{
  "title": "IMF Executive Board Concludes 2023 Article IV Consultation with Vanuatu",
  "publication": "IMF News, March 22, 2023",
  "sourceUrl": "https://www.imf.org/en/news/articles/2023/03/20/pr2383-imf-executive-board-concludes-2023-article-iv-consultation-with-the-vanuatu",
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  "summary": "The reopening of borders and strong public infrastructure investment are paving the way for a faster recovery. GDP growth is expected to rise to 3.5 percent in 2023. Agricultural production, remittance inflows, and strong recovery in trading partners will support the economic activity.",
  "publishDate": "2023-03-22",
  "sections": [
    {
      "heading": "Overview and near-term outlook",
      "content": "- Reopening of borders and strong public infrastructure investment are paving the way for a faster recovery.\n- GDP growth is expected to rise to 3.5 percent in 2023.\n- Agricultural production, remittance inflows, and strong recovery in trading partners will support economic activity.\n- High energy and global commodity prices are pushing up headline inflation and widening the current account deficit, while core inflation remains subdued for now.\n- Fiscal policy is expected to remain expansionary in the near term as the implementation of externally financed infrastructure projects accelerates.\n- Monetary policy remains appropriately on hold amid weak private credit growth and negative output gap.\n- The Economic Citizenship Program (ECP) is facing significant challenges with important implications for revenue collection and governance.\n- The financial and operational challenges of Air Vanuatu are worsening and affecting the economy, particularly the tourism sector.\n- The banking sector weathered the pandemic well, but elevated non-performing loans (NPLs), particularly for households, remain a concern."
    },
    {
      "heading": "Risks to the outlook",
      "content": "- Short-term to near-term risks (tilted to the downside):\n  - Spread of COVID-19 variants following the reopening of borders delaying implementation of major infrastructure projects.\n  - Slowdown in main trading partners’ growth negatively weighing on tourism and remittances.\n  - Additional losses in ECP revenue that could derail medium-term fiscal sustainability.\n- Structural risks:\n  - Increasing NPLs and their effects on banks’ financial performance and lending capacity.\n  - Weak governance and anti-corruption framework.\n  - Extreme vulnerability to climate change.\n- Specific operational risks:\n  - Labor and materials shortages and cost overruns could delay externally financed infrastructure projects.\n  - Operational and financial challenges at the national airline (Air Vanuatu) pose risks to tourism and domestic connectivity."
    },
    {
      "heading": "Executive Board assessment — policy priorities and recommendations",
      "content": "- Fiscal policy and debt sustainability:\n  - A credible medium-term fiscal strategy that secures adequate consolidation is essential for preserving debt sustainability given projected decline in ECP revenues.\n  - Vanuatu’s infrastructure agenda must be accompanied by tax revenue mobilization and expenditure rationalization to reduce deficits and keep debt below 60 percent of GDP over the next decade.\n  - Increasing tax revenues—including through the introduction of corporate or personal income taxes and through base broadening—should be at the core of any fiscal strategy.\n  - Promptly launching fiscal consolidation efforts and securing at least two percent of GDP in savings would help meet the fiscal anchor while protecting capital spending.\n  - Fiscal buffers should be strengthened given vulnerability to natural disasters, including expanding the sizeable cash reserves built in recent years.\n- Air Vanuatu:\n  - The restructuring of Air Vanuatu must be completed urgently to reduce fiscal risks.\n  - A careful analysis of restructuring options is needed to identify a sustainable solution that minimizes contingent liabilities and transfers from the government while preserving the airline’s systemic economic role.\n- Monetary policy:\n  - The current monetary policy stance is appropriate: keep policy on hold given weak private credit growth, subdued core inflation, and negative output gap.\n  - Monetary policy should remain data-driven; the Reserve Bank of Vanuatu should stand ready to tighten if there are signs of second-round effects such as rapid increases in core inflation.\n- Financial sector:\n  - Focus on tackling elevated non-performing loans.\n  - Strengthen the supervisory and resolution framework, increase minimum capital requirements, and provisioning for some banks.\n  - Introducing a debt-service-to-income ratio can help contain formation of unsustainable debt.\n- Structural reforms to unlock growth:\n  - Promote economic diversification, particularly in the agricultural sector.\n  - Improve the public investment management process to strengthen capacity to implement large-scale projects.\n  - Prioritize streamlining administrative processes for FDI and implement policies to address labor shortages.\n- AML/CFT and governance:\n  - Address significant deficiencies in Vanuatu’s AML/CFT regime, including better assessing ML/TF risks, strengthening the AML/CFT framework in line with international standards (including to regulate virtual asset service provider activities), and bolstering capacity of competent authorities and law enforcement.\n  - Address governance risks surrounding the ECP.\n  - Use the upcoming APG review as an opportunity to show tangible results.\n  - Strengthen governance in the public sector, particularly with respect to the central bank and state-owned enterprises."
