Republic of Palau

The Republic of Palau faces significant climate change challenges that threaten its environment, economy, and fiscal sustainability. This technical assistance report assesses Palau’s public financial management (PFM) and public investment management (PIM) systems through the lens of climate sensitivity, using the IMF’s Green Public Financial Management Framework. While Palau has initiated several green PFM reforms—such as the Climate Resilience Fund—critical gaps remain in integrating climate considerations into fiscal strategy, budget processes, investment planning, and asset management. The report recommends a selective, capacity-sensitive approach to mainstream climate change into Palau’s PFM cycle, emphasizing medium-term fiscal strategy, fiscal risk management, budget preparation, climate tagging, and climate-aware asset management. Strengthening institutional coordination and capacity is essential for successful implementation of these reforms.