Vanuatu economic survey
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Vanuatu: Economic Survey. Patrick de Fontenay, ANU. A Strong Economic Performance. From 2003 to 2008, real GDP growth was about 6%, and 4% in 2009 Tourism and construction were the main drivers, while agriculture lagged Inflation reached a low of 2.3% in the Dec quarter

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Vanuatu: Economic Survey

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Vanuatu economic survey

Vanuatu: Economic Survey

Patrick de Fontenay, ANU


A strong economic performance

A Strong Economic Performance

  • From 2003 to 2008, real GDP growth was about 6%, and 4% in 2009

  • Tourism and construction were the main drivers, while agriculture lagged

  • Inflation reached a low of 2.3% in the Dec quarter

  • Gross official reserves rose to the equivalent of close to 6 months of imports


Annual growth rate real gdp

Annual growth rate: real GDP


Comparative economic indicators

Comparative economic indicators


Short term prospects

Short-Term Prospects

  • Growth in 2010 may reach the 2009 rate, if tourism and exports recover. The completion of the MCC program will be a negative factor but the increase in government capital expenditure in the 4th quarter of 2009 and budgeted for 2010 should work in the opposite direction

  • A mild pick up in inflation, due in part to tax changes and the impact of the appreciation of the Australian dollar, may pick up if commodity prices continue to rise.

  • Balance of payments results will also depend on tourism and exports, as imports remain on a rising trend

  • Both fiscal and monetary policies are expansionary


Consumer price index year end percentage change

Consumer price index(year-end): percentage change

* First quarter 2010 over first quarter 2009


Tourism indicators

Tourism indicators

* Change in arrivals from first four months of 2009 to first four months of 2010


Balance of payments

Balance of payments


Policy stance monetary policy

Policy Stance: Monetary Policy

  • The RBV has achieved its targets in the face of wide swings in monetary aggregates

  • Total domestic credit growth has decelerated through 2009 and the first 4 months of 2010 but remains above 13% (53% for credit to households, other than for housing and land purchases).

  • The RBV has stepped up sales of RBV notes but banks remain “cashed up” and their net foreign assets have diminished

  • Short-term interest rates trail those in Australia

  • The share of residents’ foreign currency deposits has come down


Money and credit year to year percentage change

Moneyand Credit: year-to-year percentage change

* First quarter 2010 over first quarter 2009


Policy stance fiscal policy

Policy Stance: Fiscal policy

  • Fiscal policy since 2004 has been moderate. Budgets have shown surpluses. Recurrent expenditure has increased slightly as a percentage of nominal GDP. Development expenditure have expanded strongly in line with foreign grants

  • The 2010 budget departs from the norm with a projected increase of 27% in recurrent expenditure. The overall budget remains balanced, but the projected 12.2 increase in current revenue appears optimistic in view of the first quarter results

  • Public debt is not a problem so long as it is the counterpart of productive investment


Central government finances

Central government finances


Sources of vanuatu s success

Sources of Vanuatu’s Success

  • Reform

  • An active land market

  • Political and macroeconomic stability

  • Donors

  • Foreign investment

  • Luck


Looking ahead

Looking Ahead

  • The agenda (Priorities and Action Agenda 2006-15)

  • The potential- Tourism- Agriculture, forestry, fishing- Finance- Renewable energy

  • Lessons from Mauritius

  • VulnerabilitiesNatural disasters, reversal of progress toward political stability and governance, populist policies, economic downturn in Australia and New Zealand, reduction in foreign aid


The challenges

The Challenges

  • Demographic pressure

  • Public sector efficiency

  • Human capital

  • Labour market

  • Infrastructure

  • Competitiveness


The reform agenda

The Reform Agenda

  • The ADB assessment

  • Role of AusAid’s Governance for Growth Program

  • The Land Sector Framework agenda

  • Integration or decentralization


Conclusions

Conclusions

  • On the 30th anniversary of its independence, Vanuatu can be proud of its achievements but it remains vulnerable

  • Given its high rate of population growth it must aim at continued rapid growth, relying on the sectors that have the greatest potential and on infrastructure building

  • The political and business climate for foreign investment must be favorable and the reform process should be continued

  • Macroeconomic policies should remain prudent


Thank you

Thank you


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