Journal Issue
Share
Article

Vanuatu

Author(s):
International Monetary Fund
Published Date:
April 1995
Share
  • ShareShare
Show Summary Details

I. Recent Economic Developments 1/

In 1993, real GDP growth rebounded to 4 1/2 percent. Agricultural output recovered from the effects of the 1992 cyclones, and construction activities picked up on account of cyclone rehabilitation and a new stadium. Reflecting increased import demand associated with these activities, as well as substantially lower export prices and weak tourism receipts, the external current account registered a deficit equivalent to 6 percent of GDP. Inflation slowed to less than 2 percent in line with the trend in import prices. On the fiscal side, a current expenditure overrun and a small shortfall in nontax revenue collection resulted in a slippage from a balanced budgetary target, and the overall deficit remained at 2 1/2 percent of GDP. A drawdown of government deposits to finance this deficit and smaller private outflows (reflecting a return in confidence following the elections in 1991) accommodated a resurgence in broad money growth–even though private sector credit stagnated. The strengthening of the capital account more than offset the deterioration in the current account, allowing a small gain in gross international reserves.

In 1994, GDP growth is estimated to have slowed to 2 percent. A severe drought adversely affected agricultural output, and a prolonged civil service strike reduced domestic demand and eroded private sector confidence; however, their effects were partly offset by sharply rising international copra prices that permitted the maintenance of high procurement prices and rural incomes. Budgetary savings generated by the strike, the elimination of subsidies to copra producers, and higher-than-budgeted customs revenue collection led to a small fiscal surplus despite substantial supplementary budgetary appropriations. The external current account deficit narrowed to 5 percent of GDP, reflecting the improved fiscal position and higher export earnings, and gross official reserves continued to increase. The fixed exchange rate helped contain inflation close to that of Vanuatu’s trading partners, at about 3 1/2 percent.

1. Aggregate supply and demand 2/

The Vanuatu economy, like other island economies in the South Pacific, is dependent predominantly on agriculture and a relatively large services sector--in particular, tourism and banking. Agriculture accounts for 20 percent of output, 80 percent of ni-Vanuatu (indigenous) employment, and most of the commodity export receipts, while tourism contributes close to 45 percent of total foreign exchange earnings. 3/ The Vanuatu economy, however, has been frequently set back by its vulnerability to extreme weather and other external shocks. In addition, isolation from the major markets and the small size of the domestic market have hampered economic development.

Real economic growth rate in 1993 is estimated at 4 1/2 percent, led by a strong recovery in agriculture from the impact of the previous year’s cyclones (Appendix Tables 1 and 2). Agricultural production grew by 7 1/2 percent, reflecting increased production of copra, beef, and nontraditional exports, including squash pumpkin and kava (Appendix Table 3). Industrial production--accounting for some 15 percent of GDP 1/--increased by 3 1/2 percent, led by cyclone rehabilitation activities and the construction of a new stadium for the South Pacific Mini Games held late in the year (Appendix Tables 4-6). 2/ The services sector, which comprises two thirds of GDP, also benefited from the Mini Games and expanded by 3 3/4 percent with relatively strong growth in tourism and banking subsectors (Appendix Table 7).

On the demand side, expenditures by the central government had, in the past, accounted for more than one half of GDP, with much of the public investment financed by foreign grants and concessional loans. 3/ As major donors began to reduce assistance to Vanuatu, public investment declined steadily in the early 1990s with a matching decline in imports of capital goods. Nonetheless, it would appear that the demand by the government sector continued to be significant. In 1993, however, private activities also contributed strongly to domestic demand.

Preliminary data indicate that GDP growth in 1994 slowed to about 2 percent, reflecting a decline in agricultural production and the negative impact of the prolonged civil servants’ strike on demand. In particular, the production of cocoa and coffee was adversely affected by a severe drought early in the year. Tourism stagnated in the first half of 1994 but increased in the second half in line with the economic recovery of the region.

2. Employment, wages, and prices

a. Employment and wages

The economically active population is estimated at 75,000 or 50 percent of ni-Vanuatu population, with the majority engaged in subsistence agriculture. In the formal sector, the total number of paid employees registered with the Vanuatu National Provident Fund (VNPF) in 1993 was about 28,000 (Appendix Table 8). The Government is the largest employer; within the private sector, subsectors with large employment include retail trade, manufacturing, hotels and restaurants, banking and financial institutions, and telecommunications. Localization of employment is an important policy, and work permits for expatriates can be issued only if a ni-Vanuatu with required skills cannot be found. There are four major labor unions that form the new Vanuatu National Committee of Unions (VNCU), with total membership of about 4,500. 4/

Although private sector wages are freely determined, the labor market appears to be characterized by considerable rigidity. Employment of unskilled labor appears to have been discouraged by the high level of statutory minimum wages and employment legislation restricting the dismissal of workers once confirmed, while high-paying urban jobs encouraged migration from the rural areas; consequently, open unemployment is estimated to have risen. This suggests that the current minimum urban wage exceeds the market-clearing level. 1/ Based on available but incomplete data, the average nominal wage of ni-Vanuatu employees has remained broadly unchanged since 1989, and any increase in employment since 1992 has been at the level close to the minimum wage. In 1993, about 50 percent of ni-Vanuatu employees earned the minimum wage or only slightly more (Chart 1). The Minimum Wage Board’s proposal to increase the minimum wage by a further 50 percent for urban workers and 40 percent for rural workers, to become effective in early 1995, is currently under consideration. As for civil servants’ wages, settlements at end-1993 provided for a 15 percent cumulative pay raise in three tranches covering 1994-95. 2/

CHART 1VANUATU: DISTRIBUTION OF WAGE INCOME, 1992–94 1/

Source: Data provided by the Vanuatu authorities; and staff estimates.

1/ Including self-employment.

b. Prices

Retail prices are largely market-determined and depend heavily on import prices, which represent some 60 percent of the consumer price index (CPI); other factors influencing price developments are adjustments of import tariffs, utility charges, and other policies affecting costs. During 1990-92, the CPI averaged some 5 percent, broadly reflecting a stable nominal effective exchange rate, slowing inflation of Vanuatu’s trading partner countries, and adjustments in utility costs in 1991-92 (Appendix Table 9). However, in 1993, inflation slowed to less than 2 percent in line with the fall in petroleum prices and a modest increase in other import costs. In 1994, the CPI is estimated to have increased by about 3 1/2 percent, close to inflation rates in Vanuatu’s trading partners.

3. Fiscal developments

a. Overview 3/

After a reduction of the budget deficit to 2.5 percent of GDP in 1992, the fiscal deficit remained broadly unchanged in 1993, reflecting higher-than-anticipated current expenditures and weak revenue collections (Chart 2 and Appendix Table 10). As in previous years, the 1994 budget targeted a balanced recurrent budget with import duties as the main source of government revenue. Preliminary indications show a sizable recurrent surplus for the year, owing to net savings on the public sector wage bill and higher-than-budgeted customs duty receipts. As a result, the overall fiscal deficit for 1994 is estimated to have declined to less than 1 percent of GDP.

CHART 2VANUATU: SELECTED FISCAL INDICATORS, 1990–94

Sources: Data provided by the Vanuatu authorities; and staff estimates.

1/ After central government transfers.

b. Developments in 1993

Despite a balanced recurrent budget target, the fiscal deficit widened in 1993 to 1.1 percent of GDP, according to the authorities’ definition of current expenditure, or equivalent to 2.6 percent of GDP, according to the Fund definition. The worsening fiscal position was largely attributed to higher-than-budgeted increases in wages and salaries and purchases of goods and services, of 4.6 percent and 2.1 percent, respectively (Appendix Table 11). 1/ The increase in current expenditure was more than sufficient to offset the fall in total development expenditure resulting from the repayment of VT 300 million of Air Vanuatu debt and a decline in transfers to the Development Fund of 14.7 percent (Appendix Table 12). 2/ The fiscal deterioration was further compounded by a shortfall in revenue collections of about VT 71 million (Appendix Table 13). Although tax revenue receipts were broadly in line with the original budget target, nontax revenues fell short by VT 66 million, owing to the failure of the Urban Lands Department to implement revised rents in Port Vila and Luganville and to raise significant revenue from the one-time sale of deportees’ properties. The resulting budget deficit was financed through foreign borrowing and a drawdown of deposits with the Reserve Bank.

c. Budget for 1994

The 1994 budget reaffirmed the authorities’ policy of a balanced recurrent budget. Although the tax base was broadened with the introduction of a 4 percent gross turnover tax on some sectors in place of a flat business license fee, import duties continued to constitute the main source of fiscal revenues, accounting for 50 percent of total revenue and over 60 percent of tax revenue. The 1994 budget targeted an increase in import duties of 15.7 percent from the previous year, in line with the expected rise in imports and continued tightening of import duty exemptions. Nontax revenues, however, were budgeted to decline to 5 percent of GDP, partly reflecting the decline in interest receipts from Air Vanuatu and the Development Bank of Vanuatu. On the expenditure side, a 5 percent general wage increase was to be granted effective January 1, 1994, bringing the share of the wage bill to approximately 60 percent of current expenditure. 3/ The wage increase was to be accommodated by departmental efficiency savings and a concurrent reduction in the size of the civil service by 200 positions (about 10 percent of the civil service excluding teachers, doctors, nurses, the police force, and the Vanuatu Military Force). In accordance with Government priority given to the provision of education and health services, the 1994 budget allocated additional resources, amounting to VT 159 million, to satisfy those concerns.

Preliminary estimates by the authorities indicate a VT 200-250 million recurrent budget surplus for 1994, in spite of two supplementary appropriations totalling VT 400 million. 1/ The expected favorable outcome stems from two main factors: (i) net savings on the wage bill of around VT 200-300 million as a direct result of the civil service strike that began in November 1993 and ended only in August 1994; 2/ and (ii) buoyant customs duty collections, projected to exceed the budgeted level by nearly VT 200 million.

d. Vanuatu Commodities Marketing Board

The Vanuatu Commodities Marketing Board’s (VCMB) operating deficit increased significantly in 1993 to VT 304 million, as large copra trading losses were incurred when world copra prices fell sharply, but domestic copra procurement prices were maintained (Appendix Table 14). By September 1993, VCMB arrears to local producers reached VT 40 million. The operating losses were financed in part by a loan from the Government of VT 120 million, repayable on demand and interest free, and through overdraft facilities with the Reserve Bank. 3/ In addition, STABEX receipts, which had been frozen since 1988 pending reforms of the VCMB, were released in December 1993 in the amount of VT 100 million. 4/

In 1994, however, the financial situation of the VCMB improved markedly with an operating surplus of VT 6 million. The positive outcome was due to a number of factors, including a major streamlining of operations that resulted in a substantial reduction of costs, increased diversification of markets to more profitable Asian destinations, negotiations to lower domestic and international freight charges, 5/ and an increase in world copra prices beginning the second quarter of 1994. In particular, the rise in world copra prices during the second half of the year more than offset the losses incurred during the first quarter. Domestic procurement prices per metric ton for copra, VT 25,000 for the hot-air dried and VT 20,000 for the smoked varieties, had not been adjusted since mid-1992.

4. Monetary developments 1/

a. Developments in money and credit

Reserve money grew sharply during 1993 and the first three quarters of 1994, with about two thirds of the growth originating from the foreign sector and the remainder from increased net credit to the Government and public enterprises (Appendix Table 15). Such rapid growth was accompanied by less-than-proportionate expansion in bank credit and domestic liquidity, and commercial bank’s excess balances increased overall (Chart 3 and Appendix Tables 16-17). Commercial bank deposits at the Reserve Bank at end-September 1994 were more than double the level at end-1992 and were close to 24 percent of banks’ vatu deposit liabilities, compared with the reserve requirement of 10 percent. 2/3/

CHART 3VANUATU: MONETARY INDICATORS, 1990–94

Sources: Data provided by the Vanuatu authorities; and staff estimates.

1/ Ratio of total liquidity to reserve money.

