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We forecast GDP growth of 1.7% in 2022 and 2.9% in 2023, mainly driven by a rebound in tourism. Vanuatu's economy should benefit from the reopening of its borders to international visitors in July after having been closed since March 2020.

International tourism restrictions were almost fully lifted in July as borders reopened. Tourism accounts for over 40% of Vanuatu’s GDP, therefore the reopening of borders should provide support to the economy as we expect a strong recovery of the tourism industry next year. The cruise industry will also play a vital role, as it was a key source of income and employment pre-pandemic and is expected to improve job security for locals who work in the cruise supply chain. Furthermore, we expect exports to make a strong recovery after their sharp decline during the pandemic, growing at 26.7% in 2022 and 40.9% in 2023.

A new prime minister was elected in November after parliament was dissolved in August to avoid a vote of no confidence in the government. It is expected that the new government will focus on reviving the weakened tourism industry and negotiating with the EU to reattract foreign investment through its investor citizenship scheme. The scheme had generated significant revenue before the EU partially suspended their visa waiver agreement in March, citing public policy and security risks.

Vanuatu's coronavirus vaccine distribution has progressed in recent months, as 76% of the population is now fully vaccinated, while 84% had received their first dose by July. The government still expects to vaccinate the entire population by the end of 2023 as part of its efforts to ensure public health stability in the short and medium term.

Climate change continues to be a great cause for concern for Vanuatu, which constantly faces a high risk of flooding and other natural disasters. As one of the most at-risk countries from climate-related incidents, continuous post-disaster recovery spending will continue to strain the government's budget and increase the fiscal deficit.