Vanuatu Economic and Financial Report for the First Half of 2020

Release date:
2020-10-16 21:40

1. General economic situation

On August 15, 2020, the Ministry of Finance of Vanuatu released the economic and fiscal report for the first half of 2020. The report pointed out that due to the superimposed effects of the triple disasters of the new crown pneumonia epidemic, Hurricane Harrods and volcanic ash dumping, the economy of Vanuatu is seriously shrinking. It is predicted that the real GDP growth rate in 2020 will be 0.6%, of which the growth rate of agriculture is -12.3% and the growth rate of industry is 21.9. %, the growth rate of the service industry was 0.3%. In the medium term, if the global new crown pneumonia epidemic is brought under control, the tile recovery strategy continues to advance steadily, and the borders are gradually opened up, the economic growth rate will rebound, driven by the agricultural and industrial sectors. The real GDP growth rate is predicted to be 4.0% in 2021, 4.6% in 2022, and 3.7% in 2023. The tourism industry is still facing greater uncertainty. If the global new crown pneumonia epidemic is still difficult to control in the medium term and the border between Vanuatu continues to be closed, economic growth will be further reduced. Conversely, if the epidemic is brought under control, the "Trans-Tasman Bubble" operation may be implemented before the end of 2021, and economic growth is expected to rise.

2. Government operations

In the first half of 2020, the Vanuatu government achieved a fiscal surplus of 3.344.6 billion watts (excluding project aid, but including cash assistance), a year-on-year increase of 25.7% (fiscal surplus of 2.6599 billion watts in the first half of 2019). Government revenue was 18.486.7 billion vatu, a year-on-year increase of 22.6% (revenue 15.078.2 billion vatu in the first half of 2019). As of the end of June 2020, the Vanuatu government spent 14.688.8 billion watts, a year-on-year increase of 22.2% (the first half of 2019 spent 12.018.9 billion watts). The overall expenditures are within the budget, but individual expenditures have exceeded the annual budget, such as special allowances, local councilors’ constituency subsidies, councilors’ leave allowances, road repair and maintenance fees, foreign aid, land compensation, etc.

3. Development of agriculture, industry and service industry in the first half of 2020

(1) Agriculture

In 2020, Hurricane "Harold" ravaged the northern islands of Wa, causing heavy agricultural losses, with a predicted growth rate of -12.3%. Crop production is seriously inadequate, and it is predicted to drop by 15%, which is 5% more than the decline in Hurricane Pam in 2015, the largest decline in the past 10 years. It is predicted that the output of animal husbandry will be reduced by 15%, and the medium-term growth rate will be more than 2%. The forestry growth rate was lowered from 4.9% to 0.2%. The fishery growth rate was lowered from 18.9% to 7.3%. From 2014 to 2019, the fishery growth rate averaged 4.2%.

(2) Industry

Due to post-disaster reconstruction and more infrastructure projects, the industrial growth rate in 2020 is expected to be 21.9%, becoming the main pillar of economic growth. The largest growth in the industrial sector comes from the construction industry, with a growth rate of 40%. The growth rate of the mining and quarrying industries was revised up from 7.9% to 27.9%. The growth rate of manufacturing, power and water supply industries is expected to decline. In the next five years, the average growth rate will be 3.8%, and it will rebound in the medium to long term.

(3) Service industry

The growth rate of the accommodation and catering industry was revised down by 16.3 percentage points, from 3.6% to -12.7%. The growth rate of the transportation industry dropped by 12 percentage points from 3% to -9%. The growth rate of professional, scientific, technical and management service industries was 1% (of which the real estate industry dropped from 5% to -1.9%). The growth rates of public management and retail trade were 5.5% and 3.7% respectively. Due to the government's policy of reducing fees and taxes, the growth rate of bank service fees dropped from 3% to -11.2%.

4. Growth rate of consumption and investment industry in the first half of 2020

The total demand for Watts in the first half of 2020 is mainly driven by consumption, with a growth rate of 11%. In the medium term, domestic demand growth mainly comes from consumption (average growth rate of 7.1%) and investment (average growth rate of 2.4%). Public consumption expenditure increased by 29.4%, a record high. The growth rate of foreign direct investment was 0.9%, the lowest in recent years.

V. Import and export analysis in 2020

(1) Export

Affected by the new crown pneumonia epidemic, international trade is interrupted, borders are closed, and the net exports of watts are forecast to drop by 34.7%. Exports of trade in services fell by 50.4% (loss of 1.511 billion vatu). Exports of goods decreased by 6.5% (loss of 48.8 million vatu). Imports of goods and services increased by 3.7%, of which imports of goods increased by 18.3%, and imports of services decreased by 13.9%.

(2) Import

As an import-dependent country, the domestic supply and demand are imbalanced, and most of the basic goods and services must be imported. Due to the combined effects of the triple disasters in 2020 and the expansion of the trade deficit, the proportion of imports in GDP will rise from 13% in 2019 to 33.5%, resulting in a reduction in the current account balance and weakening the prospects for economic growth. In the future, Vanuatu will further promote the export of service industries, vigorously support the production sector, increase the added value of export products, and improve the structure of import and export trade.

6. Exchange rate and inflation rate

Vatu appreciated against the Australian dollar and New Zealand dollar by 0.51% and 2.7% respectively. The depreciation against the US dollar and the euro was 1.61% and 0.29% respectively. In the first half of 2020, the tile inflation rate was 0.6%. CPI continues to stay in the 0-4% range. In the first quarter of 2020, the CPI was lowered by 0.4%, from 3.4% to 3%. There was an increase in the second quarter.