State of the nation – Key insights on the state of Vanuatu’s economy

August 4, 2016 2:26 pm | Posted in Opinions | Share now TwitterFacebook

IMF Assessment

The IMF recently completed a periodic evaluation of Vanuatu’s financial and fiscal situation. Among the key observations:

“Vanuatu is gradually recovering from the extensive damages caused by Cyclone Pam last year, and reconstruction efforts have started to yield positive results. Growth is projected to reach 4.0 percent in 2016 and 4.5 percent in 2017 driven by the recovery in tourism and agricultural production, and further ramping-up of infrastructure projects.

“Inflation is projected to remain below 3 percent thanks to lower commodity prices although expanding domestic demand put some pressure on supply.

“The current account deficit is expected to widen to around 20 percent of GDP in 2016 due to the high import-content of the reconstruction and infrastructure projects, but the deficit is fully financed by grants and loans.

“Government spending is projected to increase by 16 percentage points of GDP due to cyclone-related expenditure, which includes delayed spending from 2015. As a result, the fiscal deficit is projected to reach 11.3 percent of GDP fully financed by grants, loans, and government deposits. Fiscal prudence is called for in the future to ensure fiscal and debt sustainability.

“To seize growth opportunities, public investment scaling up needs to be complemented by a concerted effort to actively promote private sector investment and attract foreign direct investment.”

Half year economic report

The government of Vanuatu issued its half-year economic report in July. Some key components:

Public investment growth is ‘staggering’

“According to the level of public investments currently implemented, growth in public investments is projected at a staggering growth of 70.6 percent before cooling off at an annual average of 9.0 per cent over the medium term.”

Tourism back on track

The airport runway fiasco “has huge impact on hotels and restaurant businesses however the surge in cruise ship arrivals have partially offset negative impacts to other tourism related services such as transport and retail trade. Number of cruise ship arrivals has expanded from 224 in 2015 to 325 cruises in 2016. The completion of the current infrastructures such as wharfs, road upgrade, and Port Vila beautification project will further attract larger cruise liners to Vanuatu in the medium term.”

Private investment slowly growing

“With necessary policy initiative by both monetary and fiscal authorities to immediately revive this sector, introduction of BSP in June this year will lead to a turnaround in growth over the medium term starting in 2017 with an average annual pace of 6.0 per cent over the next two years.”

Financial situation

“The net operating balance for government operations, excluding donor funds, at the end of June was a surplus of VT 2,423.8 million. This is a 277.4 per cent increase from the net operating surplus (VT 642.2 million) during the same period in 2015.”

Inflation

“Inflation rose to 2.0 percent in the first quarter of 2016 after a decline to 1.4 percent in the last quarter of 2015. The increase was mainly contributed by increased prices for food, transport, education, clothing and footwear, household supplies, and recreation offset by decline in housing and utilities, and miscellaneous prices.”

VNSO April reports

Trade report

The Vanuatu National Statistic Office issued its monthly trade report for April. Figures showed a large and growing imbalance of trade. Agricultural exports led the decline:

Tourism report

The VNSO monthly tourism report for April 2016 included a few key take-aways:

• In April 2016, international visitor arrivals by air made up 27% of total international visitors to Vanuatu.
• Visitors by air stood at 6,083, an increase of 33% over April 2015; and 46% over the previous month. The increases reflect the rise in visitors’ arrival for holiday purposes.
• Two out of every seven visitors by air travelled to outer islands.
• Cruise ship or day visitors accounted for 73% of total international visitors to Vanuatu. Day visitors stood at 16,733, showing a significant increase of 127% over April 2015, however, a decrease of 38% over the previous month. The increase of day visitors was attributed by a rise in the number of Cruise ships in April 2016.