Vila Times

2018: Vanuatu to compete with fastest growing economies in the world

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Of the 195 countries in the world only four are forecast to contract, and Vanuatu is looking good.


By Karl Waldeback exclusively for Vila Times

At 4% GDP growth (ADB prognosis) Vanuatu is halfway to compete with the fastest growing economies in the world and double that of the average developing country. Although the result is partly due to massive infrastructure expenditure in predominantly the capital, the private sector is also budding upwards, tourism slowly recovering from several severe setbacks including cyclone Pam.

Regulatory stability by a professional managed Reserve Bank has helped, but several serious problems remain. We remain on the Grey List and the challenge there is to pass and implement legislation and enabling regulations to get off the list without going too far and in the process damaging the economy. Nothing will be as serious as a black listing, but income tax is liable to gravely damage growth potential.

Despite the defeat of the latest motion of no confidence, the political environment will remain unstable in 2018. The fiscal deficit is widening based on the substantial increase in payrolls, seafront, roads, wharfs and airport upgrade. Consumer price inflation has risen strongly but this trend will likely not continue in 2018.

Ever since the global economy completed its rebound from the financial crisis of 2008, the world has grown at a moderate but steady pace. That trend is likely to continue in 2018: according to the Economist Intelligence Unit (EIU), the world’s GDP is expected to increase by 2.7% this year, just slightly less than the 2.9% registered in 2017.

Once again, the biggest contributor will be China. The world’s second-biggest economy is projected to grow by 5.8% this year, representing roughly a third of the total global expansion. However, this rate is still a full percentage point less than the country’s mark last year: Xi Jinping, China’s president, is seeking to rein in credit growth, slowing its economy. That leaves India as the world’s fastest-growing large economy, with a brisk projected increase in GDP of 7.8%. Southeast Asia is also expected to perform well: Vietnam, Cambodia, Myanmar and Laos are all slated to come in above 6%.

The rich world cannot hope to compete with such rapid growth rates. However, most developed countries should still at least approach a healthy 2%, and even long-moribund Italy is forecast to eke out a respectable 1.4%. Perhaps the most encouraging indicator is how widespread expansion is projected to be: the EIU only expects four economies to contract in 2018. The wounds in Venezuela, likely to be the worst performer with an 11.9% loss, are self-inflicted, as gross mismanagement has led to hyperinflation and a looming sovereign-debt default. North Korea is also paying the price for its policies; it faces ever-tightening international sanctions in response to the growth of its nuclear-weapons programme. And the economy of Puerto Rico, technically an overseas territory of the United States, is forecast to shrink by 8%, in the wake of a devastating hurricane that has left much of the island without electricity.