Regions and Countries

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

Country Strategy and Program Update 2003-2005: Vanuatu

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V. Country Performance and Lending Levels

A. Lending Level Proposed

33. Consistent with ADB’s policy on performance-based allocation of ADF funding, the level of ADF funds allocated to Vanuatu is linked to the country’s progress in policy reform and portfolio management. Triggers are related to progress in (i) economic and fiscal management, (ii) efficiency of the public service, (iii) improvement in the quality and timeliness of statistics, (iv) creating a favorable investment climate, and (v) satisfactory portfolio management. The share of ADF allocation also depends on population and per capita income. Based on an evaluation of performance, the lending levels for 2003-2005 assume a low-case lending program of $6.5 million and a base-case lending program of $9.3 million. Although the triggers are considered to have been met for the base case, performance should be monitored closely to ensure that the country continues to meet the criteria, particularly those related to economic management. No high-case lending program is proposed, considering the Government’s limited absorptive capacity and reluctance to significantly increase its external indebtedness. The performancebased allocation triggers that were agreed upon with the Government are in Appendix 2, Table A2.11.

34. The final allocation of ADF resources will depend not only on performance against agreed-upon parameters or triggers but also on willingness to borrow. The Government has set a target for annual external borrowing at Vt700 million (around $5 million) or 2% of the annual budget. Considering the constraints on revenues and current levels of debt servicing, such a borrowing target appears prudent. Annual debt servicing, most of it for domestic debt, amounts to about 20% of revenues. Although ADB will remain a major lending agency, the Government may also borrow from the World Bank, European Investment Bank and Agence Francaise de Developpement during the next several years. ADB’s proposed lending level has been set accordingly.

35. The proposed lending program is in Appendix 2, Table A2.12. To help improve access to the outer islands, the OIIDP is being processed for a loan of $5.5 million in 2003. The project aims to improve not only physical transport assets but also institutional capacity for transport infrastructure management. To help increase private sector investment and GDP growth, the Government may consider a loan of $2 million in 2004 for a private sector development project and a loan of $1.8 million in 2005 for an agricultural development project. Altogether, the lending during 2003-2005 could be up to $9.3 million. No private sector investments are expected since most such deals are usually too small to be eligible for ADB funding. However, support is provided to investors wishing to contact ADB-supported institutions such as the Kula Fund or the South Pacific Project Facility.

B. Nonlending Program

36. Ongoing TAs will be used to help identify methods to enhance revenue; prepare an economic action plan; support the CRP national summit; support the National Bank, Provident Fund, and AMU; and strengthen the Parliament, NSO, and service delivery units. The proposed new TA program for 2003-2005 is in Appendix 2, Table A2.13. The indicative planning figure for TAs in Vanuatu is $700,000 per annum. New TAs will be provided in 2003 to prepare a midterm strategic framework, build capacity for infrastructure management, prepare policy frameworks for agriculture and TVET, and prepare a private sector development project. During 2004–2005, TAs will help prepare an agricultural development project, strengthen the legal framework for the financial sector, build capacity in environmental management, stimulate gender-based rural skills development, prepare an urban sanitation and public health project, and help implement the midterm strategic framework.

C. Summary of Changes to Lending and Nonlending Program

37. The Vanuatu assistance program has undergone several adjustments since 1998, aimed at aligning the program with the Government’s priorities and enhancing its focus. The changes from the 2001 Country Strategy and Program Update are as follows:

1. In 2002, a loan for an OIIDP was postponed to 2003; a TA for capacity building and CRP sustainability was cancelled as committed funds provided under other CRP TAs were still unused; a TA to strengthen the NSO programmed for 2001 slipped to 2002.
2. In 2003, a loan for an OIIDP is proposed; a loan for rural financial services will be cancelled as it would be a part of the proposed private sector development project; TAs for an urban sanitation and public health project and for capacity building of NGOs will be postponed; and new TAs will be considered to help prepare a private sector development project and a midterm strategic framework.
3. In 2004, a new loan for private sector development is proposed; and new TAs are proposed to help prepare an agricultural development project, enhance the legal framework for the financial sector, build capacity for environmental management, and support gender-based rural skills development.
4. In 2005, a new loan for an agricultural development project is proposed; and new TAs will be proposed to help prepare an urban sanitation and public health project and implement the midterm strategic framework.

38. Concept papers for lending products are in Appendix 3, Tables A3.1—A3.3, while those for nonlending products and services are in Appendix 4, Tables A4.1—A4.6.

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