## Vanuatu: Post‑Cyclone Assessment and Policy Response (IMF staff report, 2015) — _cr15149

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### Background
- Cyclone Pam struck Vanuatu on March 13, 2015.
- PDNA estimates:
  - Damage to physical assets: 29.3 billion vatu (36.7 percent of the 2014 GDP)
  - Production losses: 19.3 billion vatu (24.2 percent of GDP)
  - Combined damage and production losses: 60.8 percent of GDP
- Pre‑cyclone macro context:
  - Real GDP rose 2.3 percent in 2014 (up from 2.0 percent in 2013)
  - Inflation dropped to 1 percent in 2014
  - Current account surplus of 0.5 percent of GDP in 2014
  - Fiscal balance strengthened to a surplus of 1 percent of GDP
  - International reserves at end‑2014: US$184 million (5 months of pre‑cyclone import projection)
- Pre‑cyclone structural/policy context:
  - Ambitious, partly debt‑financed public infrastructure investment program with delays
  - Cancellation of a controversial public‑private airport expansion deal by the new government

### Human and physical impact (Box 1 / Appendix I)
- Human impact:
  - Wind speeds up to 250 km per hour; 11 fatalities confirmed
  - 188,000 people affected (out of total population of 265,000), including 60,000 school‑age children
  - An estimated 65,000 residents displaced; approximately 15,000 buildings damaged or destroyed
  - Livelihoods of at least 80 percent of Vanuatu’s rural population negatively impacted
- PDNA monetary estimates (Appendix I):
  - Damage to property: VT29.3 billion or US$283 million
  - Production losses: VT19.3 billion or US$186 million
  - Total estimated cost: VT48.6 billion or US$469 million (61 percent of GDP)
  - Public sector recovery and reconstruction needs: VT17.7 billion or 21 percent of GDP

### Impact of the Cyclone — Outlook and risks
- Growth and inflation projections:
  - Real GDP projected to decline by 2 percent in 2015 (versus pre‑cyclone forecast of about 3½ percent growth)
  - Real GDP projected to grow 5 percent in 2016 as tourism, agriculture, and infrastructure recover
  - Inflation likely to rise to about 2 percent in 2015
- Balance‑of‑payments and reserve implications:
  - Current account deficit projected to be 27 percent of GDP post‑cyclone (compared with 8 percent in the pre‑cyclone baseline)
  - Without additional external financing, international reserves would decline to US$87 million (1.8 months of imports) by end‑2015
  - Even if fiscal gap fully covered with external grants and loans, reserves expected to decline to 2.7 months of imports
- Insurance and humanitarian response:
  - Insurers reported 614 claims with an estimated total loss of US$101 million; expected actual payout considerably lower
  - International humanitarian assistance and pledges totaled about US$50 million, including: Australia US$12 million; United Kingdom US$5.5 million; China US$4.9 million; New Zealand US$3.5 million; Netherlands US$2.9 million; United States US$2 million
  - UN Central Emergency Response Fund spent US$5 million; ADB provided US$1 million; Pacific Catastrophe Risk Insurance Pilot payout US$1.9 million
- Sources of uncertainty and downside risks (Appendix IV):
  - Timing/magnitude of agriculture and tourism recovery (insurance payment speed/size)
  - Reconstruction scale/pace if external financing or implementation capacity constrained
  - Further delays in infrastructure projects
  - External risks: larger‑than‑expected slowdown in major economies or persistent U.S. dollar appreciation
  - Ongoing danger of new natural disasters

### Financing needs and role for IMF support
- Authorities’ request:
  - IMF emergency assistance of SDR17 million (100 percent of the quota)
  - Proposed split: one‑off disbursement under the shocks window of the Rapid Credit Facility (RCF) and a one‑off purchase under the Rapid Financing Instrument (RFI), each SDR8.5 million
- Balance‑of‑payments table highlights (IMF staff estimates, US$ million):
  - Current account balance: Pre‑Cyclone -62; Post‑Cyclone -211; Difference -149
  - Exports of goods (f.o.b.): Pre‑Cyclone 58; Post‑Cyclone 41; Difference -17
  - Imports of goods (f.o.b.): Pre‑Cyclone -318; Post‑Cyclone -461; Difference -144
  - Services balance: Pre‑Cyclone 182; Post‑Cyclone 115; Difference -67
  - Cyclone‑related humanitarian aid and grants: Pre‑Cyclone 0; Post‑Cyclone 50; Difference 50
  - Capital and financial account: Pre‑Cyclone 94; Post‑Cyclone 114; Difference 20
  - Overall balance: Pre‑Cyclone 32; Post‑Cyclone -97; Difference -129
  - Financing gap (memorandum): -44 (assumes gap closed by donors considering PDNA)
- Reserve projections and IMF financing impact:
  - Gross international reserves without RCF/RFI: 216 (pre) and 130 (post) — change -86
  - Gross international reserves with RCF/RFI: 153 (post, with IMF financing)
  - Months of prospective imports: without RCF/RFI 5.4 (pre) and 2.7 (post); with RCF/RFI 3.2 (post)
  - With RCF/RFI, reserve cushion would increase to 3.2 months of imports at end‑2015 (still characterized as too low given uncertainty)
- Capacity to repay:
  - Vanuatu assessed to have adequate capacity to repay the Fund because bulk of public debt is concessional and debt service is low relative to export earnings and foreign reserves
  - With RCF/RFI, repayments to the Fund projected to peak in 2019 at 0.6 percent of GDP, or 1.2 percent of exports of goods and services

### Fiscal policy, reconstruction scale, and financing gap
- Government intent and staff assumptions:
  - Government intends reconstruction expenditures on the scale of 20 percent of GDP, spread over 3 years (2015–17), partly offset by reducing expenses in other areas
  - Staff projects government spending on the 20 percent reconstruction assumption and assumes implementation delays consistent with past experience and limited implementation capacity
  - Assumed cost savings and reallocation: 4 percent of GDP
  - Expected revenue loss: about 3 percent of GDP over the next 3 years (including three‑month suspension of VAT on construction materials, tools and seedlings in 2015)
- Key summary figures (Percent of 2014 GDP):
  - CG debt at end‑2014 19.5
  - CG debt at end‑2017 (pre‑cyclone) 41.7
  - Cyclone impact 13.4
  - Reconstruction expenditures 20.0
  - Revenue loss 3.0
  - Minus: Grants 3.3
  - Insurance receipt 2.4
  - Synergies/reallocation 4.0
  - CG debt at end‑2017 55.0
  - Financing requirement 35.6
  - Identified financing 20.7
  - Financing gap 14.9
- Government budget and projects:
  - Seven major infrastructure projects planned totaling US$397 million (49 percent of 2014 GDP) over five years; only first five included in 2015 Budget
  - Infrastructure financing table (US$ millions, totals preserved):
    - Grants total 66.9; Loans total 322.4; Government contribution total 7.7; Total amount 397.0
    - In percent of GDP: 9.7 (2015), 12.2 (2016), 10.8 (2017), 5.7 (2018), 3.4 (2019), 3.4 (2020)
- Financing and resource mobilization:
  - With only committed grants, central government operating budget close to balanced, but overall deficit rises to nearly 12 percent of GDP in 2015 and 2016 and 10 percent in 2017 to cover reconstruction investments
  - Government has about 6 percent of GDP per year lined up in project financing
  - Government faces a gap of about 15 percent of GDP over 2015–17 between projected deficits and identified financing sources
  - Baseline assumption: fiscal gap filled with external concessional loans on terms equivalent to a blend of IDA, ADB, and China Ex‑Im Bank terms
  - Macro projection note: expected multilateral financing contribution around US$90 million to Vanuatu’s recovery; additional bilateral support needed to close remaining gap

### Debt sustainability analysis (DSA) — summary and staff view
- Key DSA assumptions and macro projections:
  - Reconstruction expenditures assumed 20 percent of GDP spread over 2015–17
  - GDP growth: decline by 2 percent in 2015; increase 5 percent in 2016; average 2.7 percent during 2015–2020; long‑run growth 3 percent
  - Fiscal deficit projected at 10.7 and 10.6 percent of GDP in 2015 and 2016, respectively (DSA assumption)
  - Imports rise to about 76 percent of GDP in 2015 and 69 percent in 2016
- External debt outcomes:
  - Face value of external PPG peaks in 2020 at 52.5 percent of GDP
  - PV of external PPG debt peaks at 32.4 percent of GDP in 2020 and remains below DSA threshold
  - PV of debt‑to‑GDP breaches the 40 percent threshold under four out of eight standardized stress tests; most extreme combination shock yields PV debt‑to‑GDP peak at 49 percent in 2020
- Public debt outcomes:
  - PV of total public debt projected to increase from 30.9 percent of GDP in 2015 to 43.7 percent of GDP by 2020
  - 2014 public debt: 21.5 percent of GDP
  - Under baseline, PV of public debt remains below benchmark of 56 percent; long‑run decline to 25.6 percent of GDP by 2035
  - Debt service on total public debt absorbs about 18 percent of government revenue and grants in the long run
- Staff conclusion:
  - Vanuatu shifted from low to moderate risk of debt distress; planned debt accumulation should be managed prudently
  - Recommendations: prudent borrowing strategy, rebuild fiscal buffers, be strategic in infrastructure choices, mobilize new revenues, strengthen public finance management

### Policy priorities and recommendations
- Fiscal policy and reconstruction financing:
  - Seek external grants as much as possible before concessional borrowing
  - Use RCF/RFI to catalyze donor financing and shore up reserves
  - Formulate a sound recovery plan; prioritize and rationalize public investment
  - Control spending growth, improve monitoring/reporting of budget execution, commitments and arrears; PFTAC TA recommended
  - Revenue mobilization: raise revenues starting in 2017 or after recovery; consider introducing an income tax (PFTAC analysis suggests potential yield of 3–4 percent of GDP); continue to raise NTR with PFTAC support
  - Establish a natural disaster contingency fund; continue catastrophic insurance subscriptions
- Monetary and financial sector:
  - Maintain vatu peg at current level during recovery to preserve confidence; review peg after reconstruction if BOP remains under pressure
  - RBV measures post‑cyclone: policy rate tied to RBV 91‑day bill (1.8 percent), SRD lowered from 7 to 5 percent, Secured Advance Facility reactivated (banks borrow at policy rate + 250 basis points), Import Substitution and Export Financing facility (banks may borrow at 1 percent on‑lent at capped 5 percent)
  - Liquidity support should be provided only to solvent banks against adequate collateral; be ready to withdraw liquidity when situation stabilizes
  - Supervisory actions: enforce prudential norms, diagnostic assessment of bank balance sheets once recovery takes hold, replenish bank capital if necessary
- Structural policies and implementation capacity:
  - Improve implementation capacity to avoid reconstruction shortfalls
  - Improve efficiency of infrastructure projects and incorporate maintenance costs in recurrent budget
  - Improve business environment, diversify economy (tourism markets, connectivity), address land issues, expand financial inclusion (mobile banking, micro‑credit)
  - Rationalize GBEs; submit new GBE law to Parliament without delay

### Risks (Appendix IV — Risk Assessment Matrix)
- Selected risk scenarios, likelihood, impact, and mitigation:
  - Lower‑than‑expected investment in reconstruction or infrastructure — Likelihood: M; Impact: H
    - Policies: address slow public investment reasons; stimulate private sector growth; improve business environment
  - Persistent U.S. dollar strength — Likelihood: H; Impact: M
    - Policies: review/adjust peg; consider increasing weight on Australian dollar in basket; periodic peg review
  - Protracted slower growth in key emerging economies — Likelihood: M; Impact: M
    - Policies: seek new markets; diversify activities; accelerate infrastructure investment
  - Another major natural disaster — Likelihood: L; Impact: H
    - Policies: mobilize external support; use fiscal space; provide liquidity to banks; rebuild fiscal buffers and establish contingency fund

### Offshore financial sector (Appendix VI) — overview and policy implication
- Evolution and size:
  - Peak offshore banks in 1993: 120; declined to 2 offshore banks at present (Table 1 sequence shown)
  - International companies peaked over 5,000 in 2006; various estimates of OFC contribution range from about 1 percent to around 9 percent of GDP depending on source
- Recent structure and constraints:
  - Offshore banks prohibited from business with residents; post‑2002 requirements: physical presence, local staff, RBV prudential guidelines
  - Total reported assets of remaining seven offshore banks (November 2014): approximately US$73 million (roughly 10 percent of domestic banks’ assets)
- Regulatory and reputational developments:
  - International pressures (OECD, FATF, U.S. Patriot Act) and global regulatory initiatives caused sharp decline of OFC activity
  - Legislative/regulatory responses: Financial Transactions Reporting Act (2000), endorsement of FATF 40 recommendations (2003), AML/CFT Act replacing FTRA (June 2014), FATCA registrations, January 2015 amendments to Proceeds of Crime Act and CTTOC Act
  - APG (April 2015) welcomed progress but noted remaining deficiencies
- Staff view:
  - Contribution of OFC to the general economy appears limited; negative reputation impacts have inflicted costs on domestic financial sector
  - Policy implication: weigh benefits of OFC against spillover costs on overall economy

