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- GDP (PPP):
- $0.7 billion
- 2.9% growth
- 1.9% 5-year compound annual growth
- $2,608 per capita
- Inflation (CPI):
- FDI Inflow:
Severe deficiencies in the rule of law are holding back development in Vanuatu. High levels of corruption contribute to the poor quality of public infrastructure, and the rudimentary banking system does not provide adequate access to financing for private-sector projects.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 60.8 (down 0.3 point)
- Economic Freedom Status: Moderately Free
- Global Ranking: 89th
- Regional Ranking: 15th in the Asia–Pacific Region
- Notable Successes: Management of Public Spending and Monetary Freedom
- Concerns: Business Freedom, Labor Freedom, and Rule of Law
- Overall Score Change Since 2012: +4.2
Despite modest past increases in economic freedom, Vanuatu’s economy continues to be relatively isolated from most of the outside world. Flows of trade, investment, and aid from Australia provide a lifeline. Investment in many sectors is restricted, and foreign investors may not own land. Vanuatu excels in fiscal freedom due to its lack of individual and corporate income taxes.
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. In the 2012 elections, 18 parties won seats in the legislature, with the Vanua’aku Pati party winning a plurality with eight. In late May 2014, the parliament ousted Prime Minister Moana Carcasses through a vote of no confidence, bringing Joe Natuman to power as prime minister. The economy is heavily dependent on tourism, but over 80 percent of the population is involved in farming, which accounts for roughly 20 percent of GDP. In March 2015, Cyclone Pam destroyed thousands of homes and other buildings and killed more than a dozen people.
Abuse of office, mismanagement of funds, and corruption have stirred deep public grievance and led to poor conditions in public facilities such as prisons, hospitals, and schools. Cronyism, “islandism” and nepotism, costly and fabricated “deeds of release” lawsuits, and sales of diplomatic passports have undermined the political process. The largely independent judiciary lacks the resources to retain qualified personnel.
There is 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 amounts to 21.5 percent of GDP. The government budget has been in deficit for several years, but public debt remains low. The cost of providing emergency assistance in the rebuilding of key infrastructure has put pressure on public finance.
The regulatory framework remains complex and non-transparent. The business start-up process does not require minimum capital, but it does remain time-consuming. The formal labor market is not fully developed. Public-sector recovery costs after the devastation of Cyclone Pam in March 2015 are estimated to be about 20 percent of GDP, and fiscal deficits are expected to be over 10 percent of GDP in 2015 and 2016.
Vanuatu’s average tariff rate is 5.5 percent. Foreign investment in some sectors of the economy requires government approval, and investment levels may be limited. Foreign investors may not own land. Inadequate infrastructure and heavy state involvement deter long-term investment. The financial sector remains rudimentary. Access to credit and formal banking services remains low.