IMF Executive Board Concludes 2025 Article IV Consultation with Vanuatu
IMF News, September 25, 2025
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- Published: September 25, 2025
Overview
- The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Vanuatu and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
- Vanuatu’s growth is expected to recover to 1.7 percent in 2025 and 2.8 percent in 2026 following recent shocks.
- 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 supported by external grants, remittances, and a gradual recovery in tourism earnings, though reserves are on a downward trajectory.
- The outlook is subject to significant downside risks and structural challenges, reflecting heightened global uncertainties and domestic vulnerabilities.
Economic Outlook and Risks
- Growth forecasts:
- 2025: 1.7 percent
- 2026: 2.8 percent
- Key recent shocks affecting the outlook:
- Major earthquake in Port Vila in December 2024
- Liquidation of Air Vanuatu in May 2024
- Three cyclones in 2023
- Inflation:
- Consumer prices (period average) projections: 2.2 for 2025 (table shows 2.2) and unspecified for 2026 in prose; table lists 2.2 (2025) and blank for 2026 column header presents 2.8 for GDP but consumer prices (period average) shows 2.2 (2025) and 2.2 (2026) in table
- Consumer prices (end period) historical values: 0.7 (2021), 7.0 (2022), -0.7 (2023)
- Balance of risks:
- Tilted to the downside
- Domestic vulnerabilities: uncertain future of Air Vanuatu, sustainability of the Citizenship program, capacity constraints in public investment execution, delays in reconstruction, domestic connectivity issues
- External vulnerabilities: exposure to natural disasters, commodity price volatility, weaker-than-expected global demand, rising global trade tensions
Fiscal Developments and Policy Recommendations
- Fiscal outlook and pressures:
- Fiscal deficit projected to widen in 2025 due to weaker revenues and increased post-earthquake rebuilding expenditures, support for households, and Air Vanuatu’s operational needs.
- VAT revenues have held up; other revenue streams weakened.
- Economic Citizenship Program (ECP) revenues remain significant but face a structural decline.
- Planned increases in public employee compensation and allowances are substantial and risk setting a negative precedent on expenditure prioritization.
- Heavy reliance on relatively expensive domestic debt and increased monetary financing by the RBV.
- Key fiscal figures (table excerpts, in percent of GDP):
- Total revenue: 33.0 (2025), 31.9 (2026)
- Taxes: 16.1 (2025), 16.8 (2026)
- Other revenue: 7.6 (2025), 6.5 (2026)
- Grants: 8.6 (2025)
- Expenditure: 38.0 (2025), 36.6 (2026)
- Expense: 33.1 (2025), 32.4 (2026)
- Net acquisition of non financial assets: 4.9 (2025), 4.2 (2026)
- Net lending (+)/borrowing (-): -5.0 (2025), -4.7 (2026)
- Public and publicly-guaranteed debt (end of period): 49.4 (2025), 52.2 (2026)
- Domestic debt: 19.6 (2025)
- External debt: 33.2 (2025), 32.5 (2026)
- Fiscal policy recommendations:
- Deploy careful prioritization and expenditure management in the remainder of 2025 to avoid excessive fiscal expansion.
- Implement a medium-term consolidation plan urgently to restore policy buffers and safeguard medium-term fiscal sustainability.
- Strengthen the management and financial standing of Air Vanuatu by adopting a credible business plan to avoid a protracted budgetary burden.
- Reinforce the fiscal responsibility framework with a clear anchor and credible operational rules.
- Rebuild policy buffers through a comprehensive package of robust revenue mobilization and expenditure rationalization measures.
- Adopt a prudent debt management strategy to address government funding vulnerabilities and alleviate domestic financing constraints.
Monetary Policy and Financial Sector
- Monetary policy stance:
- Monetary policy is broadly appropriate to support the growth recovery amidst a stable inflation outlook and adequate foreign reserves.
- RBV should remain prepared to respond if inflationary pressures arise.
- To improve effectiveness of OMOs in reducing excess liquidity, monetary financing should be gradually phased out and allowed only under exceptional circumstances going forward.
