Statement of the IMF Mission at the Conclusion of the 2011 Article IV Consultation Discussions with VanuatuPress Release No. 11/70
March 9, 2011
An International Monetary Fund (IMF) mission led by Mr. Tarhan Feyzioglu visited Port Vila from March 2 to 10 to conduct the 2011 Article IV Consultations. The mission met with the Vanuatu authorities, private sector, and foreign aid providers to discuss macroeconomic developments and policies. At the conclusion of the visit, Mr. Feyzioglu issued the following statement:
“Economic activity is showing signs of a moderate rebound. With private investment picking up, tourism gradually expanding, and agricultural production increasing partly in response to sharp rises in global commodity prices, GDP is expected to increase by 3¾ percent in 2011 and, given the momentum, strengthen further in 2012. Inflation is ticking up and is expected to reach 4 percent for the year in 2011 on the back of higher food and oil prices, as well as rising domestic demand.
“The key near-term policy challenge is to support economic recovery, while moving toward fiscal consolidation and guarding against high inflation. The fiscal stance in 2010 was appropriate and set the right stage for 2011. This year, it is important to stick to the overall budget expenditure ceiling, which will reaffirm the government’s commitment to fiscal consolidation and maintain confidence in public finances. The government should aim to broadly balance the budget next year to create room for fiscal policy to respond to future shocks.
“The Reserve Bank of Vanuatu (RBV) responded appropriately to the global financial crisis and eased monetary conditions in a timely manner. Going forward, to contain inflation pressures and restrain credit growth, it is appropriate to tighten monetary conditions.
“There are limited opportunities to diversify Vanuatu’s economy. Maintaining large fiscal, external, and financial buffers would make the economy more resilient to adverse shocks and help support sustainable growth over the medium term. To safeguard fiscal soundness, efforts are needed to strengthen revenue, reduce the wage bill, facilitate smoother donor financing, and improve SOE efficiency and transparency. To guard against external shocks, Vanuatu needs to have adequate level of foreign reserves. This is currently the case, but going forward vigilance is required to maintain reserves at an adequate level. Finally, to further strengthen financial stability, the authorities should improve the regulatory framework and make supervision more intrusive.”