2/ Ratio of vatu liquidity to reserve money.

In 1993, total liquidity grew by 10 percent, reflecting mainly a resurgence in foreign currency deposits matched by an increase in net foreign assets of the banking system. As in the past, banks maintained a broadly balanced foreign exchange position (Appendix Table 18). Domestic credit expansion was mostly in the form of a drawdown of government deposits, consistent with the worsening of the fiscal position, whereas private sector credit stagnated after a significant increase in the previous year, mirroring the end of cyclone-related construction. These developments were partially reversed in the first three quarters of 1994, when foreign currency deposits contracted, resulting in a 3 percent fall in total liquidity even though vatu liquidity continued to expand. The decline in foreign currency deposits can be attributed to the lag with which domestic interest rates adjust to rising international rates, the civil servants’ strike that eroded private sector confidence, and capital outflows by investors in search of opportunities abroad. Notwithstanding a relative fall in the share of foreign currency deposits in recent years, such deposits still accounted for 65 percent of total bank deposits or over 60 percent of total liquidity at end-September 1994. Reflecting an improved fiscal position, net credit to the Government was broadly unchanged in the first three quarters of 1994. Private sector credit rebounded, reflecting buoyant housing and land purchases facilitated in part by the ongoing reforms in the land tenure system. Commercial bank credit for personal loans, which included housing and land purchases, and credit for construction activities increased substantially (Chart 4 and Appendix Table 19). Lending to the agricultural and manufacturing sectors picked up as well, but it still accounted for a small proportion of total commercial bank loans. Credit approved by the Development Bank of Vanuatu also expanded significantly, as the Bank made extensive use of an umbrella loan from the Asian Development Bank (Appendix Table 20).

CHART 4VANUATU: DISTRIBUTION OF CREDIT BY SECTOR, 1990–94

(In percent of total credit)

Source: Data provided by the Vanuatu authorities.

1/ Including housing and land purchases.

2/ Productive sector comprises agriculture and fisheries, mining and manufacturing, construction, transportation, and tourism.

b. Interest rates 1/

Domestic interest rates changed little in 1993 and in the first half of 1994. The interbank rate remained at 6 percent, reflecting inactivity in the interbank market despite a shortage of liquidity in the government-owned bank and excess balances in the foreign-owned banks. While deposit rates in Australia and the United States rose, domestic rates on both foreign currency and vatu deposits remained largely stable. The average deposit rate, however, increased slightly reflecting a shift of deposits to longer maturities earning higher interest rates. Similarly, the fluctuation in the average lending rate reflected shifts in the pattern of lending, as there had been no changes in the lending charges. During 1993-94, the average lending rate remained within the range of 13 1/2 and 14 1/2 percent, and the margin above the Australian prime lending rate widened from 3 1/4 percentage points at end-1992 to 5 percentage points at end-June 1994. The spread between average deposit and lending rates remained high, ranging between 7 1/2 and 9 1/2 percent.

c. Offshore Finance Center

The Offshore Finance Center, established in 1971, comprises banks, insurance companies, trust companies, shipping companies, and accounting and law firms. “Exempt” companies registered with the Center are prohibited from domestic activities (except those necessary to support their offshore activities); although they are required to file financial reports annually, they are guaranteed confidentiality concerning their business activities. They pay annual registration and other fees but are exempted from business turnover taxes. The International Companies Act, effective May 1993, was designed to enhance Vanuatu’s attractiveness as an offshore center. The Act expedites the procedure for the incorporation of new international companies, 2/ lowers the start-up fees, removes stamp duty requirements, and streamlines the annual renewal registration process. Furthermore, international companies are not required to report financial accounts, although they are required to remain solvent. Following the introduction of this Act, about 400 “exempt” companies switched to “international company” status. At end-June 1994, the respective numbers of “exempt” and “international” companies totaled approximately 600 and 400. 3/ As a further step to streamline the administrative procedure related to the Offshore Center, as well as to initiate the process for its supervision, the Financial Services Commission Act (December 1993) established the FSC as a statutory body responsible for registering and overseeing the activities of offshore financial institutions. Unlike the Registrar’s Office, the agency within the Ministry of Finance which the FSC replaced, the FSC is envisaged to have financial and political autonomy. However, with the exception of international companies, company licenses continue to be granted by the Minister of Finance, following the FSC’s recommendations.

Vanuatu is a member of the Offshore Group of Banking Supervisors. 1/ Its continued membership status, to be reviewed in late 1995, will depend on Vanuatu’s progress toward applying the Basle Committee on Banking Supervision’s recommended minimum standards on banking supervision, including in particular the implementation of the 1990 Report of the Financial Action Task Force on countering money laundering. 2/ Consistent with the report, a rule was introduced in Vanuatu in 1994 requiring domestic banks to seek positive identification of customers and sources for their deposits; however, the requirement has not yet been applied to offshore banks. Legislation is still pending that will grant the newly formed FSC the necessary supervisory powers, which will entail the authorization of new offshore banks, the ongoing supervision of existing banks, and the exchange of information with other supervisory authorities.

5. External sector developments

Vanuatu’s trade deficit has been substantial, with merchandise exports and imports accounting for some 10 percent and 45 percent of GDP, respectively. Nonetheless, a large surplus on the services and transfers accounts had permitted the current account to be in surplus. In 1993, however, the current account turned into a deficit (6 percent of GDP) for the first time in six years, reflecting increased import demand, a sharp decline in international copra prices, and weakening tourism receipts (Appendix Table 21). The overall balance maintained a surplus, with the current account deficit offset by long-term public borrowing (mostly concessional) and foreign direct investment (mostly reinvested earnings), allowing a small gain in gross international reserves. 3/

a. Exports, imports, and direction of trade

After a substantial increase in 1992, domestic exports in 1993 declined by some 2 percent in U.S. dollar terms reflecting, in large part, a sharp drop in the international price of copra (Appendix Table 22). The poor performance of copra exports was partly offset by rapid growth in exports of beef and timber. In 1994, domestic exports are estimated to have expanded by 11 percent, benefiting from a rapid rebound in copra prices even though cocoa exports declined because of the drought. Following a significant contraction in 1991 in line with the completion of major development projects, imports of capital goods and construction materials picked up once again in 1993 in association with cyclone rehabilitation activities and the construction of a new stadium (Appendix Table 23). In 1994, with the continued growth in construction activities, imports are estimated to have increased by 7 percent.

Vanuatu had traditionally exported a large share of its commodities to the European Union (EU), facilitated by long-term arrangements for the sale of copra. Diversification of agricultural production and export markets has reduced this share, from 56 percent in 1990 to 32 percent in 1993 (Appendix Table 24). Japan has been the primary destination for exports of beef and squash, followed by Australia and New Caledonia; and an increasing portion of copra has been destined for Bangladesh. Merchandise imports are mainly from the Pacific region, with Australia accounting for some 40 percent, followed by France, New Zealand, and Japan. 1/

b. Invisibles

Vanuatu’s foreign exchange receipts are dominated by services--tourism and interest income--and official transfers, together accounting for 85 percent of the total. In 1993, net services receipts declined further, reflecting falling tourism receipts and interest income of the Reserve Bank of Vanuatu, higher payments for freight and insurance in line with increased imports, and higher investment income payments to foreign-owned enterprises (Appendix Table 25). Net official transfers, including capital in cash, in kind, and technical assistance, increased by 5 percent (Appendix Table 26).

c. Capital account and international reserves

In 1993, the long-term capital account surplus rose by 6 percent, reflecting higher foreign direct investment (Appendix Table 27). As a result, the basic balance remained positive, offsetting the deterioration in the current account. Although public debt in terms of GDP increased during 1990-93, its concessional terms have helped maintain the debt-service ratio at a low level, 1.9 percent in 1993 (Appendix Table 28). 2/ The major sources of finance included the Asian Development Bank, the International Development Association, and bilateral institutions. Gross international reserves increased slightly and were maintained at eight months of imports at end-1993.

II. Tax Structure and Policy

1. Overview of tax structure

There is virtually no direct taxation in Vanuatu in that no personal income tax, corporate tax, or capital gains tax are imposed (Annex I). Government revenue is derived primarily through indirect taxation, with customs duties accounting for over 60 percent of tax revenue and close to 50 percent of total revenue (Appendix Table 13). The remaining fiscal revenues are raised through business license fees, company registration fees, work permit fees, rental taxes, stamp duties, airport and wharfage taxes, a 10 percent sales tax on all hotel and restaurant charges, and other nontax revenues including fines and fees. From 1989 to 1993, total tax revenue averaged 19 percent of GDP. 1/ The tax exempt status, as applied to offshore companies in Vanuatu, encouraged the establishment of the Offshore Finance Center in 1971 and has enhanced its continued development. 2/

Although Vanuatu’s fiscal position does not yet pose a threat to macroeconomic stability, its current tax system is unsustainable over the medium term because it is too narrowly based and inefficient. Vanuatu has a high population growth rate and is undergoing rapid urbanization, particularly around Port Vila and Luganville. Its increasing social and infrastructure demands have placed a heavy burden on public finances. Like many other Pacific islands, Vanuatu relies on foreign aid to finance development expenditures. However, as the flow of foreign assistance steadily declines, the need to raise additional revenues domestically becomes more urgent. Recognizing the importance of implementing fiscal reforms to broaden the tax base and lower the level of tariff protection, the Government commissioned a consultant to conduct a fundamental review of the tax system and identify possible revenue-raising measures without impinging on the continuing development of the Offshore Finance Center.

2. Development of tax policy and structure

The tax regime in Vanuatu has undergone little change since independence in 1980 (Chart 5). Many basic features of the tax system during the colonial era were retained. Tax receipts from international trade continue to dominate total fiscal revenue, although their contribution has gradually declined since 1988. The share of taxes on goods and services to total revenue remains broadly unchanged. However, business license fees, the largest component of goods and services taxes, have fluctuated considerably. Following a high of 11.8 percent of total revenue in 1987, business license fees dropped sharply in 1988 but slowly increased to 11.4 percent of total revenue in 1993, reflecting recent government policy to broaden the tax base by replacing flat fees with a turnover tax. In particular, effective January 1993, fees levied on professional services were replaced by a 4 percent tax on gross turnover. 3/ Other taxes have also risen gradually over the years, owing to increased airport and wharfage taxes. Nontax revenues remain an important source of fiscal revenues, contributing 22 percent of total revenue on average over the past 13 years.

CHART 5VANUATU: SOURCES OF TOTAL REVENUE, 1981–94

(In percent of total revenue)

Sources: Data provided by the Vanuatu authorities, Reserve Bank of Vanuatu, Quarterly Economic Review; and staff estimates.

3. Taxes on international trade

a. Import duties and exemptions

Import duties are the main source of government revenue. Between 1989 and 1993, import duties fluctuated at about 60-70 percent of tax revenue, with ad valorem duty rates ranging from zero percent to over 100 percent on a cost, insurance, and freight (c.i.f) basis. In addition to being highly differentiated, the tariff structure is regressive with relatively higher rates imposed on basic necessities, such as food items, compared with rates on luxury goods, and on goods for which the Government has sought to encourage import substitution or discourage consumption. A 5 percent service tax is also charged, based on the value of imports c.i.f. inclusive of the duty. About one third of the tax base is exempt from duty, and the average effective tariff rate 1/ was estimated at 30 percent in 1992. This average, however, hides considerable sectoral variation. For example, the average effective rate for food is estimated at 41 percent; tobacco at 230 percent; selected household items at 23 percent; and aircraft, ships, and boats at 3 percent. Furthermore, given extensive exemptions, the average tariff burden on the remaining taxable imports 2/ was higher, estimated at 43 percent. 3/

Despite the Government’s efforts to tighten import exemptions beginning August 1993, the level of exemptions continued to be high and the average effective rate on total imports remained low, at 26 percent and 29 percent in 1993 and 1994, respectively. 4/ The small impact of these efforts reflects the continued exempt status awarded to Union Electrique du Vanuatu Limited (UNELCO) on its fuel and fuel-related imports; Telekom Vanuatu Limited; foreign aid agencies on their imported inputs for development projects; and export-oriented industries. It is estimated that revenue forgone from exemptions amounted to about VT 900 million in 1993, and between VT 600-700 million in 1994.

b. Export duties

Export duties are mainly ad valorem (f.o.b. export price), and in recent years have accounted for only about 2-3 percent of total tax revenue. 5/ Duties range from zero percent (coffee) to 15 percent (unworked shells). Of the major exports, a 4 percent duty is imposed on copra, a 2 percent duty on frozen meat, a 3 percent duty on squash pumpkins, and rates of 8-15 percent on timber exports. Copra and timber products accounted for the largest share of export duty revenues in 1993, representing 23 percent and 26 percent, respectively. In 1994, however, the share of export duties on copra is estimated to have increased to 25 percent, reflecting the rise in copra prices, while that on timber products fell to 8 percent as a result of a policy to restrict timber exports.

