Countries and Regions

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p. 5 of 5 BACK | NEXT I. Development Situation II. Country Strategy III. Implementation of the Country Strategy and Program IV. Portfolio Management Issues V. Country Performance and Lending Level

Country Strategy and Program Update 2002-2004: Vanuatu

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V. Country Performance and Lending Levels

A. Lending Level Proposed

38. Vanuatu's external debt servicing, using the standard measure, is only 1.3 percent of exports of goods and services, which is very low by international standards. Therefore, debt-service capacity will not affect future borrowing. However, the Government believes that annual debt service costs of no more than 8 percent of domestic revenue and external public debt of no more than 40 percent of GDP, which currently remains at around 25 percent, are prudent. The Government set the target for annual external borrowing at Vt700 million (around $5 million) or 2 percent of the annual budget. Considering the constraints in revenue and expenditures, such a borrowing target appears prudent. The ADB TA for Strengthening of Development Policies²⁰ will independently assess the Government's borrowing capacity. The Government is currently setting priorities for investment projects over the next 2-3 years, during which time ADB will remain a major lending agency together with the World Bank, the European Investment Bank (EIB), and the Agence Francaise de Developpement (AFD).

39. The country's performance during the CRP's implementation has been mixed. Institutional weaknesses were mainly due to poor absorptive capacity and lack of commitment and direction, particularly in 2000. Based on these, a "low case" lending level for 2002-2004 would be $6 million, and a "base case" lending level, $10 million. No "high case" is proposed considering the Government's absorptive capacity. It is the Government's view that ADB should maintain its proposed lending level at around $10 million during 2002-2004. (Preliminary performance-based lending triggers and the proposed loan and TA program for Vanuatu are in Appendix 4 and 5 respectively.)

B. Loan Program

40. To help improve the outer islands' accessibility, national infrastructure management, and rural banking, the Government is requesting a loan of $5 million-6 million for the outer islands infrastructure development project for 2002. The loan targets improving not only physical transport assets, but also institutional capacity for transport infrastructure management at the central and provincial levels. The Government also requested a loan of $2 million for the rural financial services project for 2003. The project will help address the lack of banking services outside Port Vila and Luganville, particularly for the agriculture sector and small businesses. To help bring down unemployment among young people by providing them with technical and vocational skills, the Government is proposing a loan of $2 million for technical vocational education in 2004. The Government is also requesting a loan for urban sanitation and public health or agriculture development around 2005 (Appendix 5).

C. Technical Assistance and Economic and Sector Work Program

41. The TA and economic and sector work program for 2001-2003 will focus on sustaining the reform process, enhancing governance and service delivery, and implementing economic and sector policies in key sectors. Project preparatory TAs are also proposed. A summary of the economic and sector work program is in Appendix 6.

D. Summary of Changes

42. In 2001, the changes from the previous Country Assistance Plan are as follows:

1. Loan for rural financial services for $5 million moved to 2003 for $2 million;
2. Standby loan for outer islands infrastructure development removed;
3. TA for Strengthening Development Policies for $200,000;
4. TA for institutional strengthening of the National Statistics Office for $150,000;
5. TA for capacity-building of the Parliament for $200,000;
6. TA for agriculture and fisheries development for $400,000 absorbed by the 2001 TA for Strengthening Development Policies for $200,000;
7. TA for frontline services performance enhancement 2 for $150,000 replaced by TA for performance improvements to service delivery units for $250,000;
8. TA for CRP sustainability 2 for $400,000 is dropped;
9. TA for Capacity-Building of the Legal Sector for $300,000, was approved in December 2000, for $330,000 (TA-3613); and
10. TA for capacity-building in rural financial services for $200,000 dropped.

43. Changes in 2002 are the following:

1. Loan for outer islands infrastructure development is downsized from $7.5 million to $6 million;
2. Loan for the skills development program for $2 million is renamed technical, vocational education and training for $2 million and moved to 2004;
3. TA for capacity-building in infrastructure management for $150,000 is increased to $200,000;
4. TA for capacity-building in skills development for $200,000 is dropped;
5. TA for CRP sustainability 3 for $300,000 is replaced by CRP follow-up;
6. New TA for capacity-building for agriculture sector development for $300,000;
7. TA for private sector development for $300,000 is dropped;
8. TA for urban sanitation, public health, and environment project for $500,000 is deferred to 2003; and
9. TA for Vanuatu National Council of Women phase 2 for $200,000 is dropped.

44. Changes in 2003 are the following:

1. Loan for rural financial services for $2 million is inserted;
2. Loan for agriculture and fisheries development program for $5 million is dropped;
3. TA for technical vocational education and training project for $200,000 is inserted;
4. TA for capacity building of NGOs for $100,000 is introduced;
5. TA for urban sanitation, public health, and environment project for $500,000 is moved from 2002;
6. TA for capacity-building in agriculture and fisheries management for $200,000 is dropped;
7. TA for capacity-building in urban sanitation, public health and environment for $200,000 is dropped; and
8. PIER for $200,000 is dropped (moved to 2001 and renamed as Strengthening Development Policies).

45. Change in 2004 is the following:

1. Loan for technical vocational education and training project (formerly skills development) for $2 million is inserted.

46. Project selection briefs and TA concept papers are in Appendix 7 and 8 respectively.

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