean Airlines does the same from Seoul on a seasonal basis.
In 2006 tourist spending in Palau was $62 million. Palauan tourism and
environmental authorities would like to adjust the industry, simultaneously
decreasing tourist volume and increasing income while 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 nearly 25% of workers and accounts for 23% of the GDP. One of the government's main responsibilities is administering external assistance. Under the terms of the Compact of Free Association with the United States, Palau will receive more than $450 million in assistance over 15 years and is eligible to participate in more than 40 federal programs. The first grant of $142 million was made in 1994. Further annual payments in lesser amounts will be made through 2009. Total U.S. grant income in 2006 was $23.7 million.
Construction is an important industrial activity, contributing over 15% of GDP. Several large infrastructure projects, including the Compact Road, relocation of the new capital, and new 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.
The main economic challenge confronting Palau is to ensure the long-term viability of its economy by reducing its reliance on foreign assistance. The Compact of Free Association created a trust fund to provide perennial budget support when U.S. direct assistance ends in 2009. The value of the trust fund in 2007 was approximately $175 million.
GDP (2006, provisional figure): $157.7 million.
GDP per capita: $7,921.
National income (GDP + foreign assistance): $195.4 million.
National income per capita: $9,817.
GDP composition by sector: Public administration 23%, trade 20%, construction 15%, hotels and restaurants 11%, transportation and communications 9%, fisheries 2%, agriculture 1%, manufacturing and mining 1%.
Industry: Types--government, trade, construction, tourism.
Trade: Exports ($5.9 million, 2004)--fish, handicrafts. Export markets--U.S., Japan and Taiwan. Imports ($107.3 million)--fuel, food and beverages, manufactured goods. Import sources--U.S. (Guam), Japan, Singapore, Taiwan, and Korea.
External debt (2006): $38 million.
Currency: U.S. dollar.
