In 2024, Vanuatu’s economy mounted a cautious recovery after enduring the triple blow of Cyclones Judy, Kevin, and TC Lola in 2023. Tourism, still reeling from the COVID-19 shock, began to revive, and inflation, which had peaked in double digits, eased considerably. However, the sudden liquidation of Air Vanuatu in May 2024 reversed some of these gains, disrupting the fragile recovery and prompting a downward revision of growth forecasts across nearly all sectors.

Cyclones are a regular feature of Pacific life, but experiencing three in one year—two in March and one in October—was unprecedented. Despite this, the economy showed signs of resilience. Inflation dropped from 14.4% in mid-2023 to 5.3% by the first quarter of 2024 in response to Reserve Bank of Vanuatu’s (RBV) tightened monetary policy. Foreign reserves remained healthy, with 6.7 months of import cover recorded early in the year.

The grounding of Air Vanuatu, though long anticipated due to its fiscal drain, still came as a shock. The abrupt nature of its collapse caught many off guard. Tourism—the bedrock of Vanuatu’s service economy—was immediately hit. Growth projections for the services sector were slashed from 4.6% to 3.3%, with accommodation and food services hardest hit, growing by just 1.4% in 2024.

While the direct blow to tourism was visible, the ripple effects across the economy were deeper. Fewer tourists translated into falling demand for domestic goods and services. Retail, wholesale, telecommunications, finance, and manufacturing sectors all faced growth downgrades. Air transport contracted by 5%, although land and sea transport experienced modest gains, with shipping helping lift transport sector growth to 6.5%.

Agriculture, forestry, and fisheries weathered the year better. The sector posted a modest 2.5% growth, aided by strong prices for kava, cocoa, and coffee, and government support for copra production. Yet, persistent challenges remained: labour shortages due to outmigration, pest infestations like the Coconut Rhinoceros Beetle, and climate variability continued to constrain output.

Industry became the main engine of growth in 2024, driven largely by ongoing infrastructure projects. Despite delays, the construction sector expanded by 8.7%, lifting total industry growth to 5.7%. While manufacturing remained small, targeted MSME support and donor-led programs helped lay the groundwork for expansion. Renewable energy projects in solar and hydropower also gained traction, though high operating costs limit momentum.

RBV’s monetary tightening through increases in statutory reserve ratios and active liquidity management helped curb inflation. By the second half of 2024, inflation was expected to fall within the 0–4% target range. Nonetheless, pressure on foreign exchange earnings persisted due to lower tourism receipts and declining revenue from the Citizenship by Investment program.

On the fiscal front, public debt remained manageable at around 45% of GDP, largely external and concessional. However, revenue performance was mixed. VAT and excise collections held steady, but the Citizenship by Investment program faltered amid international scrutiny, and returns from ports, land leases, and international trade underperformed. These shortfalls, combined with weak capital execution, squeezed fiscal space.

Concerns about an impending downgrade in debt distress risk from “moderate” to “high” by the IMF emerged late in the year. Such a shift could restrict access to concessional loans, leaving future infrastructure projects dependent on grant financing.

The government took some proactive steps. A Revenue Governance Committee was established to strengthen domestic collections. Draft reforms to improve tax compliance and align with OECD and EU transparency standards were initiated. A VAT monitoring system was also rolled out. Meanwhile, public investment plans were reprioritized to ease inflationary pressures and improve project execution.

However, several challenges persisted. Implementation lagged, compliance remained weak, and large arrears accumulated. The response to Air Vanuatu’s collapse was fragmented. Though international airlines filled part of the gap, domestic connectivity, especially to outer islands like Tanna and Santo remained limited, affecting tourism and local commerce.

The 2025 Budget, released in December, set realistic targets: 3.8% real GDP growth, inflation below 4%, and a balanced budget. Achieving these goals will depend heavily on continued donor support and firm government action.

In retrospect, 2024 was a year that tested Vanuatu’s resilience. The country withstood multiple shocks and avoided macroeconomic instability. But restoring investor confidence and reviving inclusive growth hinges on two things: resolving the Air Vanuatu crisis and delivering on public investment commitments.

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