4. Tax reforms: recommendations of the Warren Report 1/

The purpose of the Warren Report (September 1994) was to formulate an equitable and efficient tax strategy and to propose reforms to the existing tax system in Vanuatu. The report, however, was subject to an important constraint: Vanuatu’s tax haven status, as applied to offshore companies, should not be challenged. The major recommendations of the study included: (i) a 3 percent training levy (payroll tax) to fund educational training programs; 2/ (ii) a 3 percent wages and salaries tax earmarked for education, health, and infrastructure development; (iii) a local business income tax of 3 percent on a cash flow basis, imposed on both incorporated and unincorporated businesses, in conjunction with a lowering of the threshold level of business turnover required to lodge audited returns to VT 5 million; 3/ (iv) the eventual replacement of the turnover-based component of business license fees by a 5 percent business sales tax, to be levied on a uniform base at a flat rate and not to be increased above 10 percent; (v) the simplification of the import duty schedule, with a view to eventually reducing the rates (see below); (vi) an indexation of excise duty rates for inflation and harmonization of the differential rates on close substitutes; and (vii) the elimination of all export taxes and their replacement with either low-rate withholding taxes or special environmental levies for exports of natural resources such as timber. The tax reform options were divided into three stages of implementation: those capable of immediate introduction (Phase 1), those to be implemented in the short to medium term (Phase 2), and those to be targeted in the longer term (Phase 3).

On import duties, the report recommended that the current tariff schedule be made simpler and more transparent in the short to medium term (Phases 1 and 2). In particular, in light of the high level of exemptions granted, the report advised that the Government assess the level and nature of current exemptions, and identify and quantify the magnitude of the tax concessions in annual budget documents. This would serve to highlight the fiscal cost of the tax exemptions (Phase 1). Over the medium term (Phase 2), the report proposed that the current tariff structure be simplified to a seven-rate schedule, and that the current 5 percent service tax imposed on goods subject to ad valorem duties be temporarily retained. The proposed schedule would be in line with a policy to encourage import substitution and local industry development. In addition, by imposing relatively higher rates on some luxury items, the regressivity of the duty structure would be partly addressed. Over the longer term (Phase 3), the report viewed it important that the dependence of Vanuatu on import duties as the main source of revenue be reduced, in view of the move toward a free trade zone within the Pacific region. Toward this end, it recommended the eventual abolition of the current two-tier tariff schedule, comprising the duty rate and the service tax rate, to a single-tier system. Combining the duty rate and the service tax would enhance the transparency of the tax and lay a sound basis for further reductions in the basic rate of duty.

In scaling down the importance of import duties as a major source of revenue, additional revenue-raising measures need to be in place. Toward this objective, the report recommended, as mentioned above, the introduction of a wages and salaries tax, and a local business income tax in conjunction with a business sales tax over the medium term (Phase 2). In the long term, a broader-based personal income tax, company income tax, and a value-added tax were suggested (Phase 3).

The findings of the Warren Report are under consideration by the Council of Ministers, who are to make the final decision on the adoption of each recommendation. Notwithstanding, a 4 percent turnover tax on wholesalers and retailers, in place of an annual flat business license fee of VT 50,000, has been incorporated in the 1995 budget.

III. Structure of Interest Rates and Profitability of Commercial Banks

1. Overview

The sizable spread between commercial banks’ deposit and lending rates (ranging between 7 1/2 and 10 percent in recent years) has been an ongoing concern to the Vanuatu authorities. Despite large unremunerated banks’ excess balances with the Reserve Bank of Vanuatu and falling international interest rates since 1990, bank lending rates have not declined (Chart 6). Although capital movements are unrestricted, rates offered on foreign currency deposits have at times lagged behind international rates, and rates offered on vatu deposits have fluctuated counter to movements in the international markets. The authorities feel that such a large spread may have reflected the banking sector’s oligopolistic structure. 1/

CHART 6VANUATU: INTEREST RATES AND DISTRIBUTION OF VATU DEPOSITS, 1990–94

Source: Data provided by the Vanuatu authorities.

1/ Weighted average rate of interest for bank loans.

2/ Weighted average rate of interest on total vatu deposits.

3/ Australian dollar deposit rate quoted in Vanuatu (one-month maturity).

However, an examination of the structure of interest rates and banks’ profitability, elaborated below, would seem to indicate that banks do not make excessive profits. Neither is there evidence of overt collusion among banks. Nevertheless, the lack of strong competition, owing to the small number of banks and a very narrow credit market, may have allowed banks to operate less efficiently. Notwithstanding the absence of capital control, the minimum size imposed on foreign currency accounts effectively constrains the free flow of capital, permitting banks to set vatu interest rates with little regard to international trends. These elements in turn have contributed to the high interest rate spread, constrained credit growth, and impeded productive investment. Other structural barriers--including geographic factors and the land tenure system--have also limited the private sector’s access to bank credit.

2. Structure of interest rates

a. Deposit rates

Although close to two thirds of bank deposits are in foreign currencies, most of them are placed abroad and banks maintain a broadly balanced foreign position; a minimum amount of US$5,000 is required to maintain foreign currency accounts. As for vatu deposits, commercial banks offer demand deposits, savings deposits (both can be withdrawn upon demand), and time deposits (Table 1).

Table 1.Vanuatu: Distribution of Vatu Deposits and Interest Rates, 1990-94

(In percent)

End-PeriodDemandSavings DepositsTime DepositsAverage Deposit Rate of Total Vatu Deposits 2/3/
Percent of Total Deposits 1/Average Interest Rate 2/Percent of Total DepositsAverage Interest Rate 2/Percent of Total Deposits
1990334.6247.2434.1
1991415.1196.7404.1
1992445.3245.6324.8
1993354.7265.7395.2
1994 (June)334.2285.9395.1
Sources: Reserve Bank of Vanuatu; and staff calculations.

The majority of demand deposits does not earn interest.

Average of quarterly figures, which are in turn computed as total interest paid during each quarter divided by total deposits at end-quarter.

Including noninterest-bearing demand deposits. Because of fluctuations of both deposit volumes and interest rates within each period, the relationship between the average rate of total deposits and their components is not evident.

Sources: Reserve Bank of Vanuatu; and staff calculations.

The majority of demand deposits does not earn interest.

Average of quarterly figures, which are in turn computed as total interest paid during each quarter divided by total deposits at end-quarter.

Including noninterest-bearing demand deposits. Because of fluctuations of both deposit volumes and interest rates within each period, the relationship between the average rate of total deposits and their components is not evident.

Banks offered higher interest rates for larger deposits or deposits with longer maturities (Table 2). Besides interest rate differentials, commercial banks have not sought to mobilize longer-term deposits and there are no savings instruments for maturities longer than one year. However, the differentials appear insufficient to attract long-term deposits. At end-June 1994, only 39 percent of the total was in the form of time deposits, of which less than 11 percent was for six-months or longer maturities (Table 3). Including demand and savings deposits, less than 4 percent of total vatu deposits were of maturities of six months or longer.

Table 2.Vanuatu: Vatu Deposit Rates and Australian Dollar Rates Locally Quoted, 1990-94

(In percent)

End-Period$A$AUS$
VatuThree-Month One Month (Locally Quoted)Three-Month Deposit Rate AbroadThree-Month Deposit Rate Abroad
One MonthTwo-six MonthsAbove six Months
19905.50-8.006.00-8.007.50-8.0010.25-10.6112.07.9
19914.50-6.506.00-6.655.75-6.505.25-6.257.74.5
19923.79-4.463.85-5.614.27-5.763.32-4.655.83.4
19934.50-5.505.00-6.005.50-6.003.00-4.005.93.5
1994 (June)3.00-6.003.00-6.003.00-6.003.00-4.005.34.5
Source: Reserve Bank of Vanuatu.
Source: Reserve Bank of Vanuatu.
Table 3.Vanuatu: Distribution of Vatu Time Deposits by Maturity, 1990-94

(In percent)

End-PeriodMaturity
Up to 7 Days7 days to 1 Month1-2 Months2-6 Months6-12 MonthsOver 1 Year
199010.732.130.422.54.00.3
19918.129.620.138.43.60.2
19929.625.517.919.926.70.4
19939.438.417.617.417.10.1
1994 (June)6.535.625.522.010.40.2
Source: Reserve Bank of Vanuatu.
Source: Reserve Bank of Vanuatu.

Between 1990 and late 1993, locally quoted foreign currency deposit rates declined sharply in line with corresponding rates in Australia, with discounts that may reflect the absence of direct taxation in Vanuatu. However, since late 1993, locally quoted rates have not adjusted in response to rising rates abroad, leading to a contraction of foreign currency deposits. In contrast, vatu deposit rates, which had been substantially below international rates in 1990-91, have risen slightly since, stabilizing at levels close to the three-month deposit rate in Australia. In fact, the average vatu deposit rate has approximately maintained a fixed margin below the average lending rate while remaining positive in real terms. Beginning in 1992, vatu deposit rates have exceeded locally quoted rates on Australian dollars, possibly generating a substitution of vatu for foreign currency deposits and leading to a fall of the latter’s share in total deposits (Table 4). To the extent that a more-than-proportionate share of such a switch went into 6-12 month time deposits, a distinct shift during 1992 in the term structure toward larger maturities was observed. Such a shift, in turn, resulted in an increase in the weighted-average rate on vatu deposits even during the period of falling rates for each maturity. A narrowing of rates offered to deposits of different maturities in 1993-94, however, has dampened these effects.

Table 4.Vanuatu: Distribution of Vatu and Foreign Currency Deposits by Residents, 1990-94

(In percent)

End-Period1990199119921993Sept.

1994
Foreign currency deposits7273666865
Vatu deposits2827343235
Sources: Reserve Bank of Vanuatu; and staff estimates.
Sources: Reserve Bank of Vanuatu; and staff estimates.

b. Lending rates

The Reserve Bank guidelines on lending rates issued in the mid-1980s are not enforced and, in principle, commercial bank lending rates are market determined. 1/ However, the weighted-average rate for bank loans has been relatively stable, fluctuating between 13 1/2 and 14 1/2 percent during 1990-94 notwithstanding substantial fluctuations in international rates, suggesting that banks may have voluntarily followed the guidelines in order to avoid public criticism (Table 5). 2/ At the same time, banks may have maintained profitability by keeping a certain margin between lending and deposit rates, and this practice may explain both the gap between vatu deposit rates and the high international rates prior to 1992 as well as the little response of vatu deposit rates to foreign rates since then.

Table 5.Vanuatu: Lending Rates, 1990-94

(In percent)

End-PeriodForeign Rates
Domestic RatesAustralian Prime LendingU.S. Prime Lending
RangeAverage Lending Rates 1/
19908.00-7.0014.316.0010.00
19918.00-16.0014.212.505.50
19928.00-16.0014.110.006.00
19938.00-16.0013.510.006.00
1994 (June)8.00-16.0013.89.007.25
Source: Reserve Bank of Vanuatu.

Average of quarterly figures, which are in turn computed as total interest received during each quarter divided by total loans outstanding at end-quarter.