    },
    {
      "heading": "Key statistics and projections (selected, as reported)",
      "content": "- Population (2020): 301,695\n- Per Capita GDP (2020): US$ 3,341\n- IMF quota: SDR 23.8 million (0.01 percent of total)\n- Main products and exports: Kava, coconut oil, copra, cocoa, beef\n- Key export markets: New Caledonia, Australia, New Zealand\n\nSelected annual figures (2019–28) — output, prices, and government finance (values as reported)\n- Real GDP (annual percent change): 2019: 3.2; 2020: -5.0; 2021: 0.6; 2022: 1.9; 2023: 3.5; 2024: 3.6; 2025: 3.9; 2026: 3.1; 2027: 3.0; 2028: 2.5\n- Consumer prices (period average): 2019: 2.7; 2020: 5.3; 2021: 2.3; 2022: 4.6\n- Total revenue (percent of GDP): 2019: 42.6; 2020: 41.4; 2021: 45.7; 2022: 38.1; 2023: 40.0; 2024: 35.7; 2025: 34.0; 2026: 33.5; 2027: 33.2; 2028: 32.9\n- Taxes (percent of GDP): 2019: 16.9; 2020: 14.0; 2021: 15.4; 2022: 16.0; 2023: 17.8; 2024: 18.3; 2025: 18.2; 2026: 18.1\n- Grants (percent of GDP): 2019: 11.7; 2020: 11.5; 2021: 12.9; 2022: 14.3; 2023: 10.5; 2024: 9.0; 2025: 8.7; 2026: 8.5; 2027: 8.2\n- Expenditure (percent of GDP): 2019: 39.8; 2020: 43.4; 2021: 44.7; 2022: 46.1; 2023: 42.9; 2024: 41.0; 2025: 39.5; 2026: 39.3; 2027: 39.0\n- Net lending (+)/borrowing (-) (percent of GDP): 2019: 2.8; 2020: -1.9; 2021: -6.6; 2022: -6.2; 2023: -7.3; 2024: -6.9; 2025: -6.0; 2026: -6.1\n- Public and publicly-guaranteed debt (end of period, percent of GDP): 2019: 45.9; 2020: 48.9; 2021: 48.4; 2022: 46.6; 2023: 49.2; 2024: 53.1; 2025: 56.1; 2026: 58.5; 2027: 61.4; 2028: 64.3\n  - Domestic (percent of GDP): 2019: 6.0; 2020: 8.6; 2021: 10.1; 2022: 8.8; 2023: 9.3; 2024: 9.6; 2025: 10.3; 2026: 13.1\n  - External (percent of GDP): 2019: 39.9; 2020: 40.4; 2021: 36.5; 2022: 40.5; 2023: 43.7; 2024: 46.5; 2025: 48.3; 2026: 49.7; 2027: 51.1\n- Broad money (M2) (annual percent change): 2019: 9.2; 2020: 14.2; 2021: 7.4; 2022: 13.7; 2023: 7.1; 2024: 8.4\n- Domestic credit (annual percent change): 2019: -6.4; 2020: -9.5; 2021: 5.8; 2022: 1.2; 2023: 5.0; 2024: 4.8; 2025: 5.7; 2026: 7.6; 2027: 7.8\n- Credit to private sector (annual percent change): 2019: 0.4; 2020: 1.5; 2021: 0.3; 2022: 1.6\n- Lending rate (vatu loans, percent, end of period): 2019: 9.9; 2020: 9.5; 2021: 9.4\n- Current account (percent of GDP): 2019: 27.8; 2020: -2.2; 2021: -3.6; 2022: -1.2; 2023: 2.2; 2024: 2.6\n- Trade balance (percent of GDP): 2019: -24.0; 2020: -22.8; 2021: -24.9; 2022: -27.0; 2023: -32.2; 2024: -30.0; 2025: -29.0; 2026: -27.9; 2027: -27.6\n- Exports of goods (percent of GDP): 2019: 5.1; 2020: 6.1; 2021: 5.9\n- Imports of goods (percent of GDP): 2019: -28.9; 2020: -27.8; 2021: -30.4; 2022: -33.1; 2023: -38.4; 2024: -35.9; 2025: -34.9; 2026: -33.8; 2027: -33.6; 2028: -33.5\n- Travel receipts (percent of GDP): 2019: 28.8; 2020: 0.2; 2021: 18.9; 2022: 22.9; 2023: 22.6; 2024: 22.4; 2025: 22.2\n- Gross Remittances (percent of GDP): 2019: 15.5; 2020: 11.9; 2021: 16.3; 2022: 17.0; 2023: 16.6; 2024: 15.7\n- Gross international reserves (in millions of U.S. dollars): 2019: 511.6; 2020: 613.6; 2021: 664.8; 2022: 706.0; 2023: 754.5; 2024: 801.4; 2025: 871.1; 2026: 950.5; 2027: 1,030.2; 2028: 1,122.7\n- Gross international reserves (in months of prospective G&S imports): 2019: 13.6; 2020: 10.9; 2021: 12.0; 2022: 12.4; 2023: 12.7; 2024: 13.0\n- External debt service (in percent of GNFS exports): 2019: 27.3; 2020: 4.5\n- Vatu per U.S. dollar (period average): 2019: 115.6; 2020: 104.1; 2021: 112.9; 2022: 113.5\n- Vatu per U.S. dollar (end of period): 2019: 114.3; 2020: 107.7; 2021: 112.2; 2022: 114.8\n- Nominal GDP (in millions of U.S. dollars): 2019: 930; 2020: 1,008; 2021: 942; 2022: 1,001; 2023: 1,064; 2024: 1,137; 2025: 1,217; 2026: 1,293; 2027: 1,372; 2028: 1,449\n- GDP per capita (U.S. dollars): 2019: 3187.4; 2020: 3341.0; 2021: 3017.7; 2022: 3103.0; 2023: 3188.5; 2024: 3292.4; 2025: 3408.6; 2026: 3501.9; 2027: 3592.6; 2028: 3668.2\n\nSource: IMF Executive Board Concludes 2023 Article IV Consultation with Vanuatu (Press Release No. 23/83, March 22, 2023).\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Vanuatu and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2023/03/20/pr2383-imf-executive-board-concludes-2023-article-iv-consultation-with-the-vanuatu"
    }
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    "Published: March 22, 2023",
    "Reopening of borders and strong public infrastructure investment are paving the way for a faster recovery.",
    "GDP growth is expected to rise to 3.5 percent in 2023.",
    "Agricultural production, remittance inflows, and strong recovery in trading partners will support economic activity.",
    "High energy and global commodity prices are pushing up headline inflation and widening the current account deficit, while core inflation remains subdued for now.",
    "Fiscal policy is expected to remain expansionary in the near term as the implementation of externally financed infrastructure projects accelerates.",
    "Monetary policy remains appropriately on hold amid weak private credit growth and negative output gap.",
    "The Economic Citizenship Program (ECP) is facing significant challenges with important implications for revenue collection and governance.",
    "The financial and operational challenges of Air Vanuatu are worsening and affecting the economy, particularly the tourism sector.",
    "The banking sector weathered the pandemic well, but elevated non-performing loans (NPLs), particularly for households, remain a concern.",
    "Short-term to near-term risks (tilted to the downside):",
    "Structural risks:",
    "Specific operational risks:",
    "Fiscal policy and debt sustainability:",
    "Air Vanuatu:",
    "Monetary policy:",
    "Financial sector:",
    "Structural reforms to unlock growth:",
    "AML/CFT and governance:",
    "Population (2020): 301,695",
    "Per Capita GDP (2020): US$ 3,341",
    "IMF quota: SDR 23.8 million (0.01 percent of total)",
    "Main products and exports: Kava, coconut oil, copra, cocoa, beef",
    "Key export markets: New Caledonia, Australia, New Zealand",
    "Real GDP (annual percent change): 2019: 3.2; 2020: -5.0; 2021: 0.6; 2022: 1.9; 2023: 3.5; 2024: 3.6; 2025: 3.9; 2026: 3.1; 2027: 3.0; 2028: 2.5",
    "Consumer prices (period average): 2019: 2.7; 2020: 5.3; 2021: 2.3; 2022: 4.6",
    "Total revenue (percent of GDP): 2019: 42.6; 2020: 41.4; 2021: 45.7; 2022: 38.1; 2023: 40.0; 2024: 35.7; 2025: 34.0; 2026: 33.5; 2027: 33.2; 2028: 32.9",
