Vanuatu's search for growth

Abstract

Vanuatu has achieved macroeconomic stability, with a recent turnaround in growth accompanied by low inflation, low interest rates and a generous level of international reserves. The overall fiscal position is sound and the budget is being restructured to increase funding for key sectors. However it has not been possible to reverse the long-term stagnation in per capita income. While development continues despite this stagnation in incomes, the poor growth outcome appears to impose significant costs on the rural population. The key factors behind the stagnation in income are unclear but probably include the costs of political instability, the difficulty of mobilising land, the monopolisation of key sector and high fertility rates. 'Dutch-disease' type effects or the adoption of the wrong policy formulae may also be holding back growth. It appears that higher priority needs to be placed on directly meeting the needs of the rural population given the low returns so far from a 'fix the centre first' approach. Show more