An International Monetary Fund (IMF) team held virtual meetings with Vanuatu authorities to discuss recent economic and financial developments, and update itself on macroeconomic policies implemented in the context of regular surveillance activities.
The team led by Koki Harada met during March 1–12, 2021.
At the end of the visit, Mr. Harada said, “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.
Photo file Caption: Downtown Port Vila