Source: Reserve Bank of Vanuatu.

Average of quarterly figures, which are in turn computed as total interest received during each quarter divided by total loans outstanding at end-quarter.

In addition to explicit charges on loans, borrowers face miscellaneous fees and are required to back up their borrowing with full security. While this practice is not unique to Vanuatu, the land tenure system--until very recently--did not permit borrowers to use land as collateral for bank loans. Given the limited range of other available assets, banks have required up to 100 percent of countervailing deposits as collateral. This, in effect, precluded a large number of potential borrowers and added considerably to the cost of funds to actual borrowers. As mentioned earlier, a reform in the land tenure system, allowing the use of land as collateral, has eased access to bank credit. Furthermore, the government-owned bank has lowered the required countervailing deposits to as low as 50 percent of the loan amount, resulting in a substantial increase in its lending. Nevertheless, access to financing has remained a serious problem. Available information suggests that the scope of informal markets is limited, and that their lending charges and 100 percent countervailing deposit requirement are similar to those of banks.

As of end-September 1994, close to one fifth of bank lending to residents was denominated in foreign currencies, largely to expatriates for personal loans (Appendix Table 19). Trade credit in foreign currencies was limited. While, in principle, commercial banks charge expatriates and ni-Vanuatu customers the same interest rate and require the same collateral, it would appear mat the condition on credit guarantees implies higher overall charges on ni-Vanuatu borrowers.

c. Spread between deposit and lending rates

The spread between vatu deposit rates and rates on lending to residents has fluctuated between 8 1/4 and 10 percentage points since 1990. Although the spread seems high by international standards, it is in line with the level in neighboring countries (Table 6). Given similarly undeveloped transportation and communication infrastructures, as well as comparable geographic conditions and land tenure systems, business undertakings in these economies involve a high degree of risk. Relatively small loan sizes and preferences for short-term deposits, as well as unfamiliarity with accounting practice on the part of most ni-Vanuatu borrowers, result in high administrative expenses on the part of commercial banks. While unremunerated reserve requirements add to banks’ costs, the 10 percent ratio in Vanuatu is low compared with many other countries; however, the unusually large excess balances of banks raise these costs further.

Table 6.Pacific Islands’ Interest Rates, 1990-93 1/

(In percentage points)

Deposit RateLending RateInterest Rate Spread
199019911992199319901991199219931990199119921993
Vanuatu4.14.14.85.214.314.214.113.510.210.19.38.3
Fiji4.04.14.13.711.912.312.411.77.98.28.38.0
Papua New Guinea8.79.17.95.015.614.214.511.36.95.16.66.3
Solomon Islands10.510.512.09.818.019.519.817.87.59.07.88.0
Tonga4.37.34.34.313.513.513.514.09.26.29.29.7
Western Samoa8.38.36.45.513.314.812.912.05.06.56.56.5
Sources: IMF, International Financial Statistics; and the Reserve Bank of Vanuatu.

Data for Vanuatu, Fiji, and Papua New Guinea are averages; those for the remainder are some representative rates.

Sources: IMF, International Financial Statistics; and the Reserve Bank of Vanuatu.

Data for Vanuatu, Fiji, and Papua New Guinea are averages; those for the remainder are some representative rates.

3. Profitability of commercial banks

It would seem that, although the interest rate spread has been high, the profitability of commercial banks in Vanuatu has not been excessive. Based on the 1992-94 data of one of the largest banks, its interest margin (defined as the ratio of the difference between total interest received and total interest paid to total assets) was moderate compared with similar ratios for developing countries for which data are available (Table 7). The discrepancy between this margin and the average interest spread for the period (about 9 percent) can be accounted for by the substantial amount of noninterest-earning assets, nonperforming loans, and the smaller spread between banks’ foreign currency assets and liabilities with nonresidents.

Table 7.Vanuatu: Profitability of Banks Compared with Selected Countries

(In percent)

Interest Margin

(A)
Noninterest Margin

(B)
Operating Costs of Total Assets Ratio

(C)
Provisioning to Total Assets Ratio

(D)
Return on Assets

(E)=(A)+(B)-(C)-(D)
Return on equity

(F)
Vanuatu 1/2.62.02.70.61.212.0
Selected developing countries 2/
Average2.81.42.40.81.021.0
Range1.0-3.30.8-2.01.8-3.10.3-1.20.6-2.27.3-54.9

Based on information on one of the largest banks in Vanuatu.

Comparator countries were Egypt (1986-90), Portugal (1985-89), Greece (1985-89), Morocco (1988-90), and Thailand (1986-88). Source: D. Vittas and C. Neal, Competition and Efficiency in Hungarian Banking, (World bank, 1992).

Based on information on one of the largest banks in Vanuatu.

Comparator countries were Egypt (1986-90), Portugal (1985-89), Greece (1985-89), Morocco (1988-90), and Thailand (1986-88). Source: D. Vittas and C. Neal, Competition and Efficiency in Hungarian Banking, (World bank, 1992).

The noninterest margin (the ratio of noninterest income to total assets) of the Vanuatu bank was comparatively high and reflects fees and other incomes from its large share of foreign exchange transactions. The ratio of operating costs to total assets, typically small in low-inflation developing countries, was also high for the Vanuatu bank considering that operating costs related to foreign currency assets and liabilities must have been minimal. Such high costs reflect various factors enumerated above that added to the bank’s administrative expenses, and possibly a relatively larger proportion of expatriate personnel than in the comparator countries. The ratio of provisioning for loan losses to total assets was comparatively low, suggesting that banks in Vanuatu may not have provisioned adequately against potential loan losses, in particular, given the perceived high risks of investment in the country.

The overall return on assets (the ratio of net income to total assets) of the Vanuatu bank, at 1.2 percentage points, exceeded the average of omparators. This ratio reflects a relatively high noninterest margin and low level of provisioning, offset by higher operating costs and a slightly lower-than-average interest margin. The bank’s return on equity (the ratio of net income to total shareholder funds), at 12 percent, was modest compared with that of other countries; actual returns may have been lower to the extent that loan loss provisioning was insufficient.

Although banks in Vanuatu may not earn exorbitant profits, the small number of banks and their high degree of concentration 1/ indicate that banks as a group face little competition or pressure to maximize their efficiency. Furthermore, most ni-Vanuatu do not, in practice, have access to the international markets, allowing banks much leeway in setting vatu interest rates and other conditions to make up for inefficient operations. Although the market in Vanuatu is open to new financial institutions, 2/ the size of the economy is unlikely to attract many more banks. Thus, in the near future, improved efficiency would need to originate within the current oligopolistic structure, including a strengthening of banks’ domestic portfolios and the promotion of longer-term savings instruments.

IV. Export Performance and Prospects

Exports of agricultural crops--primarily copra--and tourism receipts together account for about one half of Vanuatu’s foreign exchange earnings (Chart 7). Since 1989, Vanuatu’s terms of trade has deteriorated overall (reflecting falling international prices of these crops) and the growth of tourism receipts slowed (owing to inadequate infrastructure and the country’s high cost structure). Consequently, the current account (excluding private and official transfers) has gradually deteriorated. Against this background, the Government has placed emphasis on the diversification of agricultural commodities and the promotion of tourism, while taking measures to safeguard the country’s cultural heritage and ecology. In 1994, the Government commenced the preparation of a Tourism Master Plan, which focuses on tourism as the major source of foreign exchange earnings.

CHART 7VANUATU: EXTERNAL DEVELOPMENTS, 1990–93

Source: Data provided by the Vanuatu authorities.

1/ Commodity exports and services receipts, excluding investment income, and other receipts not identified elsewhere.

1. Agricultural exports

Against the decline in international copra prices, the diversification of agricultural exports has developed in two directions: (i) a shift to better-quality copra and nontraditional markets for the product, and (ii) cultivation of other crops. However, efforts to cultivate alternative crops have proven to be difficult, given that tree crops are vulnerable to cyclones and other extreme weather conditions, and cash crops require close care and marketing expertise not yet fully developed in Vanuatu.

a. Traditional crops

Although export earnings from copra declined from about half of total commodity export earnings in the late 1980s to about 35 percent in the early 1990s, copra remains the most important export and provides ni-Vanuatu with their main source of cash income. The volume of copra exports declined from 47,000 metric tons--the peak recorded in 1984--to 28,000 metric tons in 1993, in line with a sharp fall in its world price during the same period. However, value added in copra production increased, attributable to the rising share of the higher-quality sun-dried variety (as opposed to the hot-air variety), which, by 1993, accounted for more than 80 percent of total production. Furthermore, higher copra export earnings were realized through a shift from the traditional EU market to Asia, which significantly reduced transportation costs. Further improvements in productivity and export earnings are expected to derive from more systematic replanting and additional savings in marketing and transportation costs. The production of cocoa and coffee, the other traditional export crops, has been volatile owing to natural disasters and diseases. Their expansion has also been deterred by falling prices since the late 1980s, and prospects for their exports in the next few years are unfavorable.

b. Prospects for diversification

Beef production began to expand rapidly in the 1980s, following the purchase of the Luganville abattoir by a Japanese company, and is now the second largest export commodity. About 30 percent of beef production is exported, mainly to Japan and New Caledonia. Although efforts are under way to diversify its markets to other Asian destinations, exports have been constrained by the absence of accredited disease-free status and abattoir standards; to address this constraint, technical assistance is being provided by the EU. Exports of cowhide have also expanded in line with beef production.

Kava, indigenous to certain Pacific islands, has traditionally been used as a relaxant. Its export recently took off, both in the form of fresh roots for relaxant (to Australia and New Caledonia) and in powder form for pharmaceutical purposes (to European countries). The latter use of this product is still exploratory and under research, but its potential for export growth could be strong.

Squash production increased sharply in 1993-94, targeting the Japanese market during off-season. However, prospects for its export growth were hampered in 1994 by strong regional competition, causing a sharp decline in its price.

Largely for environmental reasons, the authorities decided to ban exports of uncut logs in mid-1994. At the same time, and within the framework of the Forest Utilization Project, they intend to promote the export of higher value-added timber, sawn timber, and wood products. A new large-scale logging venture, based on a more selective cutting operation and a reforestation program, is under way, which is expected to result in increasing exports of processed wood, including plywood, destined largely for Asian markets.

2. Tourism

a. Background

After expanding substantially in the late 1980s, tourism slowed in the 1990s, owing to limited infrastructure--mainly airport facilities and hotel accommodations. Although there is regular international air service to Vanuatu by four carriers serving the region, the two main airports at Port Vila and Luganville are currently too small to accommodate wide-bodied aircrafts for long-haul flights, prohibiting in effect the potentially large Asian markets. The country is also served by cruise ships, but their contribution to the economy is limited by the minimal length of stay. The bulk of tourists arrive by air from within the region, mostly from Australia and New Zealand. Modern accommodations are limited to 11 hotels, totaling some 500 rooms; only four hotels (all in Port Vila) meet international standards for quality hotels, making up some 70 percent of the rooms. Capacity utilization of hotel rooms increased significantly in the late 1980s but remained at about 60 percent on average since, with the capacity fully used during the peak season.

b. Tourism Master Plan 1/

The main objectives of the Tourism Master Plan include the expansion of tourism infrastructure; the promotion of greater ni-Vanuatu participation in the sector; and the diversification of tourist markets. The Plan considers the upgrading of the two airports, Santo/Pekoa Airport and Efate/Bauerfield Airport, key to the expansion of tourism in Vanuatu. Once direct air links to major Asian cities are established, foreign investment in hotel facilities and other infrastructure is anticipated to follow. The project is expected to eventually serve the Government’s objectives to decentralize economic development to Santo and the adjoining islands and to increase ni-Vanuatu employment. Investment in the project is scheduled to commence in 1995 and be completed in 1997, with the total cost estimated at US$18-24 million.

