KEY ISSUES Context. After two years of strong performance, growth slowed down in FY2013 due to declines in construction and tourism, while inflation moderated thanks to stable international food and fuel prices. The outlook points to a modest recovery, but Palau’s heavy reliance on tourism,...

This Selected Issues paper describes Palau's fiscal challenges and policy options to achieve long-term fiscal sustainability. Palau relies heavily on compact grants, and without continued fiscal consolidation over the medium term, the fiscal position will become unsustainable after these grants...