6th Australia Vanuatu Business Forum ‘Overview of Vanuatu Economy’ Governor, Simeon M Athy Reserve Bank of Vanuatu Ramada Hotel, Port Vila, Vanuatu 28 February 2019

Outline International Economic Developments Domestic Economic Developments & Outlook Key Economic Sector – Tourism Monetary Developments & Private Sector Credit Key Social Indicator Vanuatu’s Trade with Australia RBV Policy Targets Summary

1. International Economic Developments & Outlook 9. Opportunities

1. Domestic Economic Developments & Outlook DOMESTIC GROWTH: MEC Approved Real GDP Growth – October 2018 (Annual, growth, percent) Real GDP growth continue to pick up post Tropical Cyclone period (2015) recording 3.5 percent in 2017 and 4.4 percent in 2018. Growth was driven by post-TC Pam Reconstruction projects and donor-funded infrastructure projects contributing to the strong growth in construction activities. Growth in 2018 is supported by a pickup in tourism and construction is expected to slightly slow in-line with the completion of major projects. Although a number of new approved projects will contribute to growth prospects for 2019. The developments in ICT, the completion of the rehabilitation of the Bauerfield Airport runway will provide incentives and prospects for growth in tourism, finance, transport, retail and real estates sectors.

MEC Approved (October 2018) Real GDP Growth, 2018 -2020 6/12/2019 Domestic Growth MEC Approved (October 2018) Real GDP Growth, 2018 -2020 (Annual growth, percent) 2018 Services sector projected to contribute 2.1% to growth in 2018 (3.2% sector growth) driven mainly by spillover from completion of infrastructure and reconstruction projects (on transport services), a pick-up in ICT services and a recovery in air tourism visitors. Air Visitor Arrivals for Jan-Sep’2018 has shown improvement (news prospects – more flights by Air Van in June 2018 peak season). Industry sector driven mainly by infrastructure construction was projected to contribute 0.7% to growth (7.0% sector growth) supported by ongoing donor-funded and reconstruction and public infrastructure projects which are waning down (2018); few private sector projects on-hold. Agriculture sector was forecast to contributed 0.4% to growth (2.1% sector growth) downside risks of a projected decline in international price of major commodities and impact of natural disasters), offset by a pickup in kava production, and positive impact of major ongoing/new Agriculture-programs (Climate Change Programs supporting growth in this sector (e.g. livestock restocking program)) Presentation by Lynette Ragonmal

Tourism Arrival into Vanuatu, 2004-2022f 2. Key Economic Sector Tourism Development Tourism Arrival into Vanuatu, 2004-2022f (Number of visitors) Tourism, a major contributor to economic activity has continue to perform well compared to previous years supported by increased marketing of Vanuatu as a tourism destination. Looking forward, the increased combined efforts by VTO, AVL and Air Vanuatu is expected to support tourism growth in the following years 2019 onwards boosted by the completion of the Vanuatu Aviation Investment Project (VAIP) on the rehabilitation project of the Bauerfield International Airport runway. Source: VNSO, RBV Forecast

4. Monetary Development & Private Sector Credit Private Sector Credit (annual growth) PSC is slowly picking up. Increase in both the credit to businesses' and individuals/households seen. Pick-up is broad based across sectors . PSC is slowly picking up driven by growth across all sectors

Asset Qualities - Non-Performing Loans

Social Indicator - RGDP per Capita

Seasonal Workers to Australia Balance of Trade 6. Vanuatu’s Trade with Australia Seasonal Workers to Australia Balance of Trade

A. Seasonal Workers to Australia

B. Balance of Trade

5. RBV Policy Targets (a) Inflation Development Vanuatu’s Headline CPI Inflation, 2004-2018 (Annual growth, percent) Vanuatu’s headline inflation continue to weakened from mid-2018 following easing of food prices and impact of subsidized school fees despite an increase in VAT effective January 2018. Year-end headline inflation recorded 1.7 percent in the third quarter of 2018. Inflation is forecasted to remain within the comfortable 1 – 4 percent target range for the rest of 2018 towards 2020 at an average of 2 percent driven by expected stable fuel prices and weakened food prices. 3rd Quarter Inflation recorded at 1.7%. Inflation forecasted to remain within the target range of 0-4%

(b) Months of Import Cover 5. RBV Policy Targets (b) Months of Import Cover Import Cover to remain above threshold level of 4 months of import cover in 2019

6. Summary The Vanuatu economy continue to expand at a good pace with industry and services sector as main drivers of economy. Although growth benefits have not spilled over to other segments of the economy as much as we would like to see, we expect to see more robust and balanced GDP growth this year. On the longer horizon, Vanuatu is undergoing major transformation with appearance of some economic platforms and the ongoing transition towards a new era of digital financial and payment services, all of which will unlock Vanuatu’s economic potential, uplift productivity and bring about more inclusive growth. The Vanuatu Government and Bank, in its various capacities, are committed to ensure these achievements possible.

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