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Annual Report 2001

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Vanuatu

Economic performance

Real GDP in Vanuatu declined by 0.5% in 2001 after a 3.7% expansion in 2000. Much of the decline was attributed to an estimated contraction of 14.9% in agriculture, fishing, and forestry. Tourist arrivals before September 2001 decreased due to the weakening world economy and the low value of the Australian dollar; there was a sharp 14.0% drop in the fourth quarter, which is largely attributed to the 11 September events. The weakening export sector saw the trade balance deteriorate. Combined with softening tourism, the current account deficit grew to around $4.7 million. However, international reserves remained at 5.7 months worth of imports by the end of 2001. Consumer price index for 2001 showed an annual inflation rate of 3.6%, from 2.5% in the previous year, mainly attributed to higher prices for housing, utilities, and transport and communications. The overall budget deficit stood at 3.9% of GDP. Due to a narrow revenue base with very little direct taxes, total annual revenue remained at 21.6% of GDP. The Government relied heavily on overdraft facilities of the Reserve Bank until they were exhausted in the third quarter of 2001.

ADB operations

Operational strategy: Vanuatu has good growth prospects based on abundant natural resources. Economic management and governance, access to basic social services such as health and education, rural transport infrastructure and financial services, social development indicators, and employment creation could be improved. ADB’s strategy for Vanuatu focuses on reforms in economic policy, governance, and public sector management; poverty reduction; and private sector development. Specific objectives of ADB’s strategy are to build local capacities for sound economic and financial management and good governance; increase employment and income; and redress disparities in living standards and access to social services.

Policy dialogue: ADB participates in high-level policy dialogue with the Government through its programming and project missions and also on an ad hoc basis. The Government recognizes ADB’s assistance in critical areas such as the Comprehensive Reform Program; infrastructure, agriculture, and legal sectors; Parliament; Statistics Office; and the preparation of the country's economic report. The Government confirms that ADB's operational strategy adequately supports its development priorities. The Government has proposed holding the second ADB-sponsored Consultative Group Meeting in 2002.

Loans and technical assistance: No loans were approved in 2001. ADB approved three advisory technical assistance grants totaling $700,000 for strengthening development policies, service delivery, and the Parliament.

Project implementation: Since joining ADB in 1981, Vanuatu has received nine loans, of which one was active at the end of 2001. Contract awards totaled $767,000, bringing the cumulative figure to $47.6 million. The contract award ratio was 85.1%, higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $2.8 million, bringing cumulative disbursements to $48.5 million. The disbursement ratio was 82.5%, higher than the ADB-wide average of 20.5%.

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