08/01/2025
VANUATU: THE CHALLENGE TO BUILD BACK
A crippling earthquake will test Vanuatu’s already fragile political and economic system.
"Vanuatu’s devastating earthquake on Tuesday compounds a political crisis that was already unfolding in the Pacific Island country. Politics has been rightly shoved to the side in the immediate aftermath of the 7.3 magnitude quake, with at least 14 killed, more still missing and widespread damage. The priority is ensuring people are safe, and the local community pulled together for search and rescue efforts. But with a snap election due in mid-January, what will be the fifth change of government in three years, political jostling will soon return.
Public disillusionment with politics was already high before the latest disaster. There is a demand for steady and focused leadership.
While government instability is nothing new in Vanuatu, its impacts are becoming increasingly acute. Key indicators such as income levels, health outcomes, and education performance are either stagnant or declining, and critical public works, both national government and donor led, are languishing. The earthquake, on top of recent cyclones, adds to the sense of chaos.
Like some other Pacific nations, political instability stems from MPs party-hopping and the threat of motions of no confidence in the government. A 2024 referendum secured public support for reducing political instability, however scepticism abounds over whether these measures can truly curb the chaos and deliver the stability voters crave.
One of the most significant consequences of political instability has been its effect on project implementation and use of development finance. Lowy Institute Pacific Aid Map data show that Vanuatu has been among the Pacific countries with the lowest levels of growth in official development assistance over the past 15 years.
During a visit to Vanuatu last month, we asked experts why a country with such high development needs is not accessing more development assistance? Three reasons were offered. Firstly, political instability complicates securing and implementing development projects. Secondly, frequent major climate events also result in project and programming delays, not helped by weak bureaucracies with shifting leadership. Finally, the volatile local political scene and the challenges posed by environmental factors affect donor and investment confidence and effectiveness.
The earthquake only makes these challenges harder.
Vanuatu had barely started to recover from the pandemic when it was hit by multiple cyclones, with climate change expected to increase the frequency of extreme weather. Eager to make up economic ground from pandemic and climatic events, leaders had borrowed heavily. This year, the IMF elevated Vanuatu’s debt sustainability ranking to “high risk”. That means it is no longer eligible to access Asian Development Bank loan financing, putting pressure on the next government to fill a widening financing gap.
Both Australia and China are poised to play a key role in Vanuatu’s development. Australia remains Vanuatu’s largest donor, contributing significantly to economic recovery, infrastructure, and resilience efforts. China, meanwhile, maintains a strong presence through its road projects, government buildings and state-owned enterprises, such as the China Civil Engineering Construction Corporation, which has registered locally and is well-positioned to win further contracts. Geopolitical competition will only intensify as Vanuatu’s new government seeks external support.
There is no simple answer to deep-seated and systemic challenges to development and stability, but our consultations in-country highlighted three critical measures for the next government: Stable revenue generation, improved public service performance, and improving human capital.
Stable revenue generation will require ditching get-rich-quick schemes such as the internationally unpopular citizen sales programs. Tourism was recovering – but the earthquake will be a setback. Investment in infrastructure is rising, and spending on climate resilience going up, but these sectors do not run themselves, they need more human capital. Tied to this will be better management of Vanuatu’s state-owned enterprises. The collapse of Air Vanuatu, which went into liquidation earlier this year, was a significant blow to the country’s economy.
Building capacity of the public service has been a staple of donor interventions, but many feel efficiency is regressing not progressing. In-country experts point to the need for culturally appropriate performance management, training to support financial and project management, and better support of civil society groups who can augment local services in areas such as health and climate resilience. The recovery efforts following the earthquake will be an important chance for donors to ensure a fresh approach.
Revenue issues and a shift in focus by development partners have resulted in declining investment in human capital. Both government and development partner support for education is in decline, a trend that needs to be reversed. Declining education outcomes, alongside significant Covid impacts, show the effects of reduced funding. The share of local youth not in education, employment or training almost doubled, from 24 per cent in 2009 to 47 per cent in 2020, and educational performance is down.
Vanuatu’s next government faces a daunting agenda: stabilising governance, rebuilding public confidence, and addressing urgent development needs. Stable revenue, public sector capacity, and education must be the priority, and development partners have a critical role to play. But stability and progress ultimately depend on Vanuatu’s leaders rising above political turmoil to deliver the results their people desperately need."
Authors: Meg Keen & Riley Duke
Source: https://www.lowyinstitute.org/the-interpreter/vanuatu-challenge-build-back
