Vanuatu: Country Partnership Strategy (2010-2014)

This report contains a number of suggestions for reform. In the medium term, implementing them will raise the sustainable growth rate. To address the immediate binding constraints, the report recommends implementing the following reforms as priorities:

1. Upgrading infrastructure is necessary to ensure sustained long-term growth, as it has experienced under investment for a prolonged period and urgently requires additional resources. To the greatest extent possible, this should be done using private sector solutions, such as PPPs.
2. Introducing competition policy to regulate power and port charges to reduce monopoly profits in these areas, especially since Vanuatu has the highest electricity and port charges in the region. In the longer term, these monopolies should be addressed by bringing in additional power providers (including for alternative energy) and constructing another harbor near Port Vila.
3. Rationalizing the SOE portfolio, including divestiture, PPPs, and upgraded governance will raise productivity and enhance the long term sustainable growth rate of the economy.
4. Reviewing the land leasing system to ensure the sustainability of current and future leases, particularly as significant tensions are developing in this area.
5. Proceeding with commercial legal reform by bringing legislative drafts to Parliament and passing them into law as soon as feasible. This will help Vanuatu become a better place in which to do business.

While the global financial crisis brings short- term uncertainty, these measures should increase Vanuatu’s ability to weather the storm and add to the future prosperity of the country. Significant progress has been made over the past few years in implementing measures that enhance growth prospects. The commitment of the government to reform continues, and if existing measures and future plans are implemented, Vanuatu will continue to be one of the fastest growing economies in the region.