3. Policy issues

a. Land tenure system

The development of commercial agriculture, the manufacturing sector, and the tourism industry, however, faces a constraint common to the Pacific region. Despite abundant land supply, the land tenure system whereby virtually all land is customary-owned has effectively made land unavailable and adversely affected foreign investment, particularly in tourism development. In order to address this issue, the Parliament recently adopted legislation allowing the Government to purchase land for commercial development projects. The land may also now be leased by foreigners for up to 75 years, and the Government will assist in land negotiations. Further legislation to permit freehold titles is being prepared. This is expected to help prevent land conflicts that hamper investment and to ease ni-Vanuatu’s access to bank financing requiring collateral.

b. External competitiveness

Within the framework of a fixed exchange-rate regime, 1/ the exchange rate of the vatu fluctuated widely in 1990-91 but has since remained relatively stable in effective terms. Nominal and real effective rates have moved closely together (Chart 8), suggesting that the real effective rate is influenced more by movements in the basket of currencies than inflation differentials between Vanuatu and its partner countries. The small appreciation of the vatu in 1993-94 against the U.S. dollar was largely offset by the depreciation against the Japanese yen and the Australian dollar, and these variations appear to have had little impact on the export sectors. In the case of commodity exports, copra producer prices and natural conditions are considered more important factors affecting the supply; in the case of tourism, recovery of the regional economies appears to have compensated for rising costs. However, hotel and food costs facing tourists overall rank high by international standards and are considerably more than in some other countries in the region, such as Fiji. Any large-scale expansion of the tourism sector in Vanuatu would likely be contingent on the availability of efficient service at moderate prices. Given already high wages overall, concurrent measures to maintain nominal wages and upgrade labor productivity would help preserve Vanuatu’s external competitiveness.

CHART 8VANUATU: EXCHANGE RATE INDICES, 1990–94

(1988 = 100)

Sources: Data provided by the Vanuatu authorities, IMF, Information Notice System; and IMP, International Financial Statistics.

APPENDIX
Table 1.Vanuatu: Gross Domestic Product by Type of Economic Activity in Constant 1983 Prices, 1989-93

(In millions of vatu)

1989Prov.

1990
Est.

1991
Est.

1992
Est.

1993
Agriculture, forestry, and fishery2,3482,7442,6682,5912,783
(Percentage change)(-9.3)(16.9)(-2.8)(-2.9)(7.4)
Copra508868640620639
Cattle298323367361401
Cocoa123175222144225
Coffee325916
Other commercial agriculture119122130146162
Subsistence agriculture1,1051,1821,2061,2301,254
Forestry and logging19272988185
Industry1,6261,7571,8561,8241,886
(Percentage change)(10.4)(8.1)(5.6)(-1.7)(3.4)
Manufacturing774871927845863
Electricity214235265315326
Construction638651664664697
Services7,3677,4358,1938,3848,696
(Percentage change)(1.9)(0.9)(10.2)(2.3)(3.7)
Trade, hotels, and restaurants3,4823,6363,8294,0324,128
Transportation and communication847857943943939
Finance and insurance1,0621,1181,3301,3841,465
Real estate and other services700702857760805
Government services1,3901,2901,3951,4751,597
Domestic services8486899194
Less: Imputed bank services-198-254-250-300-331
Gross domestic product11,34111,93612,71712,79813,365
(Percentage change)(4.5)(5.2)(6.5)(0.6)(4.4)
Memorandum items:
Gross domestic product at current prices16,36717,89920,13821,30122,616
Consumer prices (percentage change)(7.0)(5.2)(5.6)(5.1)(1.7)
Sources: Statistics Office; and staff estimates.
Sources: Statistics Office; and staff estimates.
Table 2.Vanuatu: Gross Domestic Product by Expenditure Components in Constant 1983 Prices, 1988-90 1/

(In millions of vatu)

19881989Prov.

1990
Household consumption6,3306,5916,884
(Percentage change)(4.6)(4.1)(4.4)
Government final consumption3,8173,4623,382
(Percentage change)(0.1)(-9.3)(-2.3)
Recurrent expenditure2,7792,5832,446
Development expenditure1,038879936
Gross fixed capital formation2,8473,3783,998
(Percentage change)(-14.3)(18.7)(18.4)
Durable equipment1,2921,6332,220
Construction/land improvement1,5551,7451,778
Increase in stocks350433325
Gross domestic expenditure13,34413,86414,589
(Percentage change)(-0.8)(3.9)(5.2)
Exports of goods and services4,2324,5076,115
(Percentage change)(-11.6)(-4.3)(6.5)
Less: Imports of goods and services7,3627,4079,111
(Percentage change)(-0.7)(-4.3)(0.6)
Expenditure on gross domestic product10,21410,96411,593
(Percentage change)(0.4)(7.3)(5.7)
Statistical discrepancy637377343
Gross domestic product10,85111,34111,936
(Percentage change)(0.4)(0.6)(4.5)
Net factor income from abroad-287347759
Gross national product at constant market prices10,56411,68812,695
Sources: Statistics Office; and staff estimates.

Efforts are under way to compile national accounts for later years.

Sources: Statistics Office; and staff estimates.

Efforts are under way to compile national accounts for later years.

Table 3.Vanuatu: Agricultural Production, 1989-93
19891990199119921993
(In metric tons: unless otherwise indicated)
Copra (thousand metric tons) 1/24.945.128.427.428.0
By category 2/
Village smallholder21.239.4
Plantation3.75.7
By center
Port Vila1.84.22.40.70.1
Espiritu Santo23.140.926.026.627.9
By type of processing
Smoked9.115.06.76.05.1
Hot air/sun dry15.930.121.721.422.8
Beef 3/2,6053,0263,3873,3293,699
Cocoa 4/1,5382,1732,1741,3582,118
Coffee 5/25.015.041.467.322.0
Robusta23.212.510.08.75.0
Arabica1.82.531.458.617.0
Kava 6/20.043.029.063.044.0
Pork 7/45.952.867.257.551.7
Milk (in’000 liters) 8/248287315307
Chicken meat 9/172176186216
Eggs (’000 of dozens)230198208239
(In thousands of vatu per metric ton)
Memorandum items:
Copra prices
Average domestic price paid to producers 10/31.325.719.426.228.4
Average f.o.b. price received32.516.116.934.325.1
Cocoa prices
Average domestic price paid to producers 10/12710710498.094.0
Average f.o.b. price received108126105103111
Sources: Statistics Office; Vanuatu Commodities Marketing Board; and Department of Agriculture and Horticulture.

Copra purchased by the Vanuatu Commodities Marketing Board for export and/or processing. Estimates of domestic consumption of coconuts by villagers are not available, but may be as high as 20,000 metric tons of copra equivalent.

Totals by category and by center do not yield precisely the same figure in some periods.

Total volume slaughtered in Port Vila and Luganville abattoirs.

Cocoa purchased by the VCMB for export. Domestic consumption is negligible.

Metric tons of green beans processed and dried.

Metric tons of exports on a dried weight volume basis. Kava exported for pharmaceutical purposes is dried, whereas kava for the beverage market is sold fresh (green).

Port Vila abattoir only.

Production from Melektree Dairy.

Production of Toa Enterprises and Chicken City on Efate.

Includes transportation allowance.

Sources: Statistics Office; Vanuatu Commodities Marketing Board; and Department of Agriculture and Horticulture.

Copra purchased by the Vanuatu Commodities Marketing Board for export and/or processing. Estimates of domestic consumption of coconuts by villagers are not available, but may be as high as 20,000 metric tons of copra equivalent.

Totals by category and by center do not yield precisely the same figure in some periods.

Total volume slaughtered in Port Vila and Luganville abattoirs.

Cocoa purchased by the VCMB for export. Domestic consumption is negligible.

Metric tons of green beans processed and dried.

Metric tons of exports on a dried weight volume basis. Kava exported for pharmaceutical purposes is dried, whereas kava for the beverage market is sold fresh (green).

Port Vila abattoir only.

Production from Melektree Dairy.

Production of Toa Enterprises and Chicken City on Efate.

Includes transportation allowance.

Table 4.Vanuatu: Manufacturing Industries, 1989-93
19891990199119921993
(In number of employees)
Employment
Food, beverages, and tobacco442499548555506
Textile, clothing, and leather1181261359876
Wood and wood products317378560537566
Paper and paper products4654545057
Chemical, rubber, plastic, and nonmetallic products124124122120112
Metals and metal products91116108115148
Other6271395374
Total1,2001,3681,5661,5281,539
(In millions of vatu)
Value added
Food, beverages, and tobacco413514504484568
Textile, clothing, and leather7071803948
Wood and wood products170238356361287
Paper and paper products6082636268
Chemical, rubber, plastic, and nonmetallic products7584116105118
Metals and metal products8286137139153
Other5455243634
Total9241,1301,2801,2261,276
Memorandum items:
Total salaries in manufacturing (VT mn.)397537698696646
Ratio of salaries to value added (percent)43.047.554.556.850.6
Value added per employee (VT thousand)770826817802829
Average salary per employee (VT thousand)331392446455419
Sources: Data provided by the Department of Industry; and staff estimates.
Sources: Data provided by the Department of Industry; and staff estimates.
Table 5.Vanuatu: Imports of Petroleum Products, 1989-93

(In thousands of barrels of oil equivalent) 1/

19891990199119921993
Regular gasoline3333.237.832.734.6
Distillate/diesel112.6117.498.6112.1122.2
Kerosene66.47.04.05.4
Aviation fuel 1/, 2/6.94.612.014.016.2
Liquid petroleum gas (LPG)7.47.45.56.210.6 3/
Total165.9169.0160.9169.0189.0
Sources: Statistics Office; Energy Unit; Ministry of Energy; and staff estimates.

The conversion factor is one kiloliter = 6.29 barrels of oil for gasoline, distillate, kerosene, and aviation gas; in the case of LPG, the conversion factor is one ton LPG/butane = 10.9 barrels of oil equivalent.

Excludes jet fuel for re-export.

Based on sales data.

Sources: Statistics Office; Energy Unit; Ministry of Energy; and staff estimates.

The conversion factor is one kiloliter = 6.29 barrels of oil for gasoline, distillate, kerosene, and aviation gas; in the case of LPG, the conversion factor is one ton LPG/butane = 10.9 barrels of oil equivalent.

Excludes jet fuel for re-export.

Based on sales data.

Table 6.Vanuatu: Electricity Production by Union Electrique du Vanuatu in Port Vila and Luganville, 1989-93 1/
19891990199119921993
Installed capacity at end of year (kw)8,5408,5408,54012,48012,480
Maximum demand (kw)4,4695,3185,7706,6847,090
Output for the year (mwh)21,18623,67424,99429,90731,200
Sales (mwh)20,37022,70724,20428,79129,894
Sales revenue (in vatu mn.)502548600655707
Average revenue per kilowatt hour (in vatu)24.624.124.822.723.7
Sources: Ministry of Lands, Energy, and Rural Water Supply, Energy Planning Unit, based on extracts from the annual returns of Union Electrique du Vanuatu (UNELCO).

Data prior to 1992 exclude Luganville.

Sources: Ministry of Lands, Energy, and Rural Water Supply, Energy Planning Unit, based on extracts from the annual returns of Union Electrique du Vanuatu (UNELCO).

Data prior to 1992 exclude Luganville.

Table 7.Vanuatu: Tourism Statistics, 1989-93
19891990199119921993
Visitor arrivals (number)23,86534,72839,54842,67344,483
(Percentage change)(36.0)(45.5)(13.9)(7.9)(4.2)
Australia13,92117,54921,37923,76723,255
New Caledonia2,7723,6773,5094,4855,504
New Zealand2,0056,2697,2886,4416,304
Japan6947487068441,117
France354610630827884
United States6938911,1031,1191,124
United Kingdom362691606556508
Fiji822886869808885
Solomon Islands284558565666700
Papua New Guinea368382463399586
Other1,5902,4672,4302,7613,563
Of which: Tourists17,45724,25728,56631,00831,565
(Percentage change)(40.6)(39.0)(17.8)(8.5)(1.8)
Average length of stay of visitor (days)12.114.69.29.09.1
Room-night capacity (thousands)173.4189.1186.7191.7187.1
(Capacity utilization, percent)51.959.663.565.365.9
Bed-nights capacity (thousands)378.6401.2392.7418.8419.9
(Capacity utilization, percent)40.449.355.556.155.7
Cruise ship passengers41,31141,86737,02359,34643,059
(Percentage change)(-18.9)(1.3)(-11.6)(60.3)(-15.5)
Sources: Statistics Office; and National Tourism Office.
Sources: Statistics Office; and National Tourism Office.
Table 8.Vanuatu: Operations of National Provident Fund, 1989-94 1/
19891990199119921993Est.

