IMF Executive Board Concludes 2019 Article IV Consultation with Vanuatu
IMF News, June 13, 2019
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- Published: June 13, 2019
Economic recovery and growth
- Reconstruction after Cyclone Pam is near completion with "full recovery in sight."
- Real GDP growth:
- 2017: 4.4 percent
- 2018: 3.2 percent
- 2019 (projection): 3.4 percent (slightly higher because of some delayed private investment)
- 2020 (projection): 2.9 percent (eases as fewer development-partner-financed projects)
- 2021 (projection): 2.8 percent
- Growth drivers moving forward: tourism and agricultural diversification; fewer projects financed by development partners.
- Vanuatu will graduate from LDC status in 2020, "with little expected impact on their growth trajectory."
- Vanuatu expected to implement the “PACER plus” free trade agreement with Australia, New Zealand and eight other Pacific island small states.
Fiscal and external position
- 2018 outcomes driven by windfall revenues from economic citizenship programs:
- Current account surplus (2018): 3.5 percent of GDP
- Fiscal surplus (2018): 4.8 percent of GDP
- Projections:
- 2019: modest fiscal deficit of 3.2 percent of GDP and current account deficit of 1.2 percent of GDP
- Deficits expected to widen thereafter due to spending on new infrastructure projects financed more by concessional lending than grants and decreased revenues from economic citizenship programs.
- Specific pressures noted: imports of airplanes for the Shared Vision 2030 plan for air travel and tourism.
- Government finance indicators (selected, in percent of GDP):
- Total revenue (2018): 35.5
- Total revenue (2019 projection): 27.9
- Taxes (2018): 17.7
- Other revenue (2018): 11.9
- Grants (2018): 4.1 (note table shows grants varying; e.g., 2015: 11.8, 2016: 8.3, 2017: 8.4)
- Expenditure (2018): 30.7
- Expense (2018): 24.6
- Acquisition of nonfinancial assets (2018): 6.1
- Net lending (+)/borrowing (-) (2018): 4.8
- Net lending (+)/borrowing (-) (2019 projection): -3.2
- Public and publicly-guaranteed debt (end of period):
- 2018: 52.4 percent of GDP
- 2019 projection: 52.9 percent of GDP
- 2020 projection: 53.9 percent of GDP
- 2021 projection: 55.3 percent of GDP
- External debt (end of period, 2018): 45.2 percent of GDP
Monetary policy and financial sector
- Monetary policy has maintained inflation within the 0 and 4 percent range using a pegged exchange rate regime and statutory reserve deposit requirements and open market operations.
- Inflation:
- Consumer prices (period average): 2018: 2.0 percent; 2019 projection: 2.2 percent
- Consumer prices (end period): 2018: 2.6 percent
- Monetary policy stance projected to remain neutral going forward.
- Financial sector: "generally sound" with "ample room to support financial inclusion," reflected in the National Financial Inclusion Strategy 2018–23.
- Concerns: excess liquidity may be reducing monetary policy effectiveness and should be closely monitored.
- Exchange rate: The vatu is officially pegged to an undisclosed basket of currencies.
- Gross international reserves (in millions of U.S.$):
- 2014: 179.2
- 2015: 266.3
- 2016: 292.7
- 2017: 396.4
- 2018: 502.4
- 2019 projection: 552.0
- 2020 projection: 562.3
- 2021 projection: 579.0
- Reserves in months of prospective G&S imports:
- 2014: 7.5
- 2015: 12.0
- 2016: 13.0
Executive Board assessment — findings and policy recommendations
- Commendations and risks:
- Directors welcomed recovery from Cyclone Pam and focus on broader development objectives.
- High exposure to natural disasters remains a key risk to the outlook.
- Fiscal policy recommendations:
- Continue fiscal discipline.
- Build adequate fiscal buffers and strengthen governance.
- Prioritize infrastructure investment and engage in further fiscal reform, including introducing corporate and personal income taxes while removing inefficient taxes.
- Reduce reliance on revenues from economic citizenship programs.
- Target to lower public-and publicly-guaranteed-debt-to-GDP to 50 percent.
- Monetary and financial sector recommendations:
- Monetary policy stance considered appropriate as inflation expected near the middle of the 0‑4 percent band.
- Monitor excess liquidity closely as it may reduce policy effectiveness.
- Strengthen financial sector regulatory and legal frameworks to account for increasing fintech use.
- Continue enforcing AML/CFT framework to help maintain correspondent banking relationships.
- Implement National Financial Inclusion Strategy 2018–2023 to improve access to finance.
- Disaster risk management and governance:
- National disaster planning framework improved substantially.
- Support proposed Disaster Risk Management Act with its national emergency fund to establish a multi‑year fund with consistent government funding.
- With limited administrative capacity and vulnerability to corruption, Directors suggested:
- Further strengthening the Reserve Bank of Vanuatu’s autonomy (in line with IMF 2016 Safeguards Assessment recommendations).
- Strengthening fiscal governance by completing the Government Business Enterprises Act and the Tax Administration Act.
- Engagement with development partners:
- Authorities should continue constructive engagement for technical assistance, capacity development, and financing.
Key statistics and country facts (from Table 1 and text)
- Population (2017): 278,726
- IMF quota: SDR 23.8 million (0.01 percent of total)
- Main products and exports: Coconut oil, copra, kava, beef
- Key export markets: New Zealand, Australia, Japan
- Per capital DGP (2017): US$3,356
- Literacy rate (2012): 83.4 percent
- Selected macro indicators:
- Real GDP (annual percent change): 2014: 2.3; 2015: 0.2; 2016: 3.5; 2017: 4.4; 2018: 3.2
- Current account (in percent of GDP): 2014: -1.6; 2015: 0.5; 2016: -6.5; 2017: -1.2; 2018: -5.4; 2019 projection: -4.8
- Trade balance (in percent of GDP): 2018: -30.3
- Tourism receipts (in percent of GDP): 2018: 25.5; 2019 projection: 24.2
- Net foreign assets (annual percent change, 2018): 36.5
- Domestic credit (annual percent change, 2018): 5.4
- Nominal GDP (in millions of U.S. dollars): 2018: 928; 2019 projection: 947; 2020 projection: 998; 2021 projection: 1,051
Source: IMF Executive Board Concludes 2019 Article IV Consultation with Vanuatu (Press Release No. 19/216, June 13, 2019).