    "Taxes (percent of GDP): 2019: 16.9; 2020: 14.0; 2021: 15.4; 2022: 16.0; 2023: 17.8; 2024: 18.3; 2025: 18.2; 2026: 18.1",
    "Grants (percent of GDP): 2019: 11.7; 2020: 11.5; 2021: 12.9; 2022: 14.3; 2023: 10.5; 2024: 9.0; 2025: 8.7; 2026: 8.5; 2027: 8.2",
    "Expenditure (percent of GDP): 2019: 39.8; 2020: 43.4; 2021: 44.7; 2022: 46.1; 2023: 42.9; 2024: 41.0; 2025: 39.5; 2026: 39.3; 2027: 39.0",
    "Net lending (+)/borrowing (-) (percent of GDP): 2019: 2.8; 2020: -1.9; 2021: -6.6; 2022: -6.2; 2023: -7.3; 2024: -6.9; 2025: -6.0; 2026: -6.1",
    "Public and publicly-guaranteed debt (end of period, percent of GDP): 2019: 45.9; 2020: 48.9; 2021: 48.4; 2022: 46.6; 2023: 49.2; 2024: 53.1; 2025: 56.1; 2026: 58.5; 2027: 61.4; 2028: 64.3",
    "Broad money (M2) (annual percent change): 2019: 9.2; 2020: 14.2; 2021: 7.4; 2022: 13.7; 2023: 7.1; 2024: 8.4",
    "Domestic credit (annual percent change): 2019: -6.4; 2020: -9.5; 2021: 5.8; 2022: 1.2; 2023: 5.0; 2024: 4.8; 2025: 5.7; 2026: 7.6; 2027: 7.8",
    "Credit to private sector (annual percent change): 2019: 0.4; 2020: 1.5; 2021: 0.3; 2022: 1.6",
    "Lending rate (vatu loans, percent, end of period): 2019: 9.9; 2020: 9.5; 2021: 9.4",
    "Current account (percent of GDP): 2019: 27.8; 2020: -2.2; 2021: -3.6; 2022: -1.2; 2023: 2.2; 2024: 2.6",
    "Trade balance (percent of GDP): 2019: -24.0; 2020: -22.8; 2021: -24.9; 2022: -27.0; 2023: -32.2; 2024: -30.0; 2025: -29.0; 2026: -27.9; 2027: -27.6",
    "Exports of goods (percent of GDP): 2019: 5.1; 2020: 6.1; 2021: 5.9",
    "Imports of goods (percent of GDP): 2019: -28.9; 2020: -27.8; 2021: -30.4; 2022: -33.1; 2023: -38.4; 2024: -35.9; 2025: -34.9; 2026: -33.8; 2027: -33.6; 2028: -33.5",
    "Travel receipts (percent of GDP): 2019: 28.8; 2020: 0.2; 2021: 18.9; 2022: 22.9; 2023: 22.6; 2024: 22.4; 2025: 22.2",
    "Gross Remittances (percent of GDP): 2019: 15.5; 2020: 11.9; 2021: 16.3; 2022: 17.0; 2023: 16.6; 2024: 15.7",
    "Gross international reserves (in millions of U.S. dollars): 2019: 511.6; 2020: 613.6; 2021: 664.8; 2022: 706.0; 2023: 754.5; 2024: 801.4; 2025: 871.1; 2026: 950.5; 2027: 1,030.2; 2028: 1,122.7",
    "Gross international reserves (in months of prospective G&S imports): 2019: 13.6; 2020: 10.9; 2021: 12.0; 2022: 12.4; 2023: 12.7; 2024: 13.0",
    "External debt service (in percent of GNFS exports): 2019: 27.3; 2020: 4.5",
    "Vatu per U.S. dollar (period average): 2019: 115.6; 2020: 104.1; 2021: 112.9; 2022: 113.5",
    "Vatu per U.S. dollar (end of period): 2019: 114.3; 2020: 107.7; 2021: 112.2; 2022: 114.8",
    "Nominal GDP (in millions of U.S. dollars): 2019: 930; 2020: 1,008; 2021: 942; 2022: 1,001; 2023: 1,064; 2024: 1,137; 2025: 1,217; 2026: 1,293; 2027: 1,372; 2028: 1,449",
    "GDP per capita (U.S. dollars): 2019: 3187.4; 2020: 3341.0; 2021: 3017.7; 2022: 3103.0; 2023: 3188.5; 2024: 3292.4; 2025: 3408.6; 2026: 3501.9; 2027: 3592.6; 2028: 3668.2",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[Vanuatu and the IMF](http://www.imf.org/external/country/VUT/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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