### Authorities’ views and commitments (Letter of Intent, Appendix I)
- IMF assistance request and policy stance:
  - Request for SDR17 million (blend of RCF/RFI); intention to remain prudent and avoid excessive debt accumulation
  - Preference to seek grants before concessional loans or domestic borrowing
  - Commit to restoring fiscal and financial buffers over time and embarking on fiscal consolidation after recovery
- Fiscal measures and public finance commitments:
  - Strengthen spending discipline, internal audit, and public financial management with PFTAC support
  - Review infrastructure investment program against implementation capacity
  - Mobilize additional fiscal revenues via improved compliance, NTR, and possibly an income tax
  - Finalize GBE rationalization and submit new GBE bill to Parliament
- Monetary/financial commitments:
  - Maintain supportive liquidity measures while safeguarding prudential norms
  - Undertake diagnostic assessment of bank balance sheets post‑recovery and replenish capital if necessary
  - Strengthen AML/CTF regime; introduce amendments to 2014 AML/CTF Act to conform with international standards
- Exchange rate commitment:
  - Maintain vatu peg to preserve private sector confidence; review peg after reconstruction if warranted
- Structural and inclusiveness commitments:
  - Promote inclusive growth, improve business environment, extend submarine cable, expand financial services to remote areas, develop low‑cost housing strategies

### Surveillance and follow up
- Recommendation: next Article IV consultation be held on the 12‑month cycle given devastation and need for close monitoring
- Staff and development partners’ coordination:
  - IMF supports SDR17 million RCF/RFI to shore up reserves and catalyze donor aid
  - World Bank, ADB, and other partners engaged in reconstruction planning and TA (ADB immediate US$1.0 million grant from Disaster Response Fund; ADB allocation US$14.46 million for 2015–2016)
  - PFTAC and other TA plans for PFM, revenue, monetary and supervision support scheduled through June 2016

*Italic: Prepared by IMF staff; content unit _cr15149 (IMF staff report excerpt, 2015).*

### 2015. The staff comprised Mr. Klyuev (head), Ms. Ananchotikul, and

### _cr15149 - 2015. The staff comprised Mr. Klyuev (head), Ms. Ananchotikul, and

### Background
- Cyclone Pam struck Vanuatu on March 13, 2015, causing massive destruction and loss of life. The Post-Disaster Needs Assessment (PDNA) estimated:
  - Damage to physical assets: 29.3 billion vatu (36.7 percent of the 2014 GDP)
  - Production losses: 19.3 billion vatu (24.2 percent of GDP)
  - Combined damage and production losses: 60.8 percent of GDP
- Pre-cyclone macroeconomic context:
  - Moderate public debt, adequate reserves, and low inflation due to prudent policies.
  - Real GDP rose 2.3 percent in 2014 (up from 2.0 percent in 2013).
  - Inflation dropped to 1 percent in 2014.
  - Current account recorded a surplus of 0.5 percent of GDP in 2014.
  - Fiscal balance strengthened to a surplus of 1 percent of GDP.
- Pre-cyclone structural and policy context:
  - An ambitious, partly debt-financed public infrastructure investment program faced delays.
  - A controversial public-private airport expansion deal was canceled by the new government, which professed commitment to fiscal prudence while keeping public investment plans largely unchanged.

### Impact of the Cyclone — Outlook and Risks
- Economic outlook and projections:
  - Real GDP is projected to decline by 2 percent in 2015 (versus a pre-cyclone forecast of about 3½ percent growth).
  - Real GDP is projected to grow 5 percent in 2016 as tourism, agriculture, and infrastructure activity recover.
  - Inflation is likely to rise to about 2 percent in 2015.
- Sources of uncertainty and downside risks (Appendix IV referenced):
  - Timing and magnitude of agriculture and tourism recovery depend on speed and size of insurance payments (insurance assessment ongoing).
  - Reconstruction scale and pace may fall short if external financing is insufficient or if implementation capacity is constrained.
  - Further delays in infrastructure projects are possible.
  - External risks: larger-than-expected slowdown in major advanced or emerging economies or a persistent U.S. dollar appreciation.
  - Ongoing danger of new natural disasters.
- Insurance and humanitarian response:
  - Insurance companies reported 614 claims with an estimated total loss of US$101 million; the actual payout is expected to be considerably lower.
  - International humanitarian assistance and pledges totaled about US$50 million, including notable contributions from Australia (US$12 million), the United Kingdom (US$5.5 million), China (US$4.9 million), New Zealand (US$3.5 million), Netherlands (US$2.9 million), and the United States (US$2 million).
  - The UN Central Emergency Response Fund has spent US$5 million; the Asian Development Bank provided US$1 million; Vanuatu received a payout of US$1.9 million under the Pacific Catastrophe Risk Insurance Pilot.
- Human impact (Box 1):
  - Wind speeds up to 250 km per hour; 11 fatalities confirmed.
  - 188,000 people affected (out of total population of 265,000), including 60,000 school-age children.
  - An estimated 65,000 residents displaced; approximately 15,000 buildings damaged or destroyed.
  - Livelihoods of at least 80 percent of Vanuatu’s rural population negatively impacted.
- Historical and structural vulnerability:
  - Vanuatu is identified as the world’s most exposed country to natural disasters according to the World Risk Index.
  - Average annual losses due to natural disasters in Vanuatu are estimated at around 6–7 percent of GDP.

### Financing Needs and Role for Fund Support
- Balance-of-payments impact and needs:
  - The current account deficit is projected to be 27 percent of GDP post-cyclone, compared with 8 percent in the pre-cyclone baseline.
  - Insurance payments and foreign direct investment are expected to cover only a relatively small portion of the shortfall.
  - Without additional external financing, international reserves would decline to US$87 million (1.8 months of imports) by the end of 2015.
  - Even if the fiscal gap is fully covered with external grants and loans, reserves would still be expected to decline to 2.7 months of imports.
- IMF assistance request and proposed instruments:
  - Authorities requested IMF emergency assistance of SDR17 million (100 percent of the quota).
  - The assistance would be provided in equal shares as:
    - A one-off disbursement under the shocks window of the Rapid Credit Facility (RCF)
    - A one-off purchase under the Rapid Financing Instrument (RFI)
  - With the RCF/RFI, the reserve cushion would increase to 3.2 months of imports at end-2015.
  - The RCF/RFI would play a catalytic role in mobilizing additional external support; the cushion of 3.2 months is still characterized as too low given the high uncertainty.
- Balance-of-payments table highlights (IMF staff estimates):
  - Pre-cyclone to post-cyclone changes (in US$ million):
    - Current account balance: Pre-Cyclone -62; Post-Cyclone -211; Difference -149
    - Exports of goods (f.o.b.): Pre-Cyclone 58; Post-Cyclone 41; Difference -17
    - Imports of goods (f.o.b.): Pre-Cyclone -318; Post-Cyclone -461; Difference -144
    - Services balance: Pre-Cyclone 182; Post-Cyclone 115; Difference -67
    - Cyclone-related humanitarian aid and grants: Pre-Cyclone 0; Post-Cyclone 50; Difference 50
    - Capital and financial account: Pre-Cyclone 94; Post-Cyclone 114; Difference 20
    - Overall balance: Pre-Cyclone 32; Post-Cyclone -97; Difference -129
    - Financing gap: -44 (memorandum: assumes gap closed by donors considering support in light of the recently finalized PDNA)
  - Memorandum assumptions:
    - Gross international reserves without RCF/RFI: 216 (pre-cyclone) and 130 (post-cyclone) — change -86
    - Gross international reserves with RCF/RFI: 153 (post-cyclone, with IMF financing)
    - In months of prospective imports: without RCF/RFI 5.4 (pre) and 2.7 (post); with RCF/RFI 3.2 (post)
- Debt-servicing and repayment capacity:
  - Vanuatu is assessed to have adequate capacity to repay the Fund because the bulk of public debt is concessional and debt service is low relative to projected export earnings and foreign reserves.
  - With the RCF/RFI, repayments to the Fund are projected to peak in 2019 at 0.6 percent of GDP, or 1.2 percent of exports of goods and services.

### Policies for Reconstruction and Development (summary of policy directions)
- Fiscal policy and reconstruction financing:
  - The mission emphasizes the need for external financing to cover humanitarian and reconstruction needs and to avoid an excessive depletion of international reserves.
  - The government is seeking additional external support; the RCF/RFI is intended to be catalytic in mobilizing donor financing.
- External sector and reserve management:
  - Given the projected large current account deficit and reserve drawdown risks, bolstering external support and carefully managing reserves are highlighted priorities.
- Monetary and financial policies:
  - Post-cyclone monetary stimulus may support the economy; its impact is uncertain and could be stronger than expected.
- Structural policies and implementation capacity:
  - Reconstruction efforts will require addressing constraints on implementation capacity to avoid shortfalls in reconstruction scale or pace.

*IMF staff mission report (2015) — Vanuatu: Post-Cyclone Assessment and Policy Response*

### 9. Policy commitments. The authorities are committed to implementing sound policies to

### 9. Policy commitments. The authorities are committed to implementing sound policies to ensure macroeconomic stability and inclusive growth.

### Policy commitments (overview)
- Authorities’ agenda is broadly in line with staff’s recommendations as outlined in the Letter of Intent (Annex I).
- Staff believes that the RCF/RFI will help achieve stable macroeconomic conditions and encourage development partners to be more forthcoming in their assistance.
- Authorities welcome a safeguards assessment as an opportunity to strengthen the Reserve Bank of Vanuatu’s (RBV) governance and control framework.

### A. Fiscal Policy — 2014 outturn and immediate issues
- 2014 government recorded a surplus of 1 percent of GDP because of:
  - improved tax compliance;
  - strong performance of the Hong Kong Permanent Residency Visa Program (HKPR) and Capital Investment Immigration Program (CIIP);
  - underspending on grant-financed projects (by year-end the government spent less than two thirds of 4.1 percent of GDP it received in grants).
- VAT receipts exceeded budget expectations by 4 percent due to enhanced enforcement.
- HKPR and CIIP brought in a higher-than-expected 1.3 percent of GDP.
- Total expenditures exceeded the budget by more than 1 percent of GDP, leading to two supplementary budgets. Major items financed included:
  - addressing a health care crisis (payment delays and disputes leading to temporary suspension of services);
  - payments to the submarine cable company;
  - covering a shortfall in the tertiary scholarship program;
  - a contribution to electrification of Malampa, Penama, and Torba provinces.

### A. Fiscal Policy — Pre-cyclone 2015 budget plans
- 2015 budget expected:
  - increase domestic revenue by 5.5 percent compared to the 2014 Budget, to 18.1 percent of GDP (mainly due to higher VAT and HKPR receipts);
  - donor cash grants for social projects and productive sectors projected to almost double from the 2014 Budget;
  - expenses projected at 20.5 percent of GDP, including 1.2 percent of GDP allocated toward outstanding government obligations and severance payments.
- Capital expenditures expected to rise sharply as several major infrastructure projects were ready to commence.
- Two major projects (Luganville Wharf and Bauerfield Airport Rehabilitation) were not included in the budget.
- Budget envisaged a deficit of 5.9 percent of GDP.
- Suspension of HKPR in January created a shortfall of 1.1 percent of GDP in projected revenues.
- Government measures to close the gap included expanding the excise tax list, broadening the scope of CIIP, introducing expenditure control measures, and receiving 0.4 percent of GDP in budget support from the European Union.

### A. Fiscal Policy — Fiscal impact of Cyclone Pam and reconstruction scale
- Government intends reconstruction expenditures on the scale of 20 percent of GDP, spread over 3 years, partly offset by reducing expenses in other areas.
- Staff projects government spending based on the 20 percent of GDP reconstruction assumption and assumes implementation delays consistent with past experience and limited implementation capacity.
- Assumed cost savings and reallocation: 4 percent of GDP.
- Expected revenue loss: about 3 percent of GDP over the next 3 years (including a three-month suspension of VAT on construction materials, tools and seedlings in 2015).

