IMF Staff Completes 2025 Article IV Mission to Vanuatu

IMF News, July 23, 2025

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An IMF team, led by Mr. Mike Li, conducted discussions on the 2025 Article IV Consultation with the Vanuatu authorities and other stakeholders from July 10 to July 23, 2025.
End-of-Mission press release conveys preliminary findings of IMF staff; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
Staff will prepare a report based on these preliminary findings that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

Real GDP growth projections:
- 1.6 percent in 2025
- 2.6 percent in 2026
Recent shocks noted:
- Major earthquake in December 2024
- Liquidation of Air Vanuatu in May 2024
- Three cyclones in 2023
Inflation and reserves:
- Headline inflation has returned to the Reserve Bank of Vanuatu (RBV)’s target band and is projected to edge higher, remaining within the band.
- Foreign reserves are projected to remain adequate—thanks to support from external grants, remittances, and a gradual recovery in tourism earnings—albeit on a downward trajectory.
Current account:
- The current account deficit is projected to remain wide in 2025 due to higher imports.
Overall risk assessment:
- Uncertainty around the outlook remains high and the balance of risks is tilted to the downside.
- Specific downside risks include: uncertain post-earthquake recovery path, uncertain tourism sector prospects, uncertainty over domestic connectivity, a deeper or longer-lasting slump in Economic Citizenship Program (ECP) revenues, delays in reconstruction, and external demand shocks (including from ongoing global trade tensions).
- Vanuatu faces high risk of natural disasters, skills shortages, governance weaknesses, and political fragmentation which increase vulnerabilities.

Fiscal outlook:
- The fiscal deficit is projected to widen in 2025 given weaker revenues and higher post-earthquake spending.
- The fiscal deficit is projected to widen in 2025 due to weaker revenues and an increase in expenditures associated with post-earthquake rebuilding and support for households.
Policy recommendations:
- Post-earthquake fiscal support should be well targeted and anchored with a decisive medium-term consolidation strategy to safeguard debt sustainability.
- Given the limited fiscal policy space, spending should be prioritized and better targeted, with a focus on rebuilding critical infrastructure and protecting vulnerable households while limiting discretionary public wage increases.
- Stronger revenue mobilization—as emphasized in Budget 2025—and comprehensive expenditure rationalization are needed to rebuild fiscal buffers over the medium term.
- Refocusing efforts to develop domestic government bond markets will help provide a stable financing alternative for the government.

Current stance:
- The RBV maintained its policy rate in June 2025 to support economic recovery amidst a stable inflation outlook and still adequate foreign reserves.
Institutional reform:
- The RBV’s internal oversight, governance, and independence will be further reinforced by ongoing legislative reform efforts to amend the RBV Act to align it with best practices, including phasing out monetary financing to strengthen central bank independence and avoid crowding out high-quality private credit.
Assessment:
- Monetary policy is broadly appropriate.

Stability and vulnerabilities:
- The financial sector remains largely stable but requires stronger safeguards against vulnerabilities.
- Persistently high NPLs underscore the need to enhance prudential frameworks and supervisory capacity.
Supervisory and resolution measures recommended:
- Enhance prudential frameworks and supervisory capacity, including through frequent on-site inspections, robust underwriting standards, and adequate provisioning.
- Mitigate risks associated with the sovereign-bank nexus and foreign currency liquidity shocks.
- Establish a resolution framework for distressed financial institutions.
Anti-money laundering / counter-financing of terrorism (AML/CFT) and governance:
- Strengthening financial integrity, governance, and anti-corruption remain crucial.
- Effective implementation of the Commercial Government Business Enterprise Act to enhance oversight and performance of State-Owned Enterprises (SOEs) against political influence.
- Close gaps in public financial management and strengthen anti-corruption measures.
- Adopt a risk-based approach to AML/CFT supervision and promote institutional capacity building to address deficiencies, especially in high-risk areas such as ECP and virtual assets.

Labor, skills, and inclusion:
- Concerted efforts are needed to address labor and skills shortages.
- Promote investment in quality education and vocational training.
- Create an enabling business environment to boost entrepreneurship and job creation.
- Increase women’s participation in the formal labor market to support inclusive growth.
Climate and resilience:
- Address climate risks by investing in resilient infrastructure and early warning systems.
- Scale up access to climate finance and international support.
Public enterprises and governance:
- Effective implementation of the Commercial Government Business Enterprises Act will help improve the oversight and performance of SOEs.
- Close governance gaps and reduce corruption as top priorities.

The IMF team thanked the authorities for the frank and engaging discussions, and their warm hospitality.

IMF staff statement following the 2025 Article IV mission to Vanuatu (July 10–July 23, 2025).

Press Release-English
- Press Release-English (Markdown version)
- Press Release-English (PDF)