Aid effectiveness in the South Pacific island countries : a study case of Vanuatu

Abstract

Among all the island countries of the world, Vanuatu, a small island nation in the South Pacific with a population of 220,000 was once ranked as the most vulnerable economy on the basis of its least resilience to withstand the adverse impacts of external and internal shocks. It has been currently designated on the basis of quality of life one of the five least developed countries among the Pacific island countries. Recognizing its special circumstances, including its high dependency on strategic imports including fuel, with unstable export earnings, its proneness to natural disasters and its inadequate human resource skills, the international community has been assisting the country with generous external aid ever since its independence in 1980. Aside from the bilateral overseas development assistance, especially from the two regional metropolitan powers, in terms of pure grants on an annual basis, multilateral funding agencies including Asian Development Bank have been assisting the country with concessional loans for several projects and reform programs. Despite these annual aid inflows, Vanuatu has been performing poorly which is reflected in stagnation of its per capita income. This article seeks to examine the nexus between aid and growth in Vanuatu and investigates causes behind weak performance. Based on the analysis, the article makes recommendations with some policy implications.