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- GDP (PPP):
- $0.7 billion
- -0.8% growth
- 1.3% 5-year compound annual growth
- $2,550 per capita
- Inflation (CPI):
- FDI Inflow:
The government of Vanuatu’s main policy focus over the past year has been on rebuilding key infrastructure (such as water and sanitation works, schools, and medical facilities) that was severely damaged by a cyclone in 2015. The island economy continues to rely heavily on foreign aid and concessional loans from international development agencies.
Overall, Vanuatu lacks a consistent and effective political commitment to institutional reforms that are needed to spark development of a dynamic private sector. Property rights are poorly protected, and investment is deterred by the country’s inadequate physical and legal infrastructure. High tariffs and nontariff barriers to trade have held back integration into the global marketplace. Business activity is further limited by rigid labor regulations and widespread corruption.
The South Pacific island Republic of Vanuatu achieved independence in 1980 and is today a parliamentary democracy divided between its English-speaking and French-speaking citizens. Charlot Salwai of the Reunification of Movements for Change party became prime minister in February 2016 following snap elections called after 14 members of parliament were convicted of bribery. Vanuatu is heavily dependent on tourism, which comprises 40 percent of the economy. In March 2015, Cyclone Pam destroyed thousands of homes and other buildings and killed more than a dozen people.
In 2016, Vanuatu appointed an ombudsman to deal with complaints about land registration procedures. The judiciary is largely independent but lacks the resources to retain qualified personnel. After 14 members of parliament charged with corruption were convicted in late 2015, a snap election in January 2016 resulted in an overhauled parliament and a new prime minister, but strong factionalism continues to undermine political stability.
Vanuatu imposes no individual or corporate income tax. Taxes include a value-added tax and import duties. The overall tax burden equals 17.2 percent of total domestic income. Government spending has amounted to 25.6 percent of total output (GDP) over the past three years, and budget deficits have averaged 0.2 percent of GDP. Public debt is equivalent to 20.5 percent of GDP.
Bureaucratic procedures are complex and nontransparent, and completion of licensing requirements is costly. Labor codes are rigid and outmoded, and a formal labor market is not fully developed. The government still subsidizes 11 state-owned enterprises in such important economic areas as airports, banking, agriculture, and broadcasting. Most are poorly managed and lose money.
Trade is important to Vanuatu’s economy; the value of exports and imports taken together equals 97 percent of GDP. The average applied tariff rate is 5.5 percent. Foreign investors may lease but not own land, and investment in other sectors of the economy may be screened by the government. Access to financing remains poor, and less than 15 percent of rural adults have access to formal banking services.