The World Bank is giving Vanuatu a $US35.5m loan and a $US30.5m grant to help upgrade a key road on Santo.
The 65km South Santo road will be improved to cope with climate change and natural disaster risks.
Rehabilitating the South Santo road is a priority of the Vanuatu government.
It is the only road connecting the southern and western part of the island of Santo with its capital, Luganville.
The World Bank said the project would significantly improve access to markets and essential services and contribute to faster, safer and more reliable road transport on Santo.
It said the improvements would have benefits for 10 percent of Vanuatu's population.