1994
(In millions of vatu)
Annual contributions261307326379401406
Withdrawals152225475760
Accumulated members’ credit5698681,1891,5631,9712,289
Investment portfolio6009011,1831,5771,9792,500
Government bonds and loans2503504504266501,022
Real estate--4050191137137
National Housing Corporation--4050505050
Deposits with commercial banks and cash on hand2684106058741,016777
Sundry debtor143926466442
Other (private sector investments) 2/686152406272
Housing Loan Scheme----------400
Memorandum items:
(In persons)
Number of employers1,6681,8712,1812,4302,747
Employees covered by age group:17,37719,64122,82024,68027,727
Under 246,0117,1047,4038,165
25-398,36811,08312,42413,770
40-552,6683,6854,1484,908
Over the age of 55330549705884
(In vatu)
Average implied monthly salary 3/20,86121,70919,84121,32920,085
Implied total wage bill
(In million vatu) 3/4,3505,1175,4336,3176,6836,766
(Percentage change)2.417.66.216.35.81.2
Source: Vanuatu National Provident Fund, Annual Report, various issues.

The VNPF was established in 1986 and its coverage of the Vanuatu labor market is now universal.

Includes private sector investments and loans, but excludes investments in real estate assets.

Assuming that the average contribution is equal to 6 percent of labor income.

Source: Vanuatu National Provident Fund, Annual Report, various issues.

The VNPF was established in 1986 and its coverage of the Vanuatu labor market is now universal.

Includes private sector investments and loans, but excludes investments in real estate assets.

Assuming that the average contribution is equal to 6 percent of labor income.

Table 9.Vanuatu: Consumer Price Index, 1989-93 1/
Weights

(percent)
19891990199119921993
(Percentage change)
Food (home consumption)30.1712.04.52.31.72.3
Beverages and tobacco10.2512.96.16.6-0.41.4
Clothing and footwear4.633.53.42.7-2.21.7
Rent, water, fuel, and electricity20.453.94.48.521.51.6
Household articles8.605.67.13.52.32.2
Transportation and communications13.051.00.718.70.9-2.8
Recreation, health, and education12.8510.28.1-4.02.13.9
Total 2/100.07.05.25.65.11.7
Sources: Data provided by the Statistics Office; and staff estimates.

The weights are derived from the 1985 Household and Expenditure Survey. Expatriates account for 38.87 percent of the index, ni-Vanuatu for 61.13 percent. Port Vila accounts for 84.97 percent of the index, Luganville for 15.03 percent.

Totals differ from the weighted average of changes in the components.

Sources: Data provided by the Statistics Office; and staff estimates.

The weights are derived from the 1985 Household and Expenditure Survey. Expatriates account for 38.87 percent of the index, ni-Vanuatu for 61.13 percent. Port Vila accounts for 84.97 percent of the index, Luganville for 15.03 percent.

Totals differ from the weighted average of changes in the components.

Table 10.Vanuatu: Central Government Fiscal Operations, 1989-94
19891990199119921993Budget

1994
Est.

1994
(In millions of vatu)
Total revenue and grants7,7278,1627,5787,7667,8538,414
Revenue4,2724,9434,7085,0685,1235,3545,475
Tax3,3603,9773,5663,8533,8434,1664,341
Nontax9129661,1421,2151,2801,1891,135
Foreign grants3,4553,2192,8702,6982,7302,939
Development grants 1/2,0551,7691,4201,2491,2091,489
Technical assistance1,4001,4501,4501,4491,5211,450
Total expenditure and net lending8,5169,6808,7998,3028,4478,554
Current expenditure4,9736,1866,0566,3226,7015,1016,447
Wages and salaries2,2642,3462,5252,7162,8513,0762,871
Purchases of goods and services9191,2411,2851,5131,6271,4331,534
Transfers249286312335386414414
VCMB subsidies55670300100120
Interest payments86193184209196178178
Technical assistance1,4001,4501,4501,4491,5211,450
Development expenditure and net lending3,5433,4942,7431,9801,7462,107
Of which: Air Vanuatu1,30320020050-300
Overall balance-789-1,518-1,220-536-594-140
Financing7891,5181,220536594140
Foreign (net)63489884969831342
Borrowing66794087371633880
Repayments-33-42-24-18-25-38
Domestic (net)155620371-16128199
Banking system515-271-2976418522
Other 2/-360891668-2259677
(In percent of GDP)
Total revenue and grants47.345.637.636.534.735.2
Revenue26.127.623.423.822.722.422.9
Tax20.522.217.718.117.017.418.2
Nontax5.65.45.75.75.75.04.8
Foreign grants21.118.014.312.712.112.3
Total expenditure and net lending52.154.143.739.037.335.8
Current expenditure30.434.630.129.729.621.427.0
Development expenditure and net lending21.719.513.69.37.78.8
Overall balance-4.8-8.5-6.1-2.5-2.6-0.6
Overall balance excluding foreign grants-26.0-26.5-20.3-15.2-14.7-12.9
Foreign financing (net)3.95.04.23.31.40.2
Domestic financing (net)0.93.51.8-0.81.20.4
(In millions of vatu)
Memorandum items:
Recurrent budget (authorities’ definition) 3/
Revenue4,2724,9434,7085,0685,1235,3545,475
Expenditure4,0514,6024,9545,1115,3735,3545,250
Balance221341-246-43-250225
Principal debt repayments33422418253838
Service charges on public debt3101848506464
Bond redemptions425173173170160152152
Transfers to the Development Fund753214521501286363
VCMB operating balance-162-13-13177-1846
(after transfers from central government) 4/
(in percent of GDP)-1.0-0.1-0.70.4-0.8
Gross domestic product16,36717,89920,13821,30122,61623,87623,876
Sources: Data provided by the Vanuatu authorities; and staff estimates.

Includes grants in cash and in kind, and cyclone reconstruction funds amounting to VT 21 million in 1989. The 1989 figure also includes a VT 538 million grant from the Australian Government for the purchase of an aircraft paid directly to the seller.

Includes nonbank financing, change in balance of Special Funds not included above the line; and errors and omissions.

The authorities’ definition of recurrent revenue is the same as that of the staff. Recurrent expenditure excludes subsidies to the VCMB and technical assistance (which is wholly grantfinanced) and includes principal debt repayments, bond redemption provisions, and transfers to the Development Fund.

Year to September.

Sources: Data provided by the Vanuatu authorities; and staff estimates.

Includes grants in cash and in kind, and cyclone reconstruction funds amounting to VT 21 million in 1989. The 1989 figure also includes a VT 538 million grant from the Australian Government for the purchase of an aircraft paid directly to the seller.

Includes nonbank financing, change in balance of Special Funds not included above the line; and errors and omissions.

The authorities’ definition of recurrent revenue is the same as that of the staff. Recurrent expenditure excludes subsidies to the VCMB and technical assistance (which is wholly grantfinanced) and includes principal debt repayments, bond redemption provisions, and transfers to the Development Fund.

Year to September.

Table 11.Vanuatu: Central Government Current Expenditure, 1989-94
19891990199119921993Budget

1994
Est.

1994
(In millions of vatu)
A. Economic Classification
Wages and salaries2,2642,3462,5252,7162,8513,0762,870
Purchases of goods and services9191,2411,2851,5131,6271,4331,534
Interest payments 1/86193184209196178178
Transfers304956612435506414414
Of which:
VCMB subsidies55670300100120----
Other249286312335386414414
Total current expenditure 2/3,5734,7364,6064,8735,1805,1014,997
(In percent of current expenditure)
Wages and salaries63.449.554.855.755.060.357.4
Purchases of goods and services25.726.227.931.031.428.130.7
Interest payments2.44.14.04.33.83.53.6
Transfers 3/9.112.816.610.09.99.39.5
(In millions of vatu)
B. Functional Classification
General public services9509971,1701,3721,5431,5471,537
Public order and safety328346395396477479469
Education8608319291,0831,1281,1231,113
Health424413487517612579569
Economic affairs and services7321,3981,1289819871,007963
Agriculture, fisheries, and forestry201832499329304231227
Mining, manufacturing, and construction346342401425404405380
Transportation and communication136135155160145237232
Other49897367134134124
Other expenditure 4/279751497524433366346
Total current expenditure3,5734,7364,6064,8735,1805,1014,997
(In percent of current expenditure)
General public services27.021.125.428.229.830.330.8
Public order and safety9.37.38.68.19.29.49.4
Education24.417.520.222.221.822.022.3
Health12.18.710.610.611.811.311.4
Economic affairs and services19.229.524.520.119.119.719.3
Other expenditure7.915.910.810.88.47.26.9
(In millions of vatu)
Memorandum item:
Transfers to the Development Fund753214521501286363
Sources: Data provided by the Vanuatu authorities; and staff estimates.

Including service charges on loans.

The total current expenditure figures presented in Table 10 are found by adding technical assistance.

Excluding VCMB subsidies.

Excluding principal repayments of loans and bond redemptions, and transfers to the Development Fund.

Sources: Data provided by the Vanuatu authorities; and staff estimates.

Including service charges on loans.

The total current expenditure figures presented in Table 10 are found by adding technical assistance.

Excluding VCMB subsidies.

Excluding principal repayments of loans and bond redemptions, and transfers to the Development Fund.

Table 12.Vanuatu: Government Development Fund, 1989-93

(In millions of vatu)

1989199019911992Est.

1993
Resources:
Foreign grants (in cash)
Australia22293665032
Canada2038361022
European Development Fund10415703834
France235201522
Japan4606
New Zealand5014814211570
STABEX receipts
United Kingdom291115165117105
United Nations7720236318
United Nations Development Programme3
World Health Organization18251616
Other1234382436
Subtotal1,259486588448369
Other resources
Transfers from recurrent budget78148452150128
Transfers from STABEX fund
Local NGOs6446
AsDB/IDA/CDF/China loans59162750967685
Other transfers and loans 1/1,38431336440933
Subtotal2,0531,0881,3899121,146
Total resources3,3121,5741,9771,3601,515
Expenditure:
Agriculture, land, and natural resources443202220124137
Transportation and communications1,31695762543620
Internal affairs1521303978
Health5457496145
Education, culture, and sports62119646204108
Finance, commerce, and industry1,3911,410524739210
General administration8011511770128
Total expenditure (in cash) 2/3,3612,8812,2111,2791,326
Of which: VCMB subsidy55670300100120
Development Fund balance-49-1,307-23481189
Stock of assets in the Development Fund1,816509275356545
Memorandum item:
Grants-in-kind2371,283832801840
Sources: Data provided by the Vanuatu authorities.

Includes bond issues of VT 1,308 million in 1989; VT 680 million in 1993.

Development expenditure in Table 10 is obtained by subtracting the VCMB subsidy from total expenditure, and adding grants-in-kind. Net lending in 1993 was equivalent to a repayment of VT 300 million from Air Vanuatu.

Sources: Data provided by the Vanuatu authorities.

Includes bond issues of VT 1,308 million in 1989; VT 680 million in 1993.

Development expenditure in Table 10 is obtained by subtracting the VCMB subsidy from total expenditure, and adding grants-in-kind. Net lending in 1993 was equivalent to a repayment of VT 300 million from Air Vanuatu.