Key summary figures from the cyclone impact graphic (Percent of 2014 GDP):
- CG debt at end-2014 19.5
- CG debt at end-2017 (pre-cyclone) 41.7
- Cyclone impact 13.4
- Reconstruction expenditures 20.0
- Revenue loss 3.0
- Minus: Grants 3.3
- Insurance receipt 2.4
- Synergies/reallocation 4.0
- CG debt at end-2017 55.0
- Financing requirement 35.6
- Identified financing 20.7
- Financing gap 14.9

### Box 2 — Infrastructure Projects (government plan)
- Seven major projects due to begin construction in 2015 with total investment of US$397 million (49 percent of 2014 GDP), to be implemented over five years. (Only the first five were included in the 2015 Budget.)
- List of projects (first five included in the 2015 Budget):
  1. Port Vila Urban Infrastructure (grant from Australia and loan from ADB);
  2. Interisland Shipping Project (grant from New Zealand and loan from ADB);
  3. International Wharf (loan from JICA);
  4. Vanuatu Tourism Infrastructure (grant from New Zealand);
  5. Tanna and Malekula Road (loan from China Ex-Im Bank);
  6. Luganville Wharf (loan from China Ex-Im Bank);
  7. Bauerfield International Airport Rehabilitation (loan from the World Bank).
- Financing characteristics noted:
  - Australia and New Zealand provide together US$67 million for selected projects.
  - ADB provides over US$34 million in loans with interest rate of 1.5 percent, 8-year grace period, and 36-year maturity (grant element of 45 percent).
  - JICA loan package totaling US$84 million with less than 1 percent interest rate, 10–year grace period, and 30-year maturity (grant element of 53 percent).
  - Two China Ex-Im Bank loans of US$57 million and US$87 million with interest rate of 2 percent, grace periods of 5 and 7 years, and 20-year maturity (grant element of 30 percent).
  - World Bank loan of US$59 million with no interest, 10-year grace period, and 40-year maturity (grant element of 61 percent).
- Current situation: After cyclone Pam, the government intends to continue these infrastructure projects as planned.

Infrastructure Projects — Government Plan (in millions of U.S. dollars and percent of GDP)
- Grants: 12.5 (2015), 25.5 (2016), 21.0 (2017), 6.3 (2018), 0.5 (2019), 1.2 (2020), Total 66.9
- Loans: 61.2 (2015), 72.4 (2016), 73.4 (2017), 46.9 (2018), 33.5 (2019), 34.9 (2020), Total 322.4
- Government contribution: 1.2 (2015), 3.5 (2016), 2.2 (2017), 0.8 (2018), 0.0 (2019), 0.0 (2020), Total 7.7
- Total amount: 74.9 (2015), 101.4 (2016), 96.6 (2017), 54.0 (2018), 34.0 (2019), 36.1 (2020), Total 397.0
- (in percent of GDP): 9.7 (2015), 12.2 (2016), 10.8 (2017), 5.7 (2018), 3.4 (2019), 3.4 (2020)

### Financing and resource mobilization
- With only committed grants counted, central government’s operating budget would remain close to balanced, but overall deficit rises to nearly 12 percent of GDP in 2015 and 2016 and 10 percent in 2017 to cover reconstruction-related investments.
- Government has about 6 percent of GDP per year lined up in project financing.
- The government faces a gap of about 15 percent of GDP over 2015–17 between projected deficits and identified financing sources.
- If gap is not filled, options include borrowing a limited additional amount from domestic banks, further reprioritizing expenditures, and scaling down reconstruction and support for vulnerable groups.
- Staff recommends seeking further support from the international community with IMF financing playing a catalytic role.
- Baseline assumption: fiscal gap is filled with external concessional loans from multilateral and bilateral donors on terms equivalent to a blend of IDA, ADB, and China Ex-Im Bank terms.
- Macro projection note: expected financing contribution from multilateral institutions of around US$90 million to Vanuatu’s recovery; additional bilateral support would help close remaining gap.

### Rebuilding fiscal buffers — projections and policy priorities
- Under baseline of unchanged policies, central government debt projected to continue rising after the cyclone, reaching 58 percent of GDP in 2020.
- Debt trajectory elevates Vanuatu from low to moderate risk of debt distress.
- Staff policy priorities to set public debt ratio on a declining trend after 2017:
  - Infrastructure projects: support for improving infrastructure but emphasizing efficiency, alignment with development agenda, implementation capacity, and incorporating maintenance costs in recurrent budget.
  - Spending discipline: control spending growth in other areas (including tertiary scholarships), improve monitoring and reporting of budget execution, commitments and arrears; PFTAC technical assistance to strengthen internal audit and other control procedures.
  - Revenue mobilization: raise revenues starting in 2017 or after recovery; consider introducing an income tax at moderate coverage and rates (PFTAC analysis suggests potential yield of 3–4 percent of GDP); continue to raise non-tax revenue (NTR) with PFTAC support. Note: “commercial diplomacy” programs (HKPR, CIIP) carry integrity risks and generate temporary, unpredictable revenues.
  - Contingencies: set up a natural disaster contingency fund funded over the medium term from the budget and by development partners; continue subscription to catastrophic insurance as a complement to contingency planning.

Central Government Budgetary Operations after Adjustments (In percent of GDP)
- Baseline projections (2015–2020):
  - Net lending: -11.7 (2015), -11.7 (2016), -9.7 (2017), -7.2 (2018), -7.0 (2019), -5.2 (2020)
  - Central government debt: 31.2 (2015), 40.7 (2016), 47.5 (2017), 51.7 (2018), 55.9 (2019), 58.2 (2020)
- Adjustment scenario (revenue and acquisition of non-financial assets adjustments shown):
  - Revenue adjustments: 0.0 (2015), 0.0 (2016), 0.5 (2017), 3.0 (2018), 4.0 (2019), 4.0 (2020)
  - Acquisition of non-financial assets adjustments: 0.0 (2015), 0.0 (2016), -1.0 (2017), -1.5 (2018), -1.0 (2019), 0.0 (2020)
  - Resulting net lending: -11.7 (2015), -11.7 (2016), -8.2 (2017), -2.7 (2018), -2.0 (2019), -1.2 (2020)
  - Public debt under adjustment scenario: 31.2 (2015), 40.7 (2016), 45.9 (2017), 45.7 (2018), 45.3 (2019), 44.2 (2020)

### Government Business Enterprises (GBEs)
- GBE operations remain opaque; government working with ADB to assess financial situation and improve governance and performance.
- Government-guaranteed GBE debt amounted to 4.6 percent of GDP at end-2014, adding to public debt burden.
- Staff welcomes the GBE Policy approved by Cabinet in October 2013 and urges submission of the new GBE law to Parliament without delay to enable rationalization plans.

### Authorities’ views on fiscal policy
- Authorities noted grant financing for recovery plan is crucial, but additional borrowing is contemplated.
- Emphasized importance of infrastructure projects for increasing production potential.
- Agreed that spending discipline and revenue-raising measures are important for rebuilding fiscal buffers.
- Expressed appreciation for technical assistance in PFM and NTR, signaled openness to introducing an income tax gradually, and welcomed technical assistance on that measure.
- Noted new GBE law is in final stages of review and will be submitted to Parliament in June.
- Overall commitments in the LOI are in line with staff views.

### B. External Sector — Recent developments
- 2014 trade balance improved due to favorable terms of trade: decline in oil prices and rising prices of copra, coconut oil, kava and beef.
- Service income remained robust despite a decline in tourism receipts from 2013 peak.
- Current account recorded a surplus of 0.5 percent in 2014 (supported by trade balance improvement, foreign aid inflows, and income of ni-Vanuatu workers in RSE and PSE schemes).
- Foreign direct investment was relatively small in 2014, reflecting a “wait and see” attitude toward infrastructure projects.
- Exchange rate movements (Jan 2013–end-2014):
  - Vatu depreciated by 13 percent against the U.S. dollar;
  - Vatu appreciated by 11 percent against the Australian dollar.
- International reserves at end-2014: US$184 million (5 months of pre-cyclone import projection).
- Large errors and omissions in the balance of payments and valuation losses due to U.S. dollar appreciation reduced the observed reserve improvement.

### B. External Sector — Exchange rate policy
- Vatu peg to an undisclosed basket is an important nominal anchor; real effective exchange rate has been broadly stable over the last two years.
- Staff analysis suggests vatu value is broadly in line with fundamentals.
- Impact of cyclone on external position is large but temporary.
- Staff recommendation: maintain the peg at current level to preserve confidence; devaluation effectiveness would be blunted by supply constraints.
- Authorities should review external position once reconstruction stage is over and be ready to adjust the peg level if balance of payments remains under pressure.

*IMF staff report excerpt: "9. Policy commitments. The authorities are committed to implementing sound policies to ensure macroeconomic stability and inclusive growth."*

### 19. Authorities’ views. The authorities agreed that maintaining the value of the vatu at the

### _cr15149 - 19. Authorities’ views. The authorities agreed that maintaining the value of the vatu at the

### External sector assessment and balance-of-payments
- Prior to the cyclone:
  - Vanuatu typically ran moderate current account deficits, with a surplus recorded in 2014.
  - Current account deficits were historically financed by stable inflows of FDI and foreign capital grants and concessional loans.
  - International reserves at end-2014: 23 percent of GDP, about 5 months of import cover (using pre-cyclone import forecast), and 165 percent of the Fund’s adequacy metric.
- Cyclone impact on 2015–16:
  - Current account deficit expected to widen substantially.
  - Export receipts from the agricultural sector likely to plummet due to severe damage to cash crops and farming facilities.
  - Tourism earnings expected to be dramatically affected; many major hotels will remain closed for 3-6 months.
  - Imports expected to rise significantly because of increased demand for food supplies, building materials, and planned major infrastructure projects.
  - Increase in remittances likely to be small given diaspora size.
  - FDI and insurance inflows likely to increase and provide some financing for private sector recovery.
  - Foreign aid from development partners anticipated to finance a portion of the BOP need.
  - A large drawdown of foreign exchange reserves is expected, potentially bringing reserves below prudent norms; reserves expected to recover to adequate levels in a few years as the shock is temporary.
- Exchange rate assessment:
  - EBA-lite and the macroeconomic balance approaches suggest an undervaluation of 5 and 7 percent, respectively.
  - Other approaches indicate an overvaluation ranging from 6 to 14 percent.
  - Overall, no clear indication of misalignment; methodologies produce mixed results and are sensitive to assumptions, warranting caution.

### Monetary and financial policies — background and recent measures
- Financial system composition:
  - Onshore system: commercial banks, one credit institution, four insurance companies, and a national provident fund.
  - Three of the four major commercial banks are foreign-owned.
  - Vanuatu National Provident Fund (VNPF) assets equal 20 percent of total banking system assets.
  - Banking system is relatively shallow and dominated by commercial banks; non-bank financial institutions play limited roles except VNPF.
- Pre-cyclone indicators and actions:
  - RBV lowered the liquid assets requirement (LAR) from 7 to 5 percent in July 2014.
  - Bank capital ratios high but trending down.
  - Non-performing loans (NPLs) peaked at nearly 17 percent of total loans in mid-2014 before declining to 11 percent at end-2014 due to significant loan write-offs.
  - Credit growth remained slow.
  - RBV lowered its policy rate from 5½ to 5¼ percent in November 2014; pass-through to lending rates limited.
  - Post-cyclone, government allowed VNPF contributors to withdraw up to 20 percent of retirement savings—expected to reach 2 billion vatu—placing pressure on bank liquidity.
- Post-cyclone RBV measures:
  - Policy rate tied to the rate on RBV’s 91-day bill (currently 1.8 percent).
  - Statutory Reserve Deposit (SRD) requirement lowered from 7 to 5 percent.
  - Secured Advance Facility reactivated: banks can borrow at a rate 250 basis points higher than the policy rate; collateral requirement relaxed to include required reserves, government bonds, and RBV notes.
  - Import Substitution and Export Financing facility activated: commercial banks may borrow at 1 percent provided funds are on-lent to private firms in specific sectors at a rate capped at 5 percent.
- Staff view on liquidity measures:
  - Liquidity measures provide immediate relief and support post-cyclone recovery.
  - Liquidity support should be provided only to solvent banks and against adequate collateral.
  - Authorities should be ready to withdraw liquidity once the situation stabilizes.

