Washington, DC:
An International Monetary Fund (IMF) team led by Koki Harada held virtual
meetings with the Vanuatu authorities during March 1–12, 2021, to discuss
recent economic and financial developments, and update itself on
macroeconomic policies being implemented by the authorities in the context
of its regular surveillance activities. At the end of the visit, Mr. Harada
issued the following statement:
“Vanuatu has successfully contained COVID-19 through the authorities’
timely and decisive actions. However, the prolonged closure of the border
has severely hit the economy—particularly tourism. In 2020, Vanuatu was
also hit by Tropical Cyclone Harold and volcanic eruptions in Tanna Island.
“The economy is projected to return to positive growth this year. Real GDP
contracted in 2020 and is expected to turn positive during 2021 as the
impact of the pandemic fades and borders reopen gradually. The outlook
remains subject to downside risks. Extended disruption from COVID-19 could
delay recovery in tourism activity. Despite their recent strength, reliance
on the windfall Economic Citizenship Program (ECP) revenues may be
unsustainable. Potential reduction in correspondent banking relationships
could have further adverse impact on the Vanuatu economy. An ever-present
downside risk relates to further natural disasters.
“As noted at the time of the 2019 Article IV consultation, mitigating some
of these risks will require tackling fiscal and structural challenges for a
robust recovery and sustainable and inclusive growth. Staff welcome the
authorities’ efforts for strengthening tax administration, and see the need
for a medium-term revenue strategy given the volatility of ECP revenues.
The authorities also need to reinforce compliance of institutions with the
AML/CFT regime, to ensure effective implementation of tax information
exchange, and to strengthen governance of the government business
enterprises. Continued efforts to tackle climate change adaptation will
also be needed given Vanuatu’s high vulnerability to natural disasters.
“The IMF stands ready to support the government’s reform efforts, including
through policy advice and technical assistance, especially with respect to
maintaining macroeconomic and financial stability and integrity, enhancing
financial supervisions, and strengthening the AML/CFT regime.
“The next Article IV consultation—annual review of the economy—with Vanuatu
is planned for July 2021.
“The team would like to express our sincere appreciation to the authorities
and other stakeholders for their hospitality and the very candid and
fruitful discussions.”