- Ongoing legislative reforms to the RBV Act to strengthen independence and autonomy in line with best practices are critical and should be prioritized.
- Safeguards suggested: a strong balance sheet, transparent profit retention and distribution, and removal of political influence in policy decisions.
- Financial sector stability:
- The financial sector remains stable, but vulnerabilities persist, including elevated non-performing loans and low provisioning.
- Strengthening supervisory capacity, enhancing loan recovery frameworks, implementing a modern bank resolution framework are recommended.
- Effective implementation of the AML/CFT framework, targeted measures to address risks from the Economic Citizenship Program and virtual assets, and enhanced cross-border cooperation are essential to preserve correspondent banking relationships.
- Expanding financial inclusion, particularly in underserved communities, should be pursued.
Governance, Structural Challenges, and Resilience Building
- Governance and transparency:
- Improving governance and reducing corruption risks are critical for long-term development.
- Effective implementation of the CGBE Act and adequate resourcing of the GBE unit will bolster oversight and evaluation of SOE performance.
- Enhance transparency and governance of revenue streams, especially the Citizenship program, and digitize systems for compliance.
- Implement the PFM Roadmap and the new financial management system to strengthen PFM transparency.
- Structural reforms and resilience:
- Strengthen resilience by investing in robust infrastructure and improving disaster preparedness.
- Leverage overseas labor mobility programs to support skills development and entrepreneurship.
- Invest in quality education and vocational training, promote women’s participation in the formal labor force, and foster an enabling business environment to support private sector growth.
Key Statistics and Selected Indicators
- Population (2021): 312,039
- Per Capita GDP (2021): US$ 2,952
- IMF quota: SDR 23.8 million (0.01 percent of total)
- Literacy rate (2018): 87.5 percent
- Main products and exports: Kava, coconut oil, copra, cocoa, beef
- Key export markets: New Caledonia, Australia, New Zealand
- Selected table figures (annual percent change or levels where indicated):
- Real GDP: -1.6 (2021), 5.2 (2022), 2.1 (2023), 0.9 (2024), 1.7 (2025), 2.8 (2026)
- Consumer prices (period average): 2.3 (2021), 6.7 (2022), 11.2 (2023), 1.2 (2024), 2.2 (2025)
- Consumer prices (end period): 0.7 (2021), 7.0 (2022), -0.7 (2023)
- Total revenue (percent of GDP): 46.8 (2021), 35.5 (2022), 40.6 (2023), 38.7 (2024), 33.0 (2025), 31.9 (2026)
- Net lending (+)/borrowing (-) (percent of GDP): 2.4 (2021), -6.5 (2022), -0.9 (2023), -2.3 (2024), -5.0 (2025), -4.7 (2026)
- Public and publicly-guaranteed debt (end of period, percent of GDP): 49.5 (2021), 43.6 (2022), 42.6 (2023), 46.2 (2024), 49.4 (2025), 52.2 (2026)
- Gross international reserves (in millions of U.S. dollars): 664.8 (2021), 638.5 (2022), 604.5 (2023), 622.9 (2024), 577.6 (2025), 515.6 (2026)
- Gross international reserves (in months of prospective G&S imports): 11.7 (2021), 11.6 (2022), 10.5 (2023), 8.1 (2024)
- Current account (percent of GDP): -11.7 (2021), -17.6 (2022), -6.6 (2023), -15.4 (2024), -11.6 (2025)
- Travel receipts (percent of GDP): 0.2 (2021), 3.8 (2022), 12.0 (2023), 10.0 (2024), 12.6 (2025)
- Gross Remittances (percent of GDP): 20.6 (2021), 17.8 (2022), 15.2 (2023), 15.8 (2024)
- Nominal GDP (in millions of U.S. dollars): 921 (2021), 1,035 (2022), 1,125 (2023), 1,090 (2024), 1,119 (2025), 1,176 (2026)
- GDP per capita (U.S. dollars): 2951.7 (2021), 3206.3 (2022), 3371.2 (2023), 3156.5 (2024), 3132.9 (2025), 3184.8 (2026)
Executive Board of the International Monetary Fund, Press Release No. 25/314, September 25, 2025.