Table 13.Vanuatu: Central Government Revenue, 1989-94
19891990199119921993Budget

1994
Est.

1994
(In millions of vatu)
Total revenue4,2724,9434,7085,0685,1235,3545,475
Tax revenue3,3603,9773,5663,8533,8434,1664,341
Taxes on goods and services7539718348861,050996996
Taxes on tourist services 1/117165177170226170170
Licenses 2/324415443500586603603
Work permit fees26322625272828
Registration fees286359188191211195195
Companies184206105108112120120
Shipping631194744505050
Land3934363949225
Taxes on international trade2,4362,7392,4682,6302,3962,7722,947
Import duties2,3472,6362,4092,5612,3342,7012,871
Beer, wine, and spirits291251294295253308266
Tobacco and tobacco products187198198195197199210
Motor vehicles and motor oil451503428518447525495
Other1,4181,6841,4891,5531,4371,6691,900
Export duties891035969627176
Copra53512228232533
Other36523741394643
Other taxes171267264337397398398
Airport tax41773110085128128
Wharfage tax32384643475050
Other 3/98152187194266220220
Nontax revenue9129661,1421,2151,2801,1891,135
Public enterprises 4/145142162183173207207
Dividend, interest and rent142269256252265159150
Fines and fees 5/110145173166137145145
Other 6/515410551614704678633
(In percent of tax revenue)
Taxes on goods and services22.424.423.423.027.323.922.9
Taxes on international trade72.568.969.268.362.366.567.9
Import duties69.966.367.666.560.764.866.1
Export duties2.72.61.71.81.61.71.7
Other taxes5.16.77.48.710.39.69.2
(In percent of GDP)
Total revenue26.127.623.423.822.722.421.0
Tax revenue20.522.217.718.117.017.416.7
Taxes on goods and services4.65.44.14.24.64.23.8
Taxes on international trade14.915.312.312.310.611.611.3
Import duties14.414.712.012.010.311.311.0
Export duties0.50.60.30.30.30.30.3
Other taxes1.01.51.31.61.81.71.5
Nontax revenue5.65.45.75.75.75.04.4
(In millions of vatu)
Memorandum items:
Imports, c.i.f.
(home consumption)8,01310,7688,6058,6099,0079,4719,471
Effective import duties
(in percent of imports)29.324.528.029.725.928.530.3
Sources: Data provided by the Vanuatu authorities; and staff estimates.

Hotel/restaurant sales tax.

Business licenses, vehicle licenses, fishing licenses and agreement fees, liquor licenses, arms and prospecting licenses, air traffic rights, and cocoa licenses.

Gaming tax, video tax, rent tax, check levy, beer duty, and betting commission.

Gross income of water supplies and Post and Telecommunications.

Police and immigration fees, primary education fees, hospital fees, fines and forfeits plus other miscellaneous fees and sales.

Other port and marine revenue, other property income, miscellaneous customs revenue, miscellaneous civil aviation and revenue under Heading 185, excluding lottery and fishing agreement fees.

Sources: Data provided by the Vanuatu authorities; and staff estimates.

Hotel/restaurant sales tax.

Business licenses, vehicle licenses, fishing licenses and agreement fees, liquor licenses, arms and prospecting licenses, air traffic rights, and cocoa licenses.

Gaming tax, video tax, rent tax, check levy, beer duty, and betting commission.

Gross income of water supplies and Post and Telecommunications.

Police and immigration fees, primary education fees, hospital fees, fines and forfeits plus other miscellaneous fees and sales.

Other port and marine revenue, other property income, miscellaneous customs revenue, miscellaneous civil aviation and revenue under Heading 185, excluding lottery and fishing agreement fees.

Table 14.Vanuatu: Operations of the Vanuatu Commodities Marketing Board, 1989-94 1/

(In millions of vatu)

198919901991199219931994
Trading balance-203.0-661.1-439.5-12.1-251.624.3
Copra-148.7-633.6-395.08.2-239.640.2
Cocoa-53.6-32.5-44.7-20.3-14.4-29.1
Kava-0.75.00.2--2.413.2
Other, net 2/-13.5-16.88.4-11.2-51.9-18.0
Gross overall operational balance-216.5-677.9-431.1-23.3-303.56.3
Transfers from Government55.0670.0300.0100.0120.0--
Net overall operational balance-161.5-7.9-131.176.7-183.56.3
Sources: Data provided by the Vanuatu authorities; and the VCMB.

Year to September.

Includes various receipts and administrative expenses.

Sources: Data provided by the Vanuatu authorities; and the VCMB.

Year to September.

Includes various receipts and administrative expenses.

Table 15.Vanuatu: Factors Affecting Reserve Money, 1989-94

(In millions of vatu: end of period)

198919901991199219931994

Sept.
Net foreign assets4,0094,0744,3714,9775,4995,838
Reserve Bank of Vanuatu3,9324,0244,2924,9405,4625,801
Assets3,9364,0694,3344,9415,4825,805
Liabilities445421215
Treasury foreign assets775079373737
Net domestic assets-2,211-2,504-2,363-2,748-2,489-2,469
Net claims on Government-1,737-1,998-2,039-2,501-2,086-2,073
Claims on public enterprises65262234334340
Claims on commercial banks28843
Other items (net)-476-579-595-482-740-739
Reserve money1,7981,5702,0082,2293,0103,369
Currency outside banks1,0379341,1481,1741,2241,304
Currency held by banks105361146130186142
Commercial banks’ deposits6192336948901,5931,838
Private sector deposits37422035784
Source: Reserve Bank of Vanuatu
Source: Reserve Bank of Vanuatu
Table 16.Vanuatu: Monetary Survey, 1989-94
198919901991199219931994

Sept.
(In millions of vatu: end of period)
Net foreign assets14,82116,62820,43319,03820,99119,197
Monetary authorities4,0094,0744,3714,9775,4995,838
Commercial banks10,81312,55316,06214,06115,49213,359
Net domestic assets1,2681,2971,7603,0083,3474,316
Domestic credit3,3834,3164,4696,1876,4987,382
Government (net)-1,540-1,811-2,108-2,044-1,859-1,837
Monetary authorities-1,737-1,998-2,039-2,501-2,086-2,073
Commercial banks197187-69457228236
(Government foreign currency deposits w/ DMBs)-122-133-238-96-137-78
Private sector4,8966,0476,3047,9768,0178,762
Public enterprises2780273255340457
Other items (net)-2,115-3,019-2,710-3,179-3,151-3,066
Total liquidity16,08917,92522,19322,04524,33823,513
Money3,0702,6643,3783,8553,9344,120
Currency outside banks1,0379341,1481,1741,2241,304
Demand deposits (vatu)2,0331,7302,2312,6812,7102,816
Quasi-money13,01915,26118,81518,19120,40419,393
Time and savings deposits (vatu)2,1872,9813,4064,3644,7595,005
Time and savings deposits in foreign currency9,62311,12314,47112,39613,94012,353
Demand deposits in foreign currency1,2091,1579381,4301,7062,035
Memorandum items:
Total foreign currency deposits10,83312,28015,40913,82615,64614,388
Total vatu deposits4,2194,7115,6377,0457,4697,821
Total vatu liquidity5,2575,6456,7848,2198,6929,125
(Change over a year earlier, in percent)
Rates of change:
Total liquidity35.811.423.8-0.710.4-3.5
Money22.8-13.226.814.12.19.7
Quasi-money39.317.223.3-3.312.2-5.9
Foreign currency deposits51.513.425.5-10.313.2-10.8
Vatu liquidity11.97.420.221.15.810.7
Domestic credit40.427.63.538.45.027.8
Private sector credit10.123.54.226.50.57.6
Velocity (vatu liquidity)3.13.23.02.62.62.6
Velocity (total liquidity)1.01.00.91.00.91.0
Source: Reserve Bank of Vanuatu.
Source: Reserve Bank of Vanuatu.
Table 17.Vanuatu: Operations of Commercial Banks, 1989-94

(In millions of vatu; end of period)

198919901991199219931994

Sept.
Reserves7245948401,0201,7791,980
Cash on hand105361146130186142
Balances with Reserve Bank6192336948901,5931,838
Net foreign assets10,81312,55316,06214,06015,49213,359
Offshore financial institutions-6,674-6,127-1,719-1,512-12-694
Assets334610015
Liabilities6,6776,1301,7231,518112709
Others17,48718,68117,78115,57215,50414,053
Assets23,24025,68420,27817,96019,06617,670
Liabilities5,7547,0032,4972,3883,5613,616
Net credit to Government197187-69457228236
Claims 1/591583560833937527
Vatu591583560833937527
Foreign currency
Deposits394396629376709291
Vatu272263391280572213
Foreign currency1221332389613778
Claims on public enterprises271511206116
Vatu271511206116
Foreign currency
Claims on private sector4,7995,9666,2247,9117,9428,314
Vatu4,0295,2675,5456,5506,3856,786
Foreign currency7706996791,3601,5561,528
Monetary liabilities15,05216,99121,04520,87123,11422,209
Demand deposits3,2422,8873,1684,1114,4164,851
Vatu2,0331,7302,2312,6812,7102,816
Foreign currency1,2091,1579381,4301,7062,035
Time and savings deposits11,81014,10417,87716,76118,69817,358
Vatu2,1872,9813,4064,3644,7595,005
Foreign currency9,62311,12314,47112,39613,94012,353
Credit from the monetary authorities28843
Other items, net1,5052,3162,0172,6002,3312,162
Source: Reserve Bank of Vanuatu

Includes commercial banks’ holdings of Vanuatu Government bonds.

Source: Reserve Bank of Vanuatu

Includes commercial banks’ holdings of Vanuatu Government bonds.

Table 18.Vanuatu: Distribution of Commercial Banks’ Assets and Liabilities in Foreign Currencies, 1989-94

(In millions of vatu; end of period)

198919901991199219931994

March
1994

June
Assets24,44126,98121,33919,69921,07320,16119,730
Residents1,2752,2371,1371,2732,0282,0842,001
Loans7726996794811,5561,5081,634
Other5031,538458793472576367
Nonresidents23,16624,74420,20218,42619,04518,07717,729
Home office2,21912,92913,34511,20712,96912,03511,988
Banks10,31111,3336,4606,5195,7915,8725,760
Other636482397700285171-18
Liabilities24,01626,87321,27319,43020,94419,48419,396
Residents12,09214,13417,22815,24317,64716,22616,992
Foreign exchange deposits10,94412,41215,64113,91715,78314,46915,162
Private9,51411,00114,29412,19913,73212,75913,138
Government1,4301,4111,3471,7182,0511,7102,024
Other1,1481,7231,5861,3261,8651,7571,830
Nonresidents11,92412,7394,0464,1883,2963,2582,404
Deposits4,7106,0681,7982,0782,5433,3722,285
Home office4685605447658013154
Other6,7466,1111,7032,034173-24565
Net foreign exchange position42510866269129677334
Source: Reserve Bank of Vanuatu, Quarterly Economic Review, various issues.
Source: Reserve Bank of Vanuatu, Quarterly Economic Review, various issues.
Table 19.Vanuatu: Commercial Bank Credit to Residents by Sector, 1989-94 1/

(In percent of total credit)

198919901991199219931994

Sept. 2/
Agriculture and fisheries3.73.73.02.72.14.3
Vatu currency3.23.43.02.72.13.7
Foreign currency0.50.3------0.6
Mining and manufacturing6.95.93.42.41.62.0
Vatu currency6.85.93.42.41.01.4
Foreign currency0.1------0.60.6
Construction10.67.710.05.96.79.6
Vatu currency8.67.79.95.96.08.7
Foreign currency2.0--0.1--0.70.9
Transport3.04.05.22.82.26.4
Vatu currency2.63.34.82.82.26.4
Foreign currency0.40.70.4------
Public utilities----------0.1
Vatu currency----------0.1
Foreign currency------------
Wholesale and retail trade22.215.118.814.312.212.8
Vatu currency18.913.718.713.811.710.1
Foreign currency3.31.40.10.50.52.7
Tourism4.64.19.67.86.05.4
Vatu currency3.83.76.35.13.22.5
Foreign currency0.80.43.32.72.82.9
Entertainment and catering1.10.91.22.41.71.4
Vatu currency1.10.91.22.41.71.3
Foreign currency----------0.1
Professional and other services6.06.64.82.93.81.5
Vatu currency5.76.44.52.62.41.2
Foreign currency0.30.20.30.31.40.3
Personal 3/26.738.132.035.037.841.9
Vatu currency21.530.626.227.426.633.7
Foreign currency5.27.55.87.611.28.2
Financial institutions 4/1.50.60.80.92.12.1
Vatu currency0.50.50.50.61.11.0
Foreign currency1.00.10.30.31.01.1
Other13.113.011.122.623.811.3
Vatu currency10.712.110.516.922.010.4
Foreign currency2.40.90.65.71.80.9
Total credit to the private sector99.499.799.999.7100.098.8
Vatu currency83.488.289.082.680.080.5
Foreign currency16.011.510.917.120.018.3
Public enterprises0.60.30.30.3--1.2
Vatu currency0.60.30.30.3--1.2
Foreign currency------------
Total credit100.0100.0100.0100.0100.0100.0
Vatu currency84.088.589.382.980.081.7
Foreign currency16.011.510.917.120.018.3
Source: Reserve Bank Vanuatu, Quarterly Economic Review; various issues 1989-94.