### Financial stability and supervisory recommendations
- Immediate concerns:
  - Liquidity pressures may emerge; NPLs likely to rise because of cyclone damage.
  - Commercial banks voluntarily allowed customers to suspend debt service for 2 or 3 months after the cyclone; loan performance impact not yet crystallized.
- Recommended supervisory actions:
  - Ensure banks continue to follow prudential norms for loan quality assessment with adequate risk management.
  - Conduct a diagnostic assessment of bank balance sheets once recovery takes hold.
  - If necessary, replenish bank capital via government support for the government-owned commercial bank or by parent banks for foreign subsidiaries.
  - Removing solvency concerns should alleviate liquidity pressures and allow monetary and macro-prudential policies to be driven by overall conditions.

### Authorities’ stated views on monetary and financial policy
- Agreed on the importance of maintaining prudential standards.
- Current focus: supporting the economy and the banks.
- Agreed on the need to evaluate individual banks after recovery and take corrective measures if necessary.
- Appreciated an offer to enlist PFTAC assistance with the diagnostic.
- Continuing efforts to strengthen the financial sector regulatory framework, including:
  - Implementing new prudential returns that are more comprehensive.
  - Adopting new prudential guidelines in areas such as asset classification, minimum provisioning, capital adequacy, and foreign currency open positions aligned with international regulatory standards.

### Structural policies, diversification, and inclusiveness
- Pre-cyclone challenges:
  - Disappointingly low growth over the last 5 years.
  - Infrastructure bottlenecks hinder tourism and agriculture.
  - Economy not very diversified; export base concentrated in tourism (primarily from Australia) and a few cash crops.
- Business environment:
  - Room to improve the ease of starting a business and registering property.
  - Cost of electricity among the highest in the region.
  - Land issues remain a challenge; recent reforms to dispute resolution and leasing regime for customary land may improve transparency and fairness.
- Diversification opportunities:
  - Improvements in connectivity (submarine cable), planned transport infrastructure investment, and lower fuel prices should facilitate new activities (e.g., call centers), growth beyond the capital, and expansion into new markets.
  - Growing middle class in emerging Asia could be a major source of tourists; tourism promotion in new countries is needed.
  - Offshore financial sector has been under pressure from AML-CTF initiatives and has shrunk; government may consider conducting a cost-benefit analysis of hosting the offshore sector given reputational risks.
- Inclusiveness and infrastructure:
  - Authorities committed to inclusive growth and poverty reduction per the National Vision and Priorities and Action Agenda.
  - Plans include bringing financial services to remote areas via mobile banking and micro-credit, and improving access to electricity in rural areas and around Port Vila.
- Authorities’ stated views on structural policy:
  - Emphasized commitment to inclusive growth and poverty reduction.
  - Developing strategies for providing low-cost housing to the needy.
  - Agreed on the importance of diversifying the economy and plan to extend the submarine cable to other islands.
  - Expressed interest in a cost-benefit analysis regarding hosting an offshore financial sector.

### Staff appraisal — outlook, fiscal and external policy recommendations
- Outlook:
  - Vanuatu’s economy projected to decline by 2 percent in the current year due to Cyclone Pam; reconstruction only partially offsets damage.
  - Growth expected to rebound to 5 percent in 2016 as export sectors recover.
  - Risks biased to the downside, notably uncertainty over the scale and timing of government reconstruction plans.
- Balance-of-payments and exchange rate:
  - With plunging exports and surging imports, RBV international reserves will decline below prudent levels unless substantial assistance is provided by development partners.
  - Staff supports the authorities’ request for balance-of-payments support in the amount of SDR17 million (100 percent of the quota) under combined RCF/RFI.
  - Fund support would shore up reserves and catalyze aid from other development partners.
  - Exchange rate broadly in line with medium-term fundamentals; peg should be maintained at its current level during the recovery period.
- Fiscal challenges and recommendations:
  - Reconstruction cost in the order of 20 percent of GDP and loss of tax revenue will put considerable pressure on the budget.
  - Government should seek grants assistance as much as possible, formulate a sound recovery plan, and build on the catalytic role of RCF/RFI.
  - Some recourse to concessional debt is unavoidable; combined borrowing will cause public debt to increase sharply and shift debt-distress risk from low to moderate.
  - Use the infrastructure investment pipeline to support reconstruction and mitigate future disaster risks where feasible.
- Fiscal consolidation measures to rebuild buffers post-reconstruction:
  - Revenue mobilization, with income tax introduction emerging as a viable option.
  - Spending discipline, including strengthening public financial management.
  - Rationalization of public investment within a comprehensive infrastructure development plan aligned with national priorities, implementation capacity, and fiscal space.
  - Steps in these areas should be taken as a high priority.
- Government business enterprises:
  - Authorities’ efforts to ascertain financial positions and improve transparency and governance of GBEs are timely.
  - Government should submit the new GBE law to Parliament without delay and proceed with rationalization plans for commercial GBEs.
- Monetary and financial sector guidance:
  - RBV’s supportive measures are welcome; liquidity should be provided to solvent banks against adequate collateral.
  - Supervisory policies should ensure continued adherence to prudential norms and adequate risk management.
  - Banking system appears well-capitalized, but high NPLs and uneven liquidity distribution are concerns.
  - Liquidity support is essential now; once pressures subside, conduct a thorough assessment of bank balance sheets and replenish capital if necessary.

*Italic: Prepared by Nasha Ananchotikul; content from IMF staff report excerpt.*

### 38. Consultation cycle. Given the devastation to the economy and the need for close

### _cr15149 - 38. Consultation cycle. Given the devastation to the economy and the need for close

### Consultation cycle
- Recommendation: Given the devastation to the economy and the need for close monitoring and consultation with the authorities in the coming year, it is recommended that the next Article IV consultation be held on the 12–month cycle.

### Recent developments and prospects
- Tropical Cyclone Pam inflicted damage on Vanuatu’s agriculture and tourism sector...crimping exports.
- Growth has been low in the last 5 years. Indicators of private demand remained broadly flat.
- Inflation moderated in 2014 as non-food prices weakened. Formal employment continued to increase.
- Key graphical indicators reported (as labeled):
  - Contribution to Real GDP Growth by Expenditure (In percent): household consumption, government consumption, investment, net exports, others, GDP growth (2008–2015, proj.).
  - Electricity Consumption and Motor Vehicle Registration (millions of kWh; number of vehicles, RHS) (2009Q1–2014Q4).
  - Contributors to Vanuatu National Provident Fund (Thousands of people) (2009Q1–2014Q4).
  - Real Growth by Sector 1/ (In percent): Agriculture, Industry, Services; note: 1/ 2014 : estimate. Proj. (2004–2015).
  - Real GDP Growth, 2004-14 (Year-on-year percent change) with comparisons: Vanuatu, Vanuatu average 2004-14, Vanuatu average 2010-14, PICs average 2004-14.

### External sector developments
- Export growth was strong in 2014 due to favorable international prices.
- Tourist arrivals declined somewhat.
- The exchange rate recently appreciated against the Australian dollar but weakened against the U.S. dollar.
- Current account balance is expected to drop sharply in 2015 due lower exports and higher imports.
- FDI and other investment will only cover part of the gap, leading to a drain on international reserves.
- Key figures and projections (as labeled and tabulated):
  - Export Growth (Percentage change): coconut oil and copra, beef, cocoa, kava, other (2010Q2–2014Q4).
  - Tourist Arrivals (In thousands of persons): By air, by cruise ship, total (2010Q1–2014Q4).
  - Bilateral Exchange Rates (Index 2005=100, increase=appreciation): Australian dollar, U.S. dollar, New Zealand dollar (2005Q1–2014Q3).
  - Current Account (In millions of US dollars): trade balance, service balance, current transfers, current account balance (2008–2015, Proj.).
  - Capital and Financial Accounts (In millions of US dollars): official capital transfer, FDI, portfolio, other investment (2008–2015, Proj.).
  - Gross International Reserves (In months of G&S imports; In millions of US dollars (RHS)) (2009–2015).

### Public finance and monetary indicators
- Fiscal balances improved in recent years. However, reconstruction and new investment needs will likely lead to high fiscal deficits and drive up public debt.
- Transmission from policy rate to commercial banks’ interest rates appears limited.
- Money supply expanded strongly in the second half of 2014 in tandem with increasing net foreign assets of the central bank; commercial banks’ net foreign assets continued to decline and turned negative in mid-2014.
- Selected fiscal and monetary snapshot (exact rows as presented):
  - Table 1 (selected line entries preserved in order):  
    - Output and prices (annual percentage change): Real GDP3.31.61.21.82.02.3-2.03.5  
    - Consumer prices (period average)5.22.70.71.41.31.02.00.5  
    - Consumer prices (end period)2.43.31.20.81.51.12.21.0  
    - Government finance (in percent of GDP): Revenue26.024.622.321.821.323.326.021.8; Taxes16.616.316.416.517.217.216.717.0; Other revenue2.21.71.72.22.02.04.21.9; Grants7.16.54.23.02.24.15.12.4; Expenditure26.827.124.423.421.522.337.729.4; Expense20.422.221.921.820.621.426.522.0; Net acquisition of non financial assets6.44.92.71.60.90.911.17.4; Net lending (+)/borrowing (-)-0.8-2.5-2.1-1.6-0.21.0-11.7-7.6; Central government debt (end of period)20.519.420.721.720.619.531.226.1; Domestic3.84.86.07.87.87.88.07.6; External16.714.514.714.012.711.723.218.5.  
    - Money and credit (annual percentage change): Broad money (M2) 0.5-6.01.3-0.6-5.58.63.1...; Net foreign assets -18.3-34.5-8.1-6.3-25.013.1-41.9...; Domestic credit4.64.64.65.82.64.115.8...; Of which: Credit to private sector 19.911.69.46.91.73.815.0...15.0.  
    - Interest rates (in percent, end of period) 1/: Deposit rate (vatu deposits)3.21.82.82.21.92.0......; Lending rate (vatu loans)10.911.010.39.410.710.3......  
    - Balance of payments (in percent of GDP): Current account-7.9-6.5-8.4-9.4-1.40.5-27.4-7.7; Trade balance-31.5-27.7-24.4-25.4-28.8-25.8-54.5-32.3; Exports of goods9.06.98.57.04.87.75.47.3; Imports of goods-40.5-34.6-32.9-32.4-33.6-33.5-59.8-39.6; Tourism receipts30.630.928.130.935.931.322.031.0; Capital and financial account7.19.113.15.48.46.317.814.7; Without RCF/RFI14.7; RCF/RFI3.0.  
    - Gross international reserves (in months of prospective G&S imports) - without RCF/RFI 4.94.85.25.25.14.82.75.4; (with RCF/RFI) 3.2.  
    - Memorandum items: Nominal GDP (in billions of vatu)65.167.970.972.475.879.879.883.0; Nominal GDP (in millions of U.S. dollars)610701792782802822771802.

- Figure 3 labels emphasize: fiscal deficits rising in reconstruction period; public debt projected to increase (domestic, external, public); limited interest rate pass-through; RBV's net foreign assets and broad money dynamics; commercial banks’ foreign assets and liabilities.

### Financial sector developments
- Private credit growth started to turn around after having been on a decline during the past years.
- Bank profitability appears to have improved.
- NPLs were on the rise until late 2014. Despite the high loan-to-deposit ratio, overall bank liquidity remained ample but unevenly distributed across banks.
- The capital ratio has been on a declining trend, although still well above the required level.
- Key financial soundness indicators and metrics (as labeled):
  - Private Credit Growth (Year-on-year percentage change): overall credit growth, private credit in national currency, private credit in foreign currency (2012M1–2014M10).
  - Bank Profitability: Return on equity; Return on assets (2008–2014).
  - Non-Performing Loans: Standard loans (in billions of vatu), Below-standard loans (in billions of vatu), NPLs to total gross loans (RHS, in percent) (2008–2014).
  - Loan-to-Deposit and Excess Reserve Ratio (percentage): Loans to deposits, Excess reserves to deposits (RHS) (2008–2014Q3/2014).
  - Total Capital Ratio (Total capital in percent of risk-weighted assets): ANZNBV, All banks, Required CAR (2008–2014).

