The new Asian Development Outlook (ADO) 2018, ADB’s flagship annual economic publication, notes that gross domestic product (GDP) growth in the Pacific nation was steady in 2017, driven by construction and the continued recovery of agriculture and tourism from the impacts of Cyclone Pam in 2015. Tourism, in particular, was given a lift by the 2017 Pacific Mini Games in Port Vila and the return of codeshare flights operated by Qantas and Air Vanuatu.

“Vanuatu’s ambitious infrastructure pipeline is supporting its current and future growth prospects, but the accompanying rise in public debt poses big challenges for fiscal management,” said Ananya Basu, Principal Economist from ADB’s Pacific Department.

Vanuatu archipelago. (Source: Wikipedia)
The report notes that continued support for private sector growth in the country is needed while the government expands its revenue base. As it looks to increase taxes on businesses, the government needs to ensure that other costs of doing business are minimized.

The report says initiatives such as updating the financial management information system, training staff to operate it, and enhancing human resource capacity in tax administration would help support the government’s revenue reform initiative.

Domestic inflation is expected to pick up to 4.8% in 2018, fueled by the VAT increase and higher public service remuneration. In 2019, inflation is expected to ease to 2.5%. The current account deficit will likely narrow in 2018, due to higher earnings in tourism and agriculture. The deficit may increase in 2019 because higher commodity prices will drive imports higher.

ADB operations in Vanuatu support energy, transport, and water sectors and other urban infrastructure and services, as well as public sector management.

ADB began working with the Government of Vanuatu in 1981. ADB has since approved 14 loans totaling USD89.36 million, 10 grants for USD69.61 million, and 63 technical assistance projects worth USD22.9 million./.

Khac Kien