Excluding commercial bank credit to Government.

Figures for September 1994 are provisional.

Including housing and land purchases.

Including public financial institutions.

Source: Reserve Bank Vanuatu, Quarterly Economic Review; various issues 1989-94.

Excluding commercial bank credit to Government.

Figures for September 1994 are provisional.

Including housing and land purchases.

Including public financial institutions.

Table 20.Vanuatu: Development Bank of Vanuatu, Loan Approvals, 1989-94

(In millions of vatu)

19891990199119921993Est.

1994
Agriculture 1/76.99.310.415.117.975.7
Industry and tourism11.050.83.835.736.985.8
Transportation32.12.17.334.289.416.6
Housing37.99.813.112.534.411.1
Small loans34.517.611.53.8
Other 2/4.710.87.217.450.359.8
Total197.1100.453.3118.7228.9249.0
Memorandum items:
Outstanding loan portfolio716702594622793909
Operating profit (loss) for the year-4322-31-31-128-54
Arrears (in percent of outstanding loans)2722192543 3/26
Source: Development Bank of Vanuatu.

Includes stock breeding and fishing.

Includes trade and professional services.

Arrears increased extraordinarily owing to changes in accounting practices, whereby VT 48 million in penalty interest, previously carried off-system, was added to the outstanding balance of the portfolio at end-November 1993.

Source: Development Bank of Vanuatu.

Includes stock breeding and fishing.

Includes trade and professional services.

Arrears increased extraordinarily owing to changes in accounting practices, whereby VT 48 million in penalty interest, previously carried off-system, was added to the outstanding balance of the portfolio at end-November 1993.

Table 21.Vanuatu: Balance of Payments, 1989-93

(In millions of U.S. dollars)

19891990199119921993
Trade balance-37.4-60.4-48.3-43.6-50.0
Exports, f.o.b.21.918.818.223.722.7
Domestic exports13.713.713.617.917.6
Re-exports8.25.14.65.75.1
Imports, f.o.b.-59.3-79.2-66.5-67.3-72.7
Domestic consumption-56.9-75.5-62.0-62.7-67.0
Re-exports-2.4-3.7-4.5-4.5-5.6
Services (net)16.634.813.412.73.5
Receipts64.991.991.087.178.6
Payments48.357.177.774.475.2
Official transfers (net)31.829.835.536.235.3
Current account 1/11.04.30.65.2-11.2
(In percent of GDP)(7.8)(2.8)(0.3)(2.8)(-6.0)
Public borrowing5.05.07.05.41.8
Direct investment (including reinvested earnings)8.712.424.725.726.0
Other-3.32.95.82.05.1
Basic balance21.324.638.138.321.6
Other short-term capital-25.5-23.5-36.0-36.0-17.9
Deposit money banks 2/-30.6-17.2-30.126.6-9.9
Private transfers4.56.7-19.0-23.3-6.3
Errors and omissions0.6-13.013.1-39.3-1.7
Overall balance 3/-4.21.12.22.43.7
Memorandum items:
Exchange rate (Vatu per US$; end of period)110.7109.3110.8119.0120.8
Gross official reserves36.237.339.541.845.5
(In months of imports for domestic consumption)(7.6)(5.9)(7.6)(8.0)(8.1)
Terms of trade (in percent change) 4/-5.3-3.8-4.723.3-16.6
Source: Data provided by the Vanuatu authorities.

Excluding private transfers, which have been reclassified under “other short-term capital.”

Change in net foreign assets of the commercial banks, including valuation changes.

Change in net foreign assets of the monetary authorities, including valuation changes.

Weighted average of world prices of Vanuatu’s exports in relation to export unit values of Vanuatu’s trading partners.

Source: Data provided by the Vanuatu authorities.

Excluding private transfers, which have been reclassified under “other short-term capital.”

Change in net foreign assets of the commercial banks, including valuation changes.

Change in net foreign assets of the monetary authorities, including valuation changes.

Weighted average of world prices of Vanuatu’s exports in relation to export unit values of Vanuatu’s trading partners.

Table 22.Vanuatu: Composition of Exports, 1989-93

(In millions of vatu)

19891990199119921993
Domestic exports, f.o.b.1,5901,6061,5162,0332,140
Copra750598516835706
Volume (metric tons)23,62037,24630,87824,14328,013
Unit value (vatu/ton)31,75316,05516,71134,58625,203
Cocoa174248258165154
Volume (metric tons)1,5731,9612,4551,6041,393
Unit value (vatu/ton)110,617126,466105,092102,868110,553
Beef262368341336457
Volume (metric tons)9971,2171,2171,2281,619
Unit value (vatu/ton)262,788302,383280,197273,616282,273
Timber2049186146267
Volume (metric tons)12,6261,8441,6732,2696,612
Unit value (vatu/ton)16,15749,34951,40564,34640,381
Other200301315551536
Re-exports951596519650618
Total2,5412,2022,0352,6832,758
Source: Data provided by the Vanuatu authorities.
Source: Data provided by the Vanuatu authorities.
Table 23.Vanuatu: Composition of Imports, 1989-93 1/
19891990199119921993
(In millions of vatu)
Imports, c.i.f.8,34911,2889,2169,2769,690
For domestic consumption8,01310,7688,6058,6099,007
Food and live animals1,2371,2971,2961,606
Beverages and tobacco360332374374
Crude materials, excluding fuels6913113674
Mineral fuels663879938835
Animal, vegetable, and oil fats32353444
Chemicals550649593566
Basic manufactures1,4921,9171,6211,378
Machinery and transportation equipment2,4703,8012,2852,521
Miscellaneous manufactured goods8901,4331,100978
Other250294228233
Re-exports336520611667683
(In percent of total) 2/
Food and live animals15.412.015.118.7
Beverages and tobacco4.53.14.34.3
Crude materials, excluding fuels0.91.21.60.9
Mineral fuels8.38.210.99.7
Animal, vegetable, and oil fats0.40.30.40.5
Chemicals6.96.06.96.6
Basic manufactures18.617.818.816.0
Machinery, and transportation equipment30.835.326.629.3
Miscellaneous manufactured goods11.113.312.811.4
Other3.12.72.62.7
Source: Data provided by the Vanuatu authorities.

The totals for 1989 and 1991, adjusted to f.o.b. values, do not match those reported in the balance of payments.

Exclusive of re-exports.

Source: Data provided by the Vanuatu authorities.

The totals for 1989 and 1991, adjusted to f.o.b. values, do not match those reported in the balance of payments.

Exclusive of re-exports.

Table 24.Vanuatu: Direction of Trade, 1989-93

(Percent of total vatu value)

19891990199119921993
Exports, f.o.b.
Australia109131211
European Union 1/5638475032
New Caledonia88567
Japan1817211929
Other828141422
Total100100100100100
Imports, f.o.b.
Australia47363841
Japan101399
France581315
Fiji8896
New Zealand11101211
Other19251918
Total100100100100
Source: Data provided by the Vanuatu authorities.

Formerly the European Community.

Source: Data provided by the Vanuatu authorities.

Formerly the European Community.

Table 25.Vanuatu: Services Account, 1989-93

(In millions of vatu)

19891990199119921993
Service receipts7,52710,76010,1679,8739,560
Ports and airports4526818068681,065
Inward travel2,6594,4993,8884,3293,657
Interest income of commercial banks1,8392,6532,0061,2711,576
Finance Center earnings428433406437343
Value added on re-exports37089(6)7586
Interest income of Reserve Bank7091,071773728567
Expenditure of foreign embassies352692846885
Administrative expenses of international organizations148169385445476
Post and telecommunications149175300295300
Other7387211,3251,3571,405
Service payments5,6036,6818,6748,4369,139
Freight and insurance1,2711,8321,8051,4981,588
On domestic imports1,2291,7451,7021,4051,473
On imports for re-export428710393115
Airlines’ net receipts360507467478531
Outward travel15912685102111
Investment income of foreign enterprises 1/1,3791,7843,2573,4243,687
Interest payments on external debt8385233237230
Interest payments by commercial banks576542519240366
Interest on foreign loans of local companies4032314360
Value of expatriate services 2/1,4001,4501,4501,4491,521
Government expenditure on overseas missions1715162556
Net earnings of insurance companies197202235220251
Other payments not identified elsewhere121106576720738
Net service receipts1,9244,0791,4931,437421
Source: Data provided by the Vanuatu authorities.

The reinvested earnings component of investment income also appears as a credit for direct investment capital under the capital account.

Equals inflow of technical assistance grants under official transfers.

Source: Data provided by the Vanuatu authorities.

The reinvested earnings component of investment income also appears as a credit for direct investment capital under the capital account.

Equals inflow of technical assistance grants under official transfers.

Table 26.Vanuatu: Official Transfers, 1989-93

(In millions of vatu)

19891990199119921993
Total official transfers3,6893,4943,9674,1024,294
Total grant aid3,5973,2273,7654,0124,203
Foreign aid2,1971,7761,9302,1772,286
Recurrent----------
Capital in cash12604931,0981,3761,446
Capital in kind2371,283832801840
Technical assistance1,4001,4501,4501,4491,521
STABEX----385386396
Current contributions to international organizations-42-40-39-43-51
Other official transfers134307241133142
Company registration fees119206105108112
Shipping registry311191534450
Other-16-18-17-19-20
Source: Data provided by the Vanuatu authorities.
Source: Data provided by the Vanuatu authorities.
Table 27.Vanuatu: Long-Term Capital Account Transactions, 1989-93

(In millions of vatu)

19891990199119921993
Long-term capital1,2012,3794,1943,7523,991
External public debt1758851,394797802
Foreign long-term loans2089101,402802818
Principal repayment-33-25-8-5-16
Subscription to international organizations-35-40-43-43-52
Foreign direct investment1,0051,4522,7602,9163,158
Equity--8------
Reinvested earnings1,0051,4442,7602,9163,158
Other5682838283
Source: Data provided by the Vanuatu authorities.
Source: Data provided by the Vanuatu authorities.
Table 28.Vanuatu: Public Sector External Debt, 1989-93

(In millions of U.S. dollars)

19891990199119921993
Total debt outstanding 1/
Beginning-of-period stock15.320.830.638.139.6
Net inflow5.59.87.51.5-1.4
Disbursements5.88.714.54.52.8
Amortization-0.6-1.0-0.8-0.9-1.0
Adjustments 2/0.32.1-6.2-2.1-3.2
End-of-period stock20.830.638.139.638.2
Debt service 3/
Total debt service1.31.71.21.41.6
Principal0.61.00.80.91.0
Interest0.70.70.40.60.6
Memorandum items:
Debt/GDP (percent)14.820.021.120.920.5
Debt-service ratio 4/2.02.21.41.51.9
Vatu per U.S. dollar (