The Executive Board of the International Monetary Fund (IMF) has concluded its 2025 Article IV Consultation with Vanuatu, endorsing the staff appraisal through a lapse-of-time procedure. This process allows decisions to be made without formal discussions when there is consensus among board members.
Vanuatu’s economy is projected to recover gradually, with growth expected at 1.7 percent in 2025 and strengthening to 2.8 percent in 2026. The country faced several challenges over the past two years, including a major earthquake in Port Vila in December 2024, the liquidation of Air Vanuatu in May 2024, and three cyclones in 2023. Inflation has returned to the Reserve Bank of Vanuatu’s target band but is expected to rise modestly while remaining within that range.
Fiscal pressures are anticipated to increase in 2025 due to reduced revenues and higher expenditures for post-earthquake rebuilding, household support, and operational needs related to Air Vanuatu. The current account deficit is forecasted to stay wide because of increased imports; however, foreign reserves are considered adequate thanks to external grants, remittances, and a gradual recovery in tourism earnings.
The IMF noted that uncertainty around Vanuatu’s economic outlook remains high and risks are mainly on the downside. “With the full impact yet to be determined, the post-earthquake recovery path and tourism sector prospects remain highly uncertain,” according to the Executive Board assessment. Factors such as domestic connectivity issues, potential declines in Economic Citizenship Program (ECP) revenues, reconstruction delays, and global trade tensions could further strain growth and reserves.
The IMF highlighted vulnerabilities linked to natural disasters, skills shortages, governance weaknesses, and political fragmentation. The financial sector remains stable overall but faces risks from elevated non-performing loans.
According to the Executive Board assessment: “The post-earthquake recovery is underway. Strong donor support, partial resumption of domestic air services, and a rebound in agricultural production are supporting activities. However, the pace of recovery in 2025 will remain constrained by capacity bottlenecks, limited domestic connectivity, and delays in project execution.” The Board expects more robust growth in 2026 as reconstruction progresses and tourism infrastructure normalizes.
The IMF recommended urgent adoption of a credible business plan for Air Vanuatu and improvements in management and financial oversight for both Air Vanuatu operations and the Citizenship Program. It also called for enhanced public investment management to ensure efficient project delivery.
On fiscal policy, recent shocks have weakened Vanuatu’s underlying position with little room left for future risk response. While VAT revenues have remained resilient due to improved collection efforts by authorities, other revenue streams have declined. ECP revenues continue to play an important role but face structural decline; therefore stronger domestic revenue mobilization is needed along with aligning ECP processes with international best practices.
Spending increases planned for public employee compensation may set a precedent leading to persistent deficits financed by relatively expensive domestic debt—a trend that has sharply increased recently. The IMF advised building adequate fiscal buffers during stable periods due to ongoing vulnerability from natural disasters.
While short-term fiscal expansion is seen as justified given recent shocks, “a holistic and credible fiscal strategy is urgently needed” for medium-term sustainability. The IMF urged careful spending prioritization throughout 2025 alongside prompt implementation of consolidation plans aimed at restoring policy buffers.
Improved governance was identified as critical for long-term development: “Effective implementation of the CGBE Act along with adequate resourcing of the GBE unit will help bolster oversight... Additionally... digitizing systems remain key for compliance.”
Monetary policy should stay flexible; reforms at the Reserve Bank of Vanuatu (RBV) were described as essential—especially those strengthening independence from political influence.
Financial stability risks persist due to high non-performing loans coupled with low provisioning levels; thus stronger supervisory capacity and modern bank resolution frameworks are recommended by the IMF.
Addressing structural challenges—such as investing in disaster-resilient infrastructure—remains necessary for long-term resilience. Efforts should also focus on leveraging overseas labor mobility programs for skills development and entrepreneurship while promoting education quality improvement and women’s participation in formal employment sectors.
Recent data shows that Vanuatu had a population of about 312,000 people in 2021 with per capita GDP at approximately US$2,952 that year. Main exports include kava, coconut oil, copra, cocoa, beef—with New Caledonia, Australia, and New Zealand serving as key markets.