- Table 6: Banks' Financial Soundness Indicators, 2009–14 (In percent), selected rows:
  - Regulatory capital to risk-weighted assets33.730.621.320.518.117.6
  - Regulatory Tier 1 capital to risk-weighted assets32.529.518.718.315.916.7
  - Nonperforming loans net of provisions to capital15.714.716.812.037.449.4
  - Nonperforming loans to total gross loans7.34.98.18.113.511.1
  - Return on assets0.60.80.60.60.40.4
  - Return on equity4.66.24.74.33.13.0
  - Liquid assets to total assets (liquid asset ratio)16.516.518.218.826.123.8

### Fiscal projections and medium-term baseline (selected)
- Table 3 and Table 5 present central government budgetary operations and medium-term baseline scenario. Key projected dynamics (as labeled):
  - Fiscal balances: Net lending (+)/borrowing (-) projected to be -11.7 (2015 pre-cyclone budget line shows -11.7 in percent of GDP) and large fiscal deficits associated with reconstruction and investment needs.
  - Public and publicly-guaranteed debt projected to rise from mid-30s to above 40s (percent of GDP) across the projection horizon in baseline tables (specific rows preserved in the tables).
  - Table 5 medium-term baseline selected lines (Output and prices, Government finances, Balance of payments, memorandum items) preserve numeric sequences as presented:
    - Output and prices (annual percentage change): Real GDP 1.61.21.82.02.3-2.05.04.53.52.52.5
    - Consumer prices (period average)2.70.71.41.31.02.02.53.23.13.03.0
    - Government finances (in percent of GDP): Revenue24.622.321.821.323.326.023.323.722.721.721.5; Expenditure27.124.423.421.522.337.734.933.529.928.726.7; Net lending (+)/borrowing (-)-2.5-2.1-1.6-0.21.0-11.7-11.7-9.7-7.2-7.0-5.2.
    - Gross international reserves (in millions of U.S. dollars)161.4174182179184130138166195217230; In months of prospective imports4.85.25.25.13.72.72.93.43.84.14.5.

### Balance of payments and capacity to repay Fund
- Table 2 (Balance of Payments, 2010–20, in millions of U.S. dollars) reports deep current account deterioration and large projected current account deficits in 2015 (notably -27.4 percent of GDP in 2015 with projections across 2016–20 showing substantial deficits).
- Table 9 (Indicators of Capacity to Repay the Fund, 2014–2025) presents Fund obligations, outstanding Fund credit, and memorandum items. Selected rows preserved:
  - Fund obligations based on existing and prospective credit (In millions of SDRs): Principal0.00.00.00.00.02.14.33.01.71.71.71.70.9; Charges and interest0.00.10.10.10.10.10.00.00.00.00.00.0.
  - Outstanding Fund credit 1/ (In millions of SDRs)0.017.017.017.014.910.67.76.04.32.60.90.0; In millions of U.S. dollars0.024.024.124.221.315.411.28.76.23.71.20.0.
  - Memorandum items: Nominal GDP (in millions of U.S. dollars)8227718288939531006106211221189126013351416; Gross international reserves (in millions of U.S. dollars)184130138166195217230240248250249244.

### Policy implications and priorities (implicit from text and figures)
- Maintain close monitoring and engage in frequent consultation with authorities (recommendation for 12–month Article IV cycle).
- Prepare for significant reconstruction-related fiscal needs and elevated fiscal deficits; manage public debt dynamics carefully.
- Monitor external position and international reserves given projected current account deterioration in 2015 and beyond.
- Strengthen banking sector resilience given rising NPLs, declining capital ratios (though above required), and uneven liquidity distribution across banks.
- Track monetary developments closely as RBV's net foreign assets and broad money dynamics shifted in 2014.

*Source: Vanuatu: IMF staff report content as provided in the supplied PDF content unit.*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Cyclone Pam: human and physical impact
- Cyclone Pam hit Vanuatu on the 13th of March 2015.
- Loss of eleven lives.
- Extensive damage to infrastructure, agriculture, housing, and tourist facilities.
- Undermined food security for more than 60 percent of the country’s population.
- Destroyed or severely damaged more than a quarter of the housing stock.
- Disrupted essential services: water, electricity, telecommunication.
- Education disrupted as many schools were damaged and several used as shelters.
- Damage to hospitals and clinics interfered with health service delivery just as needs surged.

### Damage and economic magnitude
- Damage to property: VT29.3 billion or US$283 million.
- Estimated production losses: VT19.3 billion, or US$186 million.
- Total estimated cost of the cyclone: VT48.6 billion, or US$469 million, equivalent to 61 percent of GDP.
- Public sector recovery and reconstruction needs estimated at VT17.7 billion, or 21 percent of GDP.
- Fiscal financing gap of about 15 percent of GDP over the period 2015–17.
- Expectation of considerably lower economic growth in 2015 than anticipated prior to the shock.

### External position and trade balance
- Projection of a sharp deterioration of the trade balance for 2015, in the order of 35 percent of GDP.
- Deterioration to be partially offset by insurance receipts, external assistance, and private capital inflows.
- Concern that international reserves may fall to a dangerously low level.

### Request for IMF financial assistance
- Government requests assistance equivalent to SDR17 million (US$23.5 million).
  - Disbursement of SDR8.5 million (50 percent of our quota) under the Rapid Credit Facility (RCF).
  - Purchase of SDR8.5 million under the Rapid Financing Instrument (RFI).
- So far, Vanuatu has received US$50 million worth of emergency assistance in cash and in kind.
- Expectation that Fund assistance would help catalyze additional inflows of external resources.

### Fiscal policy orientation and financing strategy
- Intention to remain prudent and avoid excessive debt accumulation.
- Preference to seek external grants as much as possible before resorting to concessional loans or domestic borrowing.
- Plan to seek synergies between planned development projects and reconstruction work and to reduce expenditures in other areas where possible.
- Committed to restoring fiscal and financial buffers over time and to embarking on fiscal consolidation as soon as economic recovery takes hold.
- Aim to put the ratio of public debt to GDP on a declining path.

### Fiscal policy measures (specific steps)
- (i) Strengthen spending discipline by:
  - Stricter adherence to budget allocations.
  - Strengthening internal audit.
  - Making other improvements in public financial management, with technical assistance from PFTAC.
- (ii) Review infrastructure investment program to ensure debt-financed projects fit overall development strategy and implementation capacity.
- (iii) Mobilize additional fiscal revenues via:
  - Further improving compliance.
  - Raising non-tax revenues.
  - Other measures—possibly including introducing an income tax.
- With World Bank technical assistance, enhance debt management framework to lower borrowing costs and minimize debt risks.
- Finalize rationalization strategies for eight Government Business Enterprises (GBEs) and submit to Parliament a new GBE bill aimed at improving discipline, accountability and financial viability.
- While enforcing expenditure control, ensure protection of vulnerable groups and sufficient funds for primary and secondary education and for health care.

### Monetary, financial sector, and AML/CTF measures
- Monetary policy actions already taken:
  - Lowered the policy interest rate.
  - Reduced the statutory reserve deposit requirement to support economic recovery and ensure banks have sufficient liquidity.
- Commitment to continue supporting the economy and the banking system while maintaining adequate safeguards.
- Supervisory policies to ensure banks follow prudential norms for loan quality assessment with adequate risk management.
- Once recovery takes hold, undertake a diagnostic assessment of bank balance sheets and, if necessary, seek to replenish bank capital.
- Building on recent regulatory and supervisory steps, further strengthen Vanuatu’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime.
- Will introduce amendments to the 2014 AML/CTF Act to bring it into conformity with international standards.

### Exchange rate policy
- Will maintain the value of the vatu against the currency basket to preserve private sector confidence.
- Once reconstruction is over, will review balance-of-payments outlook and assess whether the current level of the peg is consistent with external sustainability or whether an adjustment is needed to restore competitiveness.

### Structural reforms and development priorities
- Promote inclusive growth through structural reforms; private sector development and employment creation are top priorities in the Priorities and Action Agenda.
- Seek improvements in lagging business environment areas, such as the ease of starting a business.
- Infrastructure plans target development in several islands to improve connectivity.
- Submarine cable connection established via a public-private partnership to provide additional opportunities.
- Continue efforts to bring financial services to remote areas, including via mobile banking and micro-credit.
- Developing strategies for providing low-cost housing to the needy.
- In cooperation with the World Bank, working on improving access to electricity in rural areas and in and around Port Vila.

### Commitments to IMF procedures and transparency
- Government does not intend to introduce measures that would compound balance-of-payments difficulties, including:
  - No new or intensified restrictions on making payments and transfers for current international transactions.
  - No trade restrictions for balance-of-payments purposes.
  - No multiple currency practices.
  - No bilateral payments agreements inconsistent with Article VIII of the Fund’s Articles of Agreement.
- Commit to undergoing a safeguards assessment and providing IMF staff with access to the Reserve Bank of Vanuatu’s most recently completed external audit reports.
- Authorize external auditors to hold discussions with IMF staff.
- The Reserve Bank of Vanuatu will publish soon on its website the audited financial statements for the year ended December 31, 2013.

*Appendix I. Letter of Intent, May 20, 2015.*

### Appendix IV. Vanuatu—Risk Assessment Matrix

### Appendix IV. Vanuatu—Risk Assessment Matrix

### Risk scenarios and staff assessment
- Lower-than-expected investment in reconstruction or infrastructure  
  - Likelihood: M  
  - Impact: H: Lower public investment would reduce the offset to the decline in tourism and agriculture in the short run and decrease growth potential in the longer term.  
  - Policies to Minimize Impact:  
    - Address the reasons for slow public investment (e.g., insufficient external support, implementation capacity).  
    - Stimulate private sector growth by improving business environment and facilitating credit provision.

- Persistent U.S. dollar strength  
  - Likelihood: H  
  - Impact: M: A large U.S. dollar appreciation against the Australian dollar, given Vanuatu’s basket peg, will result in the vatu’s sizeable appreciation against the Australian dollar. This may create problems for Vanuatu since Australia is by far Vanuatu’s largest trading partner, tourist source, and aid provider.  
  - Policies to Minimize Impact:  
    - Review and adjust the value of the peg.  
    - Going forward, consider increasing the weight on the Australian dollar in the basket and introduce periodic review of the appropriateness of the level of the peg.

- Protracted period of slower growth in key emerging economies  
  - Likelihood: M  
  - Impact: M: Given Vanuatu’s dependence on tourism and agricultural commodity exports, if a slowdown in large emerging economies leads to a large reduction in commodity prices, this would have a considerable impact on Vanuatu both directly and indirectly via the effect on tourist arrivals from Australia and New Zealand.  
  - Policies to Minimize Impact:  
    - Seek new markets and diversify into new activities.  
    - Accelerate infrastructure investment to stimulate domestic demand in the short run and improve competitiveness in the long run.

- Another major natural disaster in the near future  
  - Likelihood: L  
  - Impact: H: Another natural disaster would cause widespread damage to infrastructure, agriculture, and tourism and set back the recovery.  
  - Policies to Minimize Impact:  
    - Mobilize external support.  
    - Use available fiscal space to finance reconstruction efforts.  
    - Provide ample liquidity to banks to ensure smooth operation of the financial system.  
    - To prepare for future disasters, rebuild fiscal buffers and establish a contingency fund as soon as feasible.

### Definitions, scope, and staff judgment
- “L” = Low; “M” = Medium; “H” = High.  
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).  
- The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent).  
- The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

*Source: Appendix IV. Vanuatu—Risk Assessment Matrix (IMF staff).*

### Appendix VI. Offshore Financial Sector in Vanuatu

### Appendix VI. Offshore Financial Sector in Vanuatu

### A. Overview of the Offshore Sector in Vanuatu
- Offshore financial sector established under the 1970 Banking Act during the joint Anglo-French Condominium.
- OFC comprised of offshore banks, non-bank entities including insurance companies, trust, company service providers, and shipping registry.
- Offshore banking sector size decline:
  - Peak of 120 offshore banks in 1993.
  - Declined to 2 offshore banks at present (Table 1).
  - Current offshore banks represent at most 10 percent of the overall offshore sector.
- International companies:
  - Enactment of the International Companies Act in 1993 preceded steady increases in international companies.
  - Reached over 5,000 companies at its peak in 2006.
  - International companies contributed up to 80 percent of the OFC’s income (IMF, 2005).
- Client geography:
  - Mostly from Australia, New Zealand, and Asia.
  - Very few clients from the United States; most U.S. clients route transactions via a third country.

- Table 1 (selected entries reproduced exactly):
  - Offshore banks: 1980: 41; 1985: 93; 1990: 103; 1995: 88; 2000: 51; 2005: 7; 2010: 7; 2014: 6; Latest: 2.
  - International companies: 1980: 422; 1985: 529; 1990: 739; 1995: 1,468; 2000: 4,002; 2005: 4,650; 2010: 1,784; 2014: 3,522; Latest: n/a.
  - Trust companies: 1980: 12; 1985: 15; 1990: 12; 1995: 12; 2000: 12; 2005: 10; 2010: 15; 2014: 13; Latest: n/a.
  - Insurance companies: 1980: n/a; 1985: n/a; 1990: n/a; 1995: 9; 2000: 12; 2005: 15; 2010: 28; 2014: 0; Latest: n/a.

