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- GDP (PPP):
- $1.2 billion
- 3.3% growth
- 4.3% 5-year compound annual growth
- $4,916 per capita
- Inflation (CPI):
- FDI Inflow:
Vanuatu’s economic freedom score is 56.6, making its economy the 109th freest in the 2013 Index. Its score is unchanged since last year, with improvements in labor freedom, monetary freedom, and control of government spending offset by declines in trade freedom, business freedom, and freedom from corruption. Vanuatu is ranked 21st out of 41 countries in the Asia–Pacific region, and its overall score is below the world average.
Vanuatu has taken steps to enhance regulatory efficiency and better integrate its economy into global commerce. After 17 years of negotiations, the country officially became a member of the World Trade Organization in 2012.
Despite progress in sustaining economic expansion of around 4 percent on average over the past five years, improvements in the investment and business climate are needed to generate more broadly based economic expansion. The lack of political will to undertake deeper institutional reforms continues to slow the emergence of a dynamic private sector. Property rights are poorly protected, and inadequate physical and legal infrastructure deters growth in long-term investment. Lingering corruption further undermines the rule of law and increases the cost of conducting business.
The Republic of Vanuatu, 83 islands spread over 4,500 square miles of the South Pacific, achieved independence in 1980. Formerly administered by a British–French condominium, it is today a parliamentary democracy that remains divided between its English-speaking and French-speaking citizens. Vanuatu has largely avoided the political unrest experienced by several of its neighbors. However, controversy rocked the country in 2010 and 2011 when the election of Prime Minister Sato Kilman was declared unconstitutional. The controversy ended with Kilman’s re-election in June 2011. The economy is dominated by tourism and agriculture, and over 80 percent of the population is involved in farming, which accounts for roughly 73 percent of GDP.
Vanuatu has a fairly effective legal system based on British common law, but the judicial process is extremely slow. The constitution states that village or island courts presided over by chiefs should be established by parliament to deal with questions of customary law. Land disputes are a constant source of tension. The law provides criminal penalties for official corruption, but enforcement has not been aggressive.
There is no individual or corporate income tax. Taxes include a value-added tax (VAT) and import duties. The overall tax burden equals 16.5 percent of total domestic income. Government spending has reached a level equivalent to 25.5 percent of GDP. The budget balance has been in small deficit for several years. Growth has been strong on high commodity prices and construction, contributing to increased government revenues.
The regulatory framework remains complex and non-transparent. The business start-up process, although it does not require minimum capital, takes more than the world average of seven procedures and 30 days. Completing licensing requirements costs over four times the level of average annual income and takes over 50 days. Labor codes are outmoded, and the formal labor market is not fully developed. Inflation has been modest.
The trade-weighted average tariff rate is very high at 18.5 percent, and non-tariff barriers further increase the cost of trade and distort the free flow of goods and services. Inadequate infrastructure and heavy state involvement deter long-term investment. Foreign investors may repatriate capital but may not own land. The financial sector remains rudimentary. Access to credit and formal banking services remains low.