Vanuatu: Economic Outline

Economic Indicators

Vanuatu's economy is gradually recovering from the extensive damages caused by devastating cyclones between 2015 and 2022, and reconstruction efforts have started to yield positive results. Despite the impact of twin cyclones earlier in the year and growth initially being downgraded, growth reached 2.5% in FY23. Economic activity was mainly attributed to the industry and services sectors, especially as tourist arrivals improved, reaching 65% of pre-COVID levels as of 2023. In the agriculture sector, the contraction from cyclone damage was less severe than anticipated, as economic activity is concentrated in the north, which was less affected by the cyclones. The economy is projected to grow by 3.7% in 2024, mostly driven by infrastructure investment, such as the upgrade of airports and roads construction, significantly scaled up in the 2024 budget. Reconstruction efforts are expected to stimulate economic activity over the medium term (data World Bank).

Vanuatu encountered an estimated fiscal deficit of 4% of GDP, supported by robust Value Added Tax (VAT) revenue despite delayed project spending, marking an improvement from 2022. The government is actively advancing the Universal Cash Transfer (UCT) initiative, designed to aid household recovery from the twin cyclones. However, the fiscal deficit is expected to widen to 7.6% of GDP, primarily due to increased capital expenditures, despite enhanced fishing revenues. A current account deficit of 4.5% of GDP is anticipated for 2024, which will partially offset the modest recovery of tourism and goods exports. Inflation is estimated to have averaged 9.3% in 2023, primarily due to disruptions in domestic supply chains caused by the cyclone impacts, factors related to minimum wage adjustments, and elevated food prices. It is anticipated to continue surpassing the reserve bank's target band of 0-4% in the near future (data World Bank). The island economy continues to rely heavily on foreign aid and concessional loans from international development agencies. Economic development is hindered by dependence on relatively few commodity exports, vulnerability to natural disasters, and long distances from main markets and between constituent islands. Climate change is a threat to this sector due to rising sea levels and violent cyclones.

Vanuatu is a poor country, with a GDP per capita estimated at USD 3,290 in 2022 (World Bank). The poverty rate, measured with the lower-middle-income poverty line, is forecasted to remain elevated, hovering around 43%, until 2026. Due to the country's relatively high population growth, the growth in per capita income is insufficient to effectively reduce poverty. According to the World Bank, the country’s unemployment rate stood at 5.2% in 2023, stable compared to the previous year.

Monetary Indicators	2016	2017	2018	2019	2020
Vanuatu Vatu (VUV) - Average Annual Exchange Rate For 1 GBP	146.46	136.65	146.98	142.88	147.92

Source: World Bank - Latest available data.

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Latest Update: May 2024