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- GDP (PPP):
- $1.3 billion
- 2.8% growth
- 2.1% 5-year compound annual growth
- $4,718 per capita
- Inflation (CPI):
- FDI Inflow:
Vanuatu’s economic freedom score is 61.1, making its economy the 84th freest in the 2015 Index. Its score is 1.6 points better than last year, with a substantial improvement in trade freedom outweighing a combined decline in labor freedom and business freedom. Vanuatu is ranked 16th out of 42 countries in the Asia–Pacific region, and its overall score is above the world and regional averages.
With few natural resources and an isolated geography, Vanuatu has increasingly embraced economic freedom to drive growth. Over the past five years, its economic freedom has advanced by 4.4 points, reflecting advances in six of the 10 economic freedoms. Recording its highest economic freedom score ever in the 2015 Index, Vanuatu has become a “moderately free” economy for the first time since it was initially graded in 2009.
Despite notable progress, more structural and institutional reforms remain critical to spurring sustained growth and long-term economic development. Rule of law, based on British common law, remains unevenly enforced, and corruption is widespread. Despite its size and isolation, the economy is largely closed to the outside world, with lingering non-tariff barriers and restricted investment.
The South Pacific island Republic of Vanuatu achieved independence in 1980 and is today a parliamentary democracy that remains divided between its English-speaking and French-speaking citizens. In the 2012 elections, 18 parties won seats in the legislature, with the Vanua’aku Pati party winning the most seats at eight. Sato Kilman served as prime minister until being forced to resign in March 2013. The legislature subsequently elected Moana Carcasses Kalosil of the Green Confederation party as prime minister. In late May 2014, parliament ousted Carcasses through a vote of no confidence, bringing Joe Natuman to power as prime minister. The economy is dominated by tourism and agriculture, and over 80 percent of the population is involved in farming, which accounts for roughly 20 percent of GDP.
Thirty years of debilitating corruption have had widespread damaging effects on Vanuatu’s development. This corruption manifests itself in many ways, including political cronyism, “islandism,” and nepotism; settlement of costly and fabricated “deeds of release” lawsuits against the government; and passport sales. The largely independent judiciary lacks the resources to hire and retain qualified judges and prosecutors.
Vanuatu has no individual or corporate income taxes. Most tax revenue comes from a value-added tax and import duties. The overall tax burden is equal to about 16.6 percent of the domestic economy. Government spending is equivalent to approximately 23.2 percent of the domestic economy, and public debt equals 20 percent of gross domestic product.
No minimum capital is required, but starting a business takes more than a month, and licensing remains onerous. Labor codes are rigid and outmoded, and the formal labor market is not fully developed. Fiscal and monetary policies have kept deficits, sovereign debt, and inflation low, but a bloated public sector crowds out funding needed to improve health care, education, and infrastructure.
Vanuatu’s average tariff rate is 4.8 percent. Investment in some sectors is restricted, and foreign investors may not own land. Inadequate infrastructure and heavy state involvement deter long-term investment. The financial system remains rudimentary and subject to state interference. Access to financing is still poor, and less than 15 percent of rural adults have access to formal banking services.