Vanuatu: Economy

Growth expectations for the South Pacific economies remain largely in line with the Asian Development Outlook (ADO) 2014 forecasts in April.

Rising growth forecasts for Vanuatu are maintained. Tourist arrivals increased by 1.6% year on year in the first quarter of 2014 as arrivals from Australia and New Zealand - the largest source markets - remained steady from a year earlier. This is an early indication that modest growth in tourism will likely be sustained this year. The government started construction on a number of large infrastructure projects this year, which is expected to significantly boost growth over the next 3-5 years. Although the government plans to quadruple its infrastructure spending from 2014 to 2016, the ADO 2014 Update maintains growth forecasts that are slightly lower than those of the government because of concerns that limited capacity may constrain infrastructure project implementation.

Selected Economic Indicators (%) - Vanuatu 2014 2015
ADO 2014 Update ADO 2014 Update
GDP Growth 3.5 3.5 4.0 4.0
Inflation 2.5 2.5 3.0 3.0
Current Account Balance (share of GDP) -6.0 -6.0 -7.0 -7.0

Source: ADB estimates.

For Vanuatu, the inflation forecasts are unchanged and remain within the government target range of 2.0%-3.0% in 2014 and 2015, despite the effect of infrastructure spending on domestic demand and prices in the near term.

Forecasts for Vanuatu’s current account are unchanged. The first 4 months of 2014 saw the trade deficit narrow by 13.8% of the gross domestic product (GDP) year on year as merchandise exports (mainly copra and other coconut products) soared by 48.1% and merchandise imports declined by 7.3%. In 2015, rising imports related to ongoing and planned construction funded by foreign direct investment and through development partner assistance are expected to push up the current account deficit by 1.0 percentage point.

Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.