IMF Executive Board Concludes 2024 Article IV Consultation with Vanuatu

IMF News, September 4, 2024

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Voluntary liquidation of Air Vanuatu in May 2024 created a major shock with substantial implications for growth and confidence.
Adverse developments in the Economic Citizenship Program (ECP) are creating significant impairments to fiscal revenue and financial integrity.
Assuming a resumption of international air connectivity by 2024Q3 and domestic connections to be restored gradually by end-2024:
- Real GDP growth is expected to slow to 0.9 percent y/y in 2024.
- Real GDP growth is expected to recover to 1½ percent y/y in 2025.
- Real GDP growth was an estimated 2.2 percent y/y in 2023.
Limited fiscal revenue and high costs associated with the airline liquidation are expected to:
- Exacerbate the deficit and reduce the government’s fiscal space.
- Likely lead to a decline in capital spending as expenditures are reprioritized, affecting medium- and long-term growth.
Foreign reserves:
- Will remain above the RBV’s benchmark.
- Are forecast to decline due to lower tourism earnings and remittances.
Inflation:
- Peaked in 2023.
- Will continue to decelerate as internal and external price pressures ease, supported by reduced demand from tourism and investment.

Directors noted the significant economic shock from the voluntary liquidation of Air Vanuatu amid recovery from the multiple natural disasters of 2023.
With real GDP growth expected to decelerate markedly in 2024 and balance of risks tilted to the downside, Directors called for urgent measures to address immediate risks to growth and stability, and then to rebuild buffers and tackle structural issues with accelerated policy reforms.
Directors highlighted structural revenue weakness in Vanuatu, exacerbated by the airline liquidation and declining ECP proceeds.

Near term: provide targeted and strategic support to help stabilize the economy.
Starting in 2025: urgent fiscal consolidation to reduce sustainability concerns, including re‑establishing and adhering to the fiscal anchor.
Strengthen public finances by:
- Stronger revenue mobilization.
- Expenditure rationalization.
- Efficiency enhancements for spending.
- Strong adherence to the principles of responsible public financial management.

Monetary policy:
- Remains appropriately accommodative.
- Fiscal dominance needs to be reduced.
- Exchange rate has acted as a buffer but requires close monitoring.
- Welcomed authorities’ efforts to review the currency basket.
Financial sector resilience:
- Address bank asset quality concerns.
- Enhance safeguards against financial vulnerabilities through upgraded regulatory, supervisory, and monitoring practices.
Governance and corruption:
- Improving governance and reducing vulnerabilities to corruption should remain a priority.
- Emphasized the crucial importance of enhancing anti‑corruption frameworks and the transparency and supervision of SOEs.
- Supported ensuring an expedited approval of the Commercial Government Business Enterprises Act.

Commended authorities’ efforts to adapt to climate impacts and build resilience against future disasters and called for these efforts to be accelerated.
Human capital and business environment:
- Invest in quality education and skills training.
- Improve the ease of doing business to address labor and skills shortages in Vanuatu.

IMF Executive Board Concludes 2024 Article IV Consultation with Vanuatu (Press Release No. 24/315), September 3, 2024.