### B. Offshore Banks
- Legal and operational constraints:
  - All offshore banks prohibited from undertaking business with residents of Vanuatu (including making loans to them or accepting local deposits).
- Decline drivers:
  - Authorities’ efforts to improve OFC reputation.
  - Withdrawal of private offshore clients after adverse publicity and increased demand for transparency.
  - Increased foreign competition.
- Asset and balance-sheet structure (as of November 2014):
  - Total reported assets of the remaining seven banks: approximately US$73 million.
  - This amount is roughly 10 percent of the domestic banks’ assets.
  - More than half of assets recorded as market-related instruments and investments.
  - About 7 percent of assets recorded as loans and advances.
- Pre-2002 practice:
  - No requirement for offshore entities to maintain physical presence; many operated as “shell banks.”
- Post-2002 International Banking Act requirements:
  - Offshore banks required to maintain a physical presence in Vanuatu (office and records in Vanuatu).
  - Employ staff locally and have management responsible for day-to-day operations.
  - RBV issued prudential guidelines including customer due diligence (“know your customer”), fit-and-proper criteria, and external audit requirements.
- Footnote detail:
  - Number of offshore banks declined to 2 banks during the first quarter of 2015.
  - According to RBV, 5 new offshore banks recently applied for new licenses but have yet to conduct banking business due to difficulty establishing offshore correspondent banks.

### C. Contribution to the Economy
- Main contributions claimed: registration fees, employment, expenditure (including wages and salaries), spending on office equipment and housekeeping.
- Company registration fees:
  - US$150 for incorporation and US$300 for annual renewal.
- Estimates of OFC contribution (Table 2 entries reproduced exactly):
  - IMF (2002): Revenue from OFC (percent of gov rev): 1.8; OFC Employment (persons): 200.
  - IMF (2005): Economic Contribution (percent of GDP): 4; Revenue from OFC (percent of gov rev): 3; OFC Employment (persons): -.
  - PIF Secretariat (2004): Economic Contribution (percent of GDP): 9.7; Revenue from OFC (percent of gov rev): 5.1; OFC Employment (persons): -.
  - RBV: Economic Contribution (percent of GDP): 9; Revenue from OFC (percent of gov rev): 5.5; OFC Employment (persons): -.
  - Sharman (2008): OFC Employment (persons): 111.
  - Jayaraman & Choong (2010): Economic Contribution (percent of GDP): 9 (avg 2000–07); Revenue from OFC (percent of gov rev): 4.8 (avg 2000–07); OFC Employment (persons): -.
- Summary indicators and observations:
  - Based on earlier estimates, offshore sector appears to contribute at least 5 percent of GDP and roughly 3–5 percent of government revenue.
  - Sector employs no more than 200 staff; about one forth believed to be foreign expatriates.
  - Employment share: less than 2 percent of total formal sector employment in Vanuatu (IMF, 2002).
  - Recent study (Jayaraman and Choong, 2010) finds OFC did not contribute to Vanuatu’s economic growth.
  - Offshore financial center directly affected by the global financial crisis through losses on foreign investments and large withdrawal of deposit funding by corporate clients.
  - Authorities estimate contribution of offshore banks to the economy is slightly below 1 percent of GDP.

### D. Impact of Global Regulatory Initiatives on Offshore Banking Activity
- Major events affecting OFC banking activity:
  - 1998 OECD Harmful Tax Competition initiative and OECD’s 2002 Blacklist.
  - 2000 Blacklist by the Financial Action Task Force (FATF).
  - 2001 U.S. Patriot Act.
  - Heightened pressure after the 9/11 terrorist attacks in 2001.
- Effects:
  - Damaged Vanuatu’s reputation as an offshore center; sharp decline of OFC in 2002 due to loss of foreign investors and increased costs as access to international financial networks was cut off.
  - Domestic banks (especially NBV) experienced difficulties accessing the international banking system as many foreign counterparties suspended relationships with Vanuatu banks.
- Australian Tax Office (ATO) action:
  - ATO demanded banks in offshore jurisdictions (including Vanuatu) submit bank account information on Australian customers.
  - Compliance would violate secrecy provision of Vanuatu’s International Companies Act; both commercial and offshore banks forced to close international companies’ accounts.
- Legislative and regulatory responses:
  - September 2000: Financial Transactions Reporting Act (FTRA) adopted; required offshore entities to report suspicious transactions to the Financial Intelligence Unit (FIU).
  - 2003: Vanuatu endorsed the FATF 40 recommendations on money laundering (as required by the U.S. Patriot Act).
  - June 2014: FTRA repealed and replaced with the Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) Act imposing additional responsibilities and obligations on businesses and professions providing financial services.
  - Banks updating AML/CTF policies; RBV conducted two AML/CTF onsite reviews in 2014—one on a commercial bank and one on an offshore bank.
  - All banks have registered and filed with the U.S. IRS in compliance with the Foreign Account Tax Compliance Act (FATCA) and are required to report foreign offshore assets of U.S. taxpayers.
  - January 2015: Amendments brought into force to the Proceeds of Crime Act and the Counter Terrorism and Transnational and Organized Crime (CTTOC) Act.
- External assessment:
  - April 2015: Asia/Pacific Group on Money Laundering (APG) welcomed progress but noted some deficiencies from its 2006 Mutual Evaluation Report—particularly criminalization of money laundering and terrorist financing—had not been adequately addressed.

### E. Concluding Remarks
- Overall assessment:
  - Contribution of the OFC to the general economy appears limited.
  - Negative reputation impacts from heightened OFC criticism have done considerable damage to Vanuatu’s financial sector.
  - Global pressure on tax havens has created problems for offshore banks and inflicted significant indirect costs on some domestic banks (reluctance of foreign investors and international banks to do business with Vanuatu; additional scrutiny on clients).
  - Given Vanuatu’s concentrated domestic banking system, disruption in external operations of domestic banks is a key vulnerability.
- Policy implication:
  - With increasing global pressure, the benefit of the OFC should be weighed against the spillover costs on the overall economy in considering the continuation of OFC status.

*Prepared by Nasha Ananchotikul; Appendix VI. Offshore Financial Sector in Vanuatu.*

### References

### _cr15149 - References

### References
- IMF (2002), “Vanuatu—Selected Issues and Statistical Appendix,” Part 3: Developments in the Offshore Sector.
- IMF (2005), “Vanuatu—Selected Issues and Statistical Appendix,” Part 2: Onshore and Offshore Financial System.
- IMF (2003), “Vanuatu: Assessment of the Supervision and Regulation of the Financial Sector. Volume I—Review of Financial Sector Regulation and Supervision.”
- Sharman, Jason (2008), “A Study for the Pacific Islands Forum on Offshore Finance Centres in Forum Island Countries: Assessing the Impact of the Proposed U.S. ‘Stop Tax Haven Abuse’ Act.”
- Sharman, Jason (2009), “The Bark is the Bite: International Organizations and Blacklisting,” Review of International Political Economy.
- Jayaraman, T. K. and Chee-Keong Choong (2010), “Role of Offshore Financial Center Institutions in Vanuatu.”
- Reserve Bank of Vanuatu, International Bank Prudential Guidelines, various issues.
- Asia/Pacific Group on Money Laundering, “APG Public Statement on Vanuatu (Update: 7 April 2015) http://www.apgml.org/about-us/page.aspx?p=fe4fce1a-2579-49f3-be93-598430e1b08a.

### FUND RELATIONS (As of April 30, 2015)
- Membership Status: joined September 28, 1981; Article VIII.
- General Resources Account (SDR Million; Percent Quota):
  - Quota 17.00 100.00
  - Fund holdings of currency 14.51 85.33
  - Reserves tranche position 2.50 14.68
- SDR Department (SDR Million; Percent Allocation):
  - Net cumulative allocations 16.27 100.00
  - Holdings 1.50 9.24
- Outstanding Purchases and Loans: None
- Latest Financial Arrangements: None
- Projected Payments to the Fund (SDR million; forthcoming 2015–2019):
  - Principal: (not listed)
  - Charges/Interest: 0.01 0.01 0.01 0.01 0.01
  - Total: 0.01 0.01 0.01 0.01 0.01
- Implementation of HIPC Initiative: Not applicable
- Implementation of Multilateral Debt Relief Initiative: Not applicable
- Implementation of Post-Catastrophe Debt Relief: Not applicable
- Exchange Arrangements:
  - Since 1988, adjustable peg exchange rate arrangement.
  - Exchange rate linked to a transactions-weighted basket (trade and tourism receipts); weights and composition not publicly disclosed and adjusted periodically.
  - RBV quotes daily buying and selling rates vs U.S., Australian, and New Zealand dollars; euro; U.K. pound; Japanese yen.
  - Rate in terms of the U.S. dollar as of May 8, 2015 was VT 105.60 per U.S. dollar.
  - De facto classification: “other managed.”
  - Vanuatu has accepted obligations of Article VIII, Sections 2, 3, and 4.
- Article IV Consultation cycle: 24–month; previous mission April 1–10, 2013; consultation concluded June 7, 2013 (Country Report No. 13/169).
- OFC Assessments: Offshore Financial Center Module II Assessment concluded May 2006.
- Technical Assistance: Provided by LEG, MCM, PFTAC, STA on anti-money laundering, banking supervision and regulation, reserve management, tax and fiscal accounts, tax administration and policy, non-tax revenue, public financial management, balance of payments, national accounts.
- Resident Representative: Office opened September 2010 in Suva, Fiji. Resident Representative: Mr. Tubagus Feridhanusetyawan.

### RELATIONS WITH THE PACIFIC FINANCIAL TECHNICAL ASSISTANCE CENTER (PFTAC)
- Economic Statistics:
  - 2010–2011: PFTAC assisted upgrading government finance statistics to GFSM2001.
  - Regional GFS project managed by STA; authorities report data regularly to STA.
  - Assistance with peer review of annual GDP estimates; helped finalize and publish GDP by expenditure approach.
  - Assisting with rebasing constant price GDP measures to 2010 base year.
  - Future plans: development of a quarterly GDP measure.
- Public Financial Management:
  - Regular participation in PFTAC-sponsored regional training.
  - FY2015 missions prepared authorities for review of non-tax revenues and assisted with internal audit business processes and TeamMate software TA.
  - FY2016 planned: guided PEFA self-assessment coordination; development of a PFM Reform Roadmap; further TA on internal audit likely.
- Macroeconomics:
  - PFTAC assisted RBV in developing monitoring and projection framework and staff training.
  - Ministry of Finance and RBV participated in regional workshop on long-term fiscal planning (jointly by PFTAC and ADB).
- Tax Administration:
  - PFTAC and IMF Legal Department TA included June 2010 mission to set foundation for introducing an income tax and development of strategic and business plan in 2011.
  - Two recent PFTAC missions: overall review of reform progress; renewal of DCIR strategic and business plan.
  - Agreed technical assistance plan to strengthen compliance risk management to commence shortly.
  - DCIR reform progress includes:
    - (a) development of a corporate strategy and business plan;
    - (b) a risk-based compliance improvement strategy;
    - (c) implementation of performance standards;
    - (d) development of an IT strategy and implementation of an IT system facilitating taxpayer compliance.
  - Authorities requested PFTAC review of current VAT and Rent Tax Legislation.
- Financial Supervision:
  - Planned PFTAC missions: on-site bank examinations; revisions of Credit Union Act; oversight capacity building.
  - RBV indicated priority for technical support in these sectors; programs expected in FY2016.
- Footnotes referencing TA contributors:
  - Margaret Cotton and Peter Mullins 2010 – Framework for an Income Tax and Review of the VAT threshold, June 2010.
  - Carson McNeill - Tax Policy & Administration Reforms.
  - Stan Shrosbree – Evaluating Current Reform Progress and Determining Next Steps in Improving Taxpayer Compliance.
  - Carson McNeill – Review and Update Vanuatu’s Customs and Inland Revenue Corporate Strategy.

