Palau - Economy

Economy

Palau's economy consists primarily of tourism, subsistence agriculture, and fishing. Tourist activity focuses on scuba diving and snorkeling in the islands' rich marine environment, including its barrier reefs walls and World War II wrecks. The government is the major employer of the work force, relying heavily on financial assistance from the US. Business and tourist arrivals numbered 50,000 in the financial year 2000/2001. The population enjoys a per capita income twice that of Micronesia as a whole. Long-term prospects for the key tourist sector have been greatly bolstered by the expansion of air travel in the Pacific, the rising prosperity of leading East Asian countries, and the willingness of foreigners to finance infrastructure development.

In July 2004, Palau Micronesia Air was launched with service from Palau to Yap, Guam, Micronesia, Saipan, Australia, and the Philippines. By offering low fares it was planned to be a competitor of Continental Micronesia, however it ceased operations in December of the same year, mainly because of rising fuel prices. Palau Micronesia Air has not restarted operations since but has made a codeshare alliance with Asian Spirit, a carrier that operated flights between Palau and the Philippines (Davao, Cebu, and Manila). There were two flights weekly from Manila via Cebu to Palau and one flight weekly from Davao. Just after few months of service, Asian Spirit ceased its Philippines to Palau route. In March 2010, Pacific Flier began providing air services to Clark, Gold Coast and Guam, however, Pacific Flier suspended operations shortly after, in August 2010.

In November 2006, the Palau Saving Bank officially announced bankruptcy. On December 13 of the same year the Palau Horizon reported that there were a total of 641 depositors that had been affected by the event. Among the 641 accounts, 398 held less than $5000 USD, with the remainder ranging from $5000 to 2 million USD. On December 12, 79 of the affected people received compensation, one was Taiwanese, while the rest were Palauan, Filipino and US citizens. Mr. Toribiong said, "The fund for the payout came from the balance of Palau government's loan from Taiwan." From a total of $1 million USD, which originally was for assisting Palau's development, there was $955,000 USD left at the time of bankruptcy. For the $955,000, Toribiong requested the Taiwanese government use it to repay its loans. Taiwan agreed to the request. The compensation will start its paying to depositor, who held less than $4,000 USD in the account.

Taxes are moderate, the income tax has 3 brackets with medium rates (9.3%, 15% and 19.6%), corporate tax is 4% and general sales tax is 7.5%. There are no property taxes.