Vanuatu: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Vanuatu

This 2023 Article IV Consultation discusses that following a successful coronavirus disease 2019 containment strategy, the border reopened in July 2022, and tourism is returning to Vanuatu. Economic activity is expected to be strong in the near term, with real gross domestic product growing around 3.4 percent in 2023, as tourism and construction activities resume. High imported prices are likely to stoke inflation and push the current account into deficit, while fiscal policy will turn more expansionary. The report recommends capitalizing on the recovery to adopt a credible medium-term fiscal strategy, consolidate, and enact meaningful reforms. The strategy should contain new revenue mobilization policies, including a well-designed income tax, and an expenditure rationalization agenda, while protecting productive and climate-critical infrastructure spending. Coordination toward careful calibration of an appropriate fiscal and monetary policy mix is needed to keep inflation under control while supporting growth. The exchange rate should continue to act as a shock absorber.