### BANK–FUND COUNTRY TEAM CONSULTATIONS (As of May 8, 2015)
- World Bank representative accompanied IMF Article IV mission April 15–28, 2015.
- Joint views exchanged on macroeconomic issues, effects of Cyclone Pam, and policy responses.
- Agreed priorities and assessments:
  - Post-cyclone needs require a large, temporary increase in public spending for rehabilitation and relief.
  - Important to seek external financing at highly concessional terms to finance temporary spending.
  - After recovery activities, authorities should rebuild fiscal buffers over the medium term, including mobilizing revenues.
  - Formulate an infrastructure investment plan aligned with national priorities; ensure discipline and allocative efficiency in public expenditure.
  - Complement infrastructure investment with reforms to enhance business environment, improve connectivity, and promote tourism (including new markets).
  - Authorities committed to inclusive growth via low-cost housing and improved access to electricity and financial services.
  - RBV measures to support economy and banking system post-cyclone welcomed; clarity and communication important for effectiveness.
  - Central bank should ensure banks maintain prudent lending and risk management standards.
  - Maintain vatu peg in short to medium term; scope to adjust peg over longer term depending on balance-of-payments pressures.
- Information and collaboration requests:
  - Fund team requests updates on World Bank projects and analytical work to avoid overlap.
  - Bank team requests Fund make available latest macroeconomic assessments and data as inputs to Bank operations.
- Agreement: Further collaboration details to be agreed at technical level.
- Planned activities (July 2015–June 2016) — highlights from Table 1:
  - Bank Work Program (ongoing unless noted):
    - Support improvements in operational safety and oversight of international air transport and associated infrastructure, including rehabilitation at Bauerfield International Airport.
    - Assist in increasing resilience of communities to climate change and natural hazards on food and water security.
    - Support strengthened disaster risk management and preparedness.
    - Support increased access to electricity services for rural and lower-income households; TA on energy sector work program.
    - Support regulatory reform in telecoms and ICT.
    - TA to improve public financial management and identify financing mix in health sector.
    - TA for public debt management (building on 2014 Debt Management and Performance Assessment).
    - TA for National Housing Policy development and financial support for disaster-resilient housing construction.
    - World Bank readiness to support government recovery plan via budget support, line of credit, and investment projects; From mid–2015 expected deliverables.
  - Fund Work Program:
    - Surveillance (Article IV consultation concluded), including a joint debt sustainability analysis — June 2015.
    - TA: coordinating a guided PEFA self-assessment (PFTAC) — June 2016.
    - TA on developing a PFM Reform Roadmap (PFTAC) — June 2016.
    - TA: non-tax revenues (PFTAC) — June 2016.

### RELATIONS WITH THE ASIAN DEVELOPMENT BANK (As of May 4, 2015)
- Operational Strategy:
  - ADB Country Operations Business Plan 2015–2017 aligned with government Priorities and Action Agenda; aims to assist in:
    - (i) transport—improved connectivity to markets and social services;
    - (ii) urban development—improved sanitation and drainage, urban infrastructure focusing on Port Vila;
    - (iii) energy—greater energy efficiency, rural electrification, renewable energy.
  - Focus on improving enabling environment for private sector via access to financial services, business law reform, and SOE reform.
- ADB allocation to Vanuatu for 2015–2016:
  - US$14.46 million (Asian Development Fund loan resources).
  - Approximately US$500,000 per annum in technical assistance (TA) grants on average.
- Portfolio Status:
  - Since 1981, 11 loans totaling US$85.55 million and 62 TA projects totaling US$22.45 million.
  - More than 50 percent of loans and TA projects were for the transport sector.
  - ADB resumed lending in late 2011 with two projects:
    - Vanuatu Interisland Shipping Project (US$52.12 million), cofinanced by Government of New Zealand.
    - Port Vila Urban Development Project (US$39.10 million), cofinanced by Government of Australia.
  - Five ongoing TA projects amounting to US$5.19 million (including cofinancing): TA 8724-VAN; TA 8336-VAN; TA 8285-VAN; TA 7938-VAN; TA 7345-VAN.
- Interisland Shipping Support Project:
  - Objectives: improve efficiency and effectiveness of interisland shipping services via infrastructure investments in Port Vila and five outer islands; establishment of a shipping support scheme for remote noncommercial destinations.
  - Financing: ADB loan US$29.30 million; Government of New Zealand parallel grant US$17.25 million; Government of Vanuatu US$5.57 million.
- Port Vila Urban Development Project:
  - Objectives: improve drainage, roads, sanitation in greater Port Vila; implement drainage and sanitation master plan recommendations; support affordable sustainable sanitation, roads, storm water drainage; contribute to climate resilient urban development.
  - Financing: ADB loan US$5.0 million; administering grant of US$31.0 million from Government of Australia; Government of Vanuatu contribution US$3.1 million.
- Private Sector Development (PSDI):
  - Focus areas: (i) improving access to financial services; (ii) business law reform; (iii) SOE reform.
  - Achievements:
    - Secured transactions framework reform: drafting and passage of the Personal Property Securities Act; installation and upgrade of electronic registry.
    - Diagnostic for RBV and Vanuatu Financial Services Commission on microfinance regulation and supervision.
    - Business law reform: drafting of new Companies Act, Insolvency Act, Trustee Act; support for implementation and electronic registry development.
    - SOE reform: preparation of SOE reform policy approved October 2013; drafting of SOE legislation; assistance with SOE reform and rationalization strategies.
- Cyclone Response:
  - Post–Tropical Cyclone Pam (March 2015): ADB immediate support:
    - (i) approval of US$1.0 million grant financing from Asia Pacific Disaster Response Fund;
    - (ii) deployment of urban and infrastructure specialists to Port Vila.
  - ADB is consulting with government on additional financing for reconstruction.
- Proposed Pipeline Projects:
  - Proposed Energy Access Project: support increased energy access in provincial centers via distribution grid expansion and low-cost renewable hydropower.
  - Proposed urban development project for Luganville and a second phase of Port Vila Urban Development Project.
- ADB–World Bank Joint Development Coordination Office: opened June 2010 in Port Vila to improve responsiveness and aid coordination.

### STATISTICAL ISSUES
I. Assessment of Data Adequacy for Surveillance
- General: Data provision has some shortcomings, but is broadly adequate for surveillance. National accounts and external sector statistics need further improvement; coverage of government finance statistics could be expanded; reporting lags could be shortened.
- National accounts:
  - Improvements in methodology and additional data sources noted.
  - Recently-released experimental expenditure-based GDP estimates accuracy could be further improved.
  - Data compiled only on an annual basis.
  - Rebasing constant price GDP estimates to 2010 base year underway with PFTAC assistance.
  - PFTAC assisting improvement of experimental expenditure-based GDP and development of quarterly GDP estimates.
- Price statistics:
  - CPI weights based on 1998 household surveys; coverage: Port Vila and Luganville only.
  - CPI rebasing underway using 2010 Household Income and Expenditure Survey data.
- Government finance statistics:
  - Budget classification broadly consistent with GFSM2001.
  - Migration to GFSM2014 classification underway.
  - Government operations data compiled for central government only; exclude public enterprises, provincial governments, two municipalities, grant bodies, and other extra-budgetary units.
  - Budget operations recorded on cash plus invoice basis.
- Monetary statistics:
  - RBV reports monthly monetary data including accounts of monetary authorities and commercial banks (aggregate), and loan distribution by sector in monthly bulletin.
  - RBV publishes a quarterly report with wider financial data coverage including fiscal transactions and key financial soundness indicators.
  - Information on financial access is sparse and could be expanded for better assessment of financial inclusiveness and monetary policy transmission.
- External sector statistics:
  - RBV releases quarterly BOP data in Quarterly Economic Report.
  - Special Debt Unit created within Ministry of Finance for public debt management and recording.
  - External sector statistics mission visited Vanuatu in February 2015 to assist review of quarterly BOP and IIP statistics.
II. Data Standards and Quality
- Participant in the General Data Dissemination System (GDDS) since April 2004.
- No data ROSC is available.

- Vanuatu: Table of Common Indicators Required for Surveillance (As of May 2015) — selected entries (dates preserved exactly as in source):
  - Exchange Rates: Date of latest Observation 5/1/2015; Date Received 5/1/2015; Frequency of Data MMM; Frequency of Reporting MMM; Frequency of Publication MMM.
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest Observation 3/1/2015; Date Received 5/1/2015; Frequency MMM.
  - Reserve/Base Money: 3/1/2015; 5/1/2015; MMM.
  - Broad Money: 3/1/2015; 5/1/2015; MMM.
  - Central Bank Balance Sheet: 3/1/2015; 5/1/2015; MMM.
  - Consolidated Balance Sheet of the Banking System: 3/1/2015; 5/1/2015; MMM.
  - Interest Rates: 3/1/2015; 5/1/2015; QQQ.
  - Consumer Price Index: 12/1/2014; 3/1/2015; QQQ.
  - Revenue, Expenditure, Balance and Composition of Financing — Central Government: 12/1/2014; 3/1/2015; MMM.
  - Stocks of Central Government and Central Government-Guaranteed Debt: 7/6/1905; 4/1/2015; AAA.
  - External Current Account Balance: 12/1/2014; 4/1/2015; QQQ.
  - Exports and Imports of Goods and Services: 12/1/2014; 4/1/2015; QQQ.
  - GDP/GNP: 7/5/1905; 11/1/2014; AAA.
  - Gross External Debt: 12/1/2014; 4/1/2015; QQQ.
  - International Investment Position: 12/1/2014; 4/1/2015; QQQ.

### DEBT SUSTAINABILITY ANALYSIS (Joint IMF–WB)
- This joint IMF–WB DSA updates the 2013 DSA.
- Key finding:
  - Vanuatu has shifted from low to moderate risk of debt distress.
  - Escalation largely reflects expected high levels of fiscal deficits induced by post-cyclone reconstruction expenditures and planned scaling-up of public investment, elevating public debt over the next few years.
  - Increase expected to be manageable provided financing terms are concessional and surge in financing needs is temporary.
  - Grants to fund the government’s recovery plan will lower debt accumulation.
- Policy recommendations and strategic priorities:
  - Be strategic in choice of future infrastructure projects.
  - Reprioritize spending.
  - Seek ways to increase revenues to ensure debt sustainability over the medium term.
- Approved By: Hoe Ee Khor and Peter Allum (IMF); Satu Kahkonen (IDA).
- Prepared by: Staff of the International Monetary Fund and the International Development Association.
- Date: May 20, 2015.

*Source: _cr15149 - References*

### 1.      Vanuatu is coping with the consequences of Cyclone Pam that hit the country on

### _cr15149 - 1.      Vanuatu is coping with the consequences of Cyclone Pam that hit the country on

### Impact on growth and short-term outlook
- Cyclone Pam hit on March 13 and caused significant short-term effects on growth by impairing important sectors including agriculture and tourism.
- GDP is expected to contract by 2 percent in 2015, in contrast to the pre-cyclone forecast of 3.5 percent growth.
- Reconstruction and previously planned infrastructure investment are expected to increase both public and external debt in relation to GDP.
- The Post-Disaster Needs Assessment (PDNA) estimated the total damage and losses at 61 percent of GDP, of which:
  - damage to physical assets: 37 percent of GDP
  - production losses: 24 percent of GDP
  - highest levels of damage by sector: housing stock (32 percent of total damage), tourism sector (20 percent), education sector (13 percent), transport sector (10 percent)
  - production losses concentrated in agriculture (33 percent of total production losses) and tourism (26 percent)
  - 69 percent of the impact falls within private enterprises and individual ownership; 31 percent in the public sector

### Fiscal costs, reconstruction financing, and projected deficits
- Public sector recovery and reconstruction expenditures are expected to be on the scale of 20 percent of GDP spread over 3 years (2015–17).
- Taking into account estimated loss of revenue and grants committed so far, the fiscal deficit is projected at:
  - about 12 percent of GDP in 2015–16 (text: "projected to reach about 12 percent of GDP in 2015–16")
  - 10 percent of GDP in 2017
- About 6 percent of GDP per year will be financed by project-related concessional loans.
- This leaves a financing gap of about 15 percent of GDP over 2015–17.
- Baseline scenario assumption: in the absence of specific grant commitments, the financing gap will be filled with concessional loans.

### Debt stock and composition (end-2014 and 2015 projections)
- External public debt (face value) in 2014: 11.7 percent of GDP.
- Total external debt in 2014: 22.5 percent of GDP.
- Total public and publicly guaranteed debt increased to 24 percent of GDP in 2014 due to increases in domestic debt of the central government and government-guaranteed debt to Government Business Enterprises (GBEs).
- Government-guaranteed GBE debt amounted to 4.6 percent of GDP at end-2014 (all GBE debt is domestic, though some is owed to foreign-owned banks and denominated in foreign currency).
- At end-2014, domestic debt of the central government stood at 7.8 percent of GDP and constituted 40 percent of total central government debt.
- Composition of central government domestic debt: government bonds placed with the Reserve Bank of Vanuatu, commercial banks, and other financial institutions (primarily the Vanuatu National Provident Fund).
- Most external debt is concessional, contracted from multilateral lenders (ADB, EIB, and IDA) and via bilateral agreements (China Ex-Im Bank); interest rates fairly low, loan maturities long, reflecting a relatively high grant element and low debt service (degree of concessionality varies by lender).
- Due to data limitations, external liabilities of commercial banks are used as a proxy for private external debt.

