IMF Concludes 2013 Article IV Consultation Mission to VanuatuPress Release No. 13/130
April 18, 2013
An International Monetary Fund (IMF) mission led by Mr. Alexander Pitt visited Port Vila, Vanuatu, during April 1-10 to conduct the 2013 Article IV Consultation. The mission met with the country’s authorities, private sector representatives, and international donors to discuss economic developments and policies. At the conclusion of the visit, the mission issued the following statement:
“The economy is gradually turning around. Output growth in 2012 is estimated to have accelerated to around 2¼ percent as tourism has recovered strongly. Inflation remains low at 0.8 percent. In 2013, continued growth in tourism and the bottoming out of construction are projected to raise output growth to 3¼ percent. Inflation is expected to pick up moderately to 1¾ percent as demand pressure increases. In the medium term, growth is expected to accelerate to over 4 percent, as new investment projects are implemented.
“The peg to an undisclosed basket of currencies has served Vanuatu well. The level of the exchange rate remains broadly appropriate.
“Vanuatu has strong macroeconomic and prudential buffers, and the potential for growth is considerable. Maintaining low debt and high reserves should be a policy priority. In this regard, the mission is encouraged by the Government’s and the Reserve Bank of Vanuatu (RBV)’s conservative approach to macroeconomic and prudential management. The recent reduction in the RBV’s rediscount rate—at which banks can borrow from the RBV—in response to low inflation and low vatu credit growth is affordable. Tight supervision of the financial sector should be maintained and, where necessary, strengthened. To finance needed public investment, social spending, and maintenance without recourse to higher debt in the longer run, the government will need to mobilize additional domestic resources.
“To seize growth opportunities, public investment needs to be complemented by enhanced competition, reform of government business enterprises, a strengthened and reformed civil service, and active promotion of private sector investment, especially in the tourism sector but also in agriculture.”