The Republic of Palau is an independent country in a Compact of Free Association with the USA. It is a Micronesian country, comprising 340 islands, eight of which are inhabited.
Palau is a middle-income microstate, with an economy dominated by grants and tourism. It faces structural constraints similar to other small island states: a narrow economic base, remote location, small population, inadequate infrastructure, weak business climate, and exposure to climate change impacts.
Australia is part of a multi-partner effort to reform Palau’s ICT sector and increase access to high quality, low-cost internet services. Australia’s contribution is valued at AUD2 million over four years.
Tourism has the potential to drive Palau's economic growth, but a surge in the low-budget segment has stretched capacity, infrastructure and supply chains, and put Palau's pristine environment at risk. High-value tourism is currently being targeted, under the banner 'Pristine Paradise, Palau'.
Australia's merchandise trade with Palau in 2016-17 totalled $2.54 million and was dominated by Australian exports (principally prepared or preserved meat; and telecommunications equipment and parts).