### Key macroeconomic and DSA assumptions (including Box 1)
- DSA uses updated data from authorities and estimates from IMF and World Bank staff; Cyclone Pam impact drawn from PDNA estimates.
- DSA framework discount rate: 5 percent.
- Total public debt definition: central government debt, publicly guaranteed GBE debt, and RCF/RFI on the books of the Reserve Bank of Vanuatu.
- Major infrastructure projects are assumed to proceed as planned but with a more protracted implementation schedule; public capital expenditures peak at 12.2 percent of GDP in 2016 and decline to about 2.3 percent of GDP in 2021.
- After current plans, project borrowing assumed to fall to historical level of about 1 percent of GDP.
- Box 1 — Key macroeconomic assumptions:
  - GDP growth:
    - decline by 2 percent in 2015
    - increase 5 percent in 2016
    - average 2.7 percent during 2015–2020
    - long-run growth rate assumed at 3 percent
  - Fiscal balance:
    - fiscal deficit projected at 10.7 and 10.6 percent of GDP in 2015 and 2016, respectively
    - DSA assumes gradual improvement and stabilization at near-balance levels in the long run
  - Reconstruction and financing:
    - reconstruction expenditures assumed 20 percent of GDP spread over 2015–17
    - additional external borrowing assumed concessional at the average terms of ADB, World Bank, and China ExIm Bank loans
  - Imports and exports:
    - imports rise to about 76 percent of GDP in 2015 and 69 percent in 2016
    - exports of goods and services in 2015–16 expected to remain lower than 2013 levels but pick up gradually thereafter
    - non-interest current account deficit projected at about 4 percent of GDP in the long run
  - FDI:
    - assumed to increase substantially over 2015–16 and stabilize at around 4 percent of GDP in the long run
  - Inflation:
    - slight increase to 2 percent in 2015
    - higher inflation expected during 2016–18 due to potential economic stimulus from project implementation

### External debt sustainability
- Under the baseline scenario, external debt remains sustainable but increases significantly over the medium term primarily due to reconstruction and project investments.
- Face value of external PPG peaks in 2020 at 52.5 percent of GDP.
- Present value (PV) of external PPG debt peaks at 32.4 percent of GDP in 2020 and remains well below the DSA threshold.
- Standardized stress tests:
  - PV of the debt-to-GDP ratio breaches the 40 percent threshold under four out of eight standardized stress tests.
  - Most extreme combination shock (lower nominal GDP and export growth and lower net non-debt-creating flows) would set PV of debt-to-GDP ratio to peak at 49 percent in 2020.
  - PV of the debt-to-exports ratio and PV of the debt-to-revenue ratio are close to breaching thresholds in the most extreme scenarios.
  - Ratios of debt service to exports and to revenue remain well below respective thresholds under standard stress tests.
- Refinancing risk:
  - Baseline does not assume fiscal tightening sufficient to generate surpluses to fully cover planned amortization; public debt expected to be rolled over at sufficiently concessional terms.
  - Alternative scenario with borrowing cost 200 basis points higher than baseline: PV of external public debt service increases noticeably relative to repayment capacity measures, and PV of the debt-to-GDP ratio breaches the applicable threshold.
  - Terms of new borrowing could be considerably harsher than in this alternative scenario.
- Historical scenario yields debt ratios below baseline projections since baseline macro assumptions are less favorable than average outcomes over the last ten years due to Cyclone Pam and temporary widening of deficits.

### Public debt sustainability
- Under the baseline, PV of total public debt projected to increase from 30.9 percent of GDP in 2015 to 43.7 percent of GDP by 2020.
- 2014 public debt: 21.5 percent of GDP (reference point in text).
- PV of total public debt remains below the benchmark of 56 percent.
- Long-run projection: decline to 25.6 percent of GDP by 2035.
- About 4.6 percent of GDP in total public debt in 2015 is due to contingent liabilities pertaining to GBE borrowing.
- PV of public debt expected to rise to 218.4 percent of budget revenue in 2020 and decline to 128.1 percent by 2035.
- Debt service on total public debt absorbs about 18 percent of government revenue and grants in the long run.
- Standard stress tests: PV debt-to-GDP breaches the 56 percent benchmark only in the scenario where the primary balance is held fixed at its 2015 level (noted as unrealistic because the 2015 primary deficit is temporary and caused by Cyclone Pam).

### Conclusion and staff assessment; policy recommendations
- Staff assessment: Vanuatu is at a moderate risk of debt distress; planned debt accumulation should be managed prudently.
- Current external and public debt levels are low but projected to rise steeply over the next few years, peak, and then start to decline.
- Although baseline scenarios remain below applicable thresholds, debt indicators show some breaches under standard stress tests.
- Policy recommendations to maintain manageable public and external debt levels:
  - Continue with a prudent borrowing strategy.
  - Rebuild fiscal buffers over the medium term.
  - Be strategic in choosing future public investment projects to ensure alignment with national priorities, implementation capacity, and available fiscal room.
  - Mobilize new revenue sources.
  - Strengthen public finance management processes.
  - Build adequate policy buffers in good times to cushion unexpected shocks.

*VANUATU INTERNATIONAL MONETARY FUND*

### 16.      The authorities broadly concurred with the implications of debt sustainability

### _cr15149 - 16.      The authorities broadly concurred with the implications of debt sustainability

### Authorities' assessment of debt sustainability
- The authorities "broadly concurred with the implications of debt sustainability analysis."
- They view the projected debt accumulation over the next few years as "temporary" and emphasize the importance of "rebuilding fiscal buffers over the medium term."
- Financing stance and priorities:
  - Seek grant financing for the recovery plan "before resorting to additional borrowing."
  - Prioritize investment projects given "the projected increases in debt burden."
  - Welcome staff recommendations on "spending discipline and increasing revenues" and request technical assistance on these aspects.
- Overall commitment: "The authorities are committed to preserving debt sustainability in the medium term."

### Cyclone Pam damage, macro outlook, and financing request
- Human and economic impact:
  - Eleven people lost their lives.
  - United Nations estimate: "about 188,000 people, out of a population of just over 265,000, were directly affected."
  - Total value of damages and losses in production: "over VT48 billion (about US$470 million), or just over 60 percent of GDP."
- 2015 outlook and balance-of-payments:
  - The economy is forecast to contract in 2015, "potentially by up to 2 percent."
  - Trade deficit expected to "increase sharply during 2015" due to disruptions in tourism and agriculture and a jump in imports for recovery.
  - Reserves will be under pressure despite being "maintained at prudent levels prior to the cyclone."
- IMF financing request:
  - Request for "SDR17 million under a blended RCF/RFI facility" intended for precautionary purposes to strengthen reserves and address urgent balance-of-payments needs.
  - Authorities intend to remain prudent and "avoid excessive debt accumulation," seeking grants first and concessional loans only as needed.

### Fiscal policy intentions and medium-term measures
- Pre-crisis buffers: authorities had a "track record of prudent fiscal management" providing solid buffers.
- Medium-term fiscal objectives:
  - Put public debt-to-GDP "on a declining path."
  - Continue borrowing only "to invest in infrastructure projects."
- Planned policy measures (from authorities' Letter of Intent and statement):
  - Strengthen expenditure discipline.
  - Reform Government Business Enterprises.
  - Improve public debt management.
  - Consider infrastructure prioritization and consolidation of nationally important projects.
  - Explore other revenue sources, including "the potential introduction of an income tax in the medium term."
- National Recovery plan:
  - Development of "National Recovery and Economic Strengthening Program" in close consultation with largest donors to prioritize, monitor, and, where necessary, adjust or cancel projects.

### Monetary policy and financial sector actions
- Reserve Bank of Vanuatu (RBV) immediate actions:
  - Lowered the policy rate.
  - Reduced the statutory reserve deposit requirement.
  - Introduced facilities to ensure essential credit continued to flow.
- RBV stance:
  - Will monitor economy and financial system responses and "stand ready to implement additional measures or adjust actions already taken as warranted."
  - Will "step up its reviews of banks’ risk management" and ensure banks follow prudential norms.
  - Welcomes planned technical assistance from the IMF’s Pacific Financial Technical Assistance Centre (PFTAC).
- Exchange rate policy:
  - Authorities "intend to maintain" the pegged exchange rate to preserve private sector confidence.
  - Staff suggestion to "re-evaluate the peg in the medium term" is acknowledged.

### Structural reforms and longer-term growth agenda
- Ongoing and planned reforms:
  - Gazetting of new company laws to aid business incorporation.
  - Planned land reforms to create a "more efficient and equitable system."
  - Strengthening Anti-Money Laundering and Counter-Terrorism Financing regime.
  - Cooperation with the Global Forum on Transparency and Exchange of Information for Tax Purposes.
  - Open to considering costs and benefits of hosting an offshore financial sector.
  - Commitment to implementing the National Financial Inclusion Strategy to expand services to remote areas.
- Infrastructure focus:
  - Continued focus on infrastructure investment to address bottlenecks and broaden development opportunities (e.g., recently completed submarine cable).

### Key quantitative highlights and projections referenced
- Damage and population:
  - Damage estimate: "over VT48 billion (about US$470 million), or just over 60 percent of GDP."
  - Affected population: "about 188,000" of "just over 265,000."
- 2015 GDP outlook: contraction "potentially by up to 2 percent."
- IMF financing request: "SDR17 million" under blended RCF/RFI.
- Selected macro assumptions and indicators reported in the debt sustainability framework (baseline projections and historical values preserved as in source):
  - External debt (nominal) 2012–2015: "25.7 24.0 22.5 37.6" (percent of GDP entries as presented in the table).
  - PV of external debt (selected values): "20.0 29.5 34.6 38.3 40.6 42.4 43.6 37.8 27.8".
  - PV of PPG external debt (selected values): "9.2 18.3 23.4 27.2 29.4 31.2 32.4 26.5 16.3".
  - Debt service-to-exports ratio (in percent): "3.7 3.9 5.0 5.5 4.3 3.8 4.7 7.0 5.9 7.3 6.0".
  - Government revenues (excluding grants, in percent of GDP): "18.8 19.2 19.2 20.9 20.5 21.0 20.3 20.2 20.0 20.0 20.0".
  - Aid flows (Millions of US dollars, selected): "23.5 17.5 31 11.8 106.3 94.0 83.1 68.5 76.6 63.5 53.1 81.2".
  - Grant-equivalent financing (in percent of GDP, selected): "10.8 7.7 6.8 5.6 5.2 4.2 2.5 2.2 2.4".
  - Real GDP growth (in percent, selected baseline projections): "3.0 3.0 3.0" (projection averages shown in tables).
- Sensitivity analysis summaries (key stress-test outcomes preserved as presented):
  - PV of debt-to-GDP ratio (baseline and stress values shown in Table 2 and Table 4): baseline and scenario values include sequences such as "18 23 27 29 31 32 27 16" (PV of debt-to-GDP ratio, 2015–2035 baseline row in Table 2) and other scenario rows with higher values under adverse shocks.
  - Various bound tests and alternative scenarios show pronounced increases in PV of debt ratios and debt-service ratios under shocks such as lower export growth, lower real GDP growth, and a "one-time 30 percent nominal depreciation relative to the baseline in 2016."

(Note: Detailed annual series and complete tables of the external and public sector debt sustainability framework, sensitivity analyses, and macroeconomic assumptions are presented in the source tables and figures.)

### International response and requests for support
- Authorities express strong appreciation for international humanitarian aid and IMF responsiveness.
- Authorities seek additional donor grant and concessional assistance "in light of the soon-to-be-finalized recovery plan."
- Authorities welcome IMF engagement including:
  - Speed and flexibility of response.
  - Upcoming Safeguards Assessment of the RBV.
  - Offer to move Vanuatu to a "12-month Article IV timetable."
  - Specific offers of technical assistance to support critical near-term transitions and a durable recovery.

*Statement by Barry Sterland, Executive Director for Vanuatu, and Chris Stewart, Advisor to the Executive Director. June 5, 2015. Source: IMF staff report and supporting debt sustainability tables and figures as provided in the content unit.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15149.pdf_