Vanuatu, a Pacific island nation situated between Australia and Fiji, is facing significant economic challenges following recent adverse events. The International Monetary Fund (IMF) has highlighted these issues in a staff report that outlines the impact of two destructive tropical cyclones last year, the effective bankruptcy of Air Vanuatu, and declining revenues from its Economic Citizenship Program (ECP).
The financial troubles of Air Vanuatu, which culminated in bankruptcy in May 2024, have affected the nation's connectivity and tourism industry. Additionally, governance deficiencies related to the ECP have led to a decrease in fiscal revenue from 14 percent of GDP in 2020 to 5 percent in 2023. This year’s real GDP growth is expected to be around 1 percent with a current account deficit widening to about 7.5 percent of GDP.
Debt sustainability has become a pressing issue for Vanuatu as public and externally held debt face high distress risks. Although banks show solid profitability and capital levels, one-fifth of bank loans are considered troubled by lenders.
The IMF emphasizes the need for decisive policy reforms to address these challenges. "Now is the time to proceed with bold reforms and policy decisions," stated Evan Papageorgiou, IMF's mission chief to Vanuatu. The nation needs international support from global institutions like the IMF and multilateral development banks to overcome these obstacles.
Maria Gonzalez, an assistant director in the Asia-Pacific Department at the IMF, noted that "with targeted policies and a commitment to reform," Vanuatu can aim for a more stable future. Partnerships with regional alliances and bilateral partners will be crucial for providing expertise and resources necessary for economic recovery.