IMF Staff Completes 2025 Article IV Mission to Palau
IMF News, November 19, 2025
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- Published: November 19, 2025
Mission scope and timing
- IMF team led by Ms. Yuanyan Sophia Zhang conducted discussions for the 2025 Article IV Consultation from November 6 to 19, 2025.
- End-of-mission statement issued as Press Release No. 25/379.
Recent macroeconomic performance and outlook
- Growth:
- FY2024: 12 percent growth.
- FY2025: growth expected to have remained robust at 6.7 percent, supported by favorable trends in tourism and construction.
- FY2026: recovery expected to continue with growth remaining robust, supported by a gradual rebound in tourism, construction and infrastructure investment.
- Inflation:
- FY2025: inflation at 0.2 percent.
- Medium term: inflation expected to rise from 0.2 percent in FY2025 and stabilize around 2 percent.
- Fiscal and debt:
- Public debt declined from a peak of 81 percent to 67 percent of GDP by the end of FY2024.
- Fiscal balances improved: fiscal deficits have turned into surpluses due to economic recovery, increased grants, successful tax reform, and spending restraint.
- Real GDP:
- Real GDP remained below pre-pandemic levels in FY2024 despite rebound.
- Labor and wages:
- Minimum wage increases have helped real wages recover to their pre-pandemic trend.
Risks and upside factors
- Downside risks:
- Geopolitical tensions and global policy uncertainty could slow tourism activity, disrupt foreign investment, and affect donor support.
- Exposure to global shocks and extreme weather events.
- Upside potential:
- Swift parliamentary approval of the full FY2026 budget could boost confidence and improve the outlook.
Policy findings and recommendations
- Fiscal policy and public debt management:
- Maintain fiscal prudence and preserve buffers through effective implementation of a medium-term fiscal strategy.
- FY2026-29 fiscal strategy should provide a clear roadmap to align fiscal priorities with development objectives, including reducing the debt-to-GDP ratio to pre-pandemic levels.
- Extended grant from the renewed COFA agreement presents an important opportunity to prioritize reducing debt obligations and enhance resilience.
- Revenue and tax administration:
- Commendation for successful implementation of tax reform, including rollout of the Palau Goods and Services Tax (PGST).
- Further improvements recommended in revenue administration: modernize IT systems and build institutional capacity to fully realize benefits of tax reform.
- Pension and civil service reform:
- Welcome commitment to reform the civil service (CSPP) and social security (ROPSSA) pension plan.
- Swift implementation of pension reform is key; conduct thorough cost and benefit analysis of design and implementation strategy.
- Financial sector and domestic intermediation:
- Potential to strengthen role of financial system in channeling bank deposits into domestic investment; current credit to the private sector remains limited.
- Address financial intermediation challenges: access to credit risk information, caps on commercial lending rates, and legal uncertainties related to land titles to unlock private credit growth.
- Modernize the payment system and mobilize domestic savings; tailor reforms to identified use cases and Palau’s economic size and resources.
- Digital currency and payment innovation:
- Recommend a cautious approach to digital initiatives like the tokenized dollar: first address risks and gaps in legal, prudential, and regulatory frameworks.
- Near-term focus: prepare a national payment strategy exploring tailored approaches, including the possibility of mobile money.
- Structural and development priorities:
- Structural reforms to diversify the economy and enhance growth potential: implement a high-value tourism strategy, promote foreign investment, attract skilled labor, improve food security, and strengthen climate resilience.
- Education: emphasize vocational training and financial literacy.
- Update the national development plan to holistically prioritize these reforms to support stronger and more inclusive growth.
- Financial sector safeguards:
- Reforms to modernize the financial system should be tailored to Palau’s specific needs, supported by improved financial literacy, robust regulation and enhanced cyber security measures.
Engagement and acknowledgements
- IMF team exchanged views with government officials, the financial sector, other public institutions, the donor community, and representatives of the private sector in Koror and Airai.
- The team thanked the authorities and interlocutors for productive discussions and hospitality.
Press Release No. 25/379 — IMF Staff Completes 2025 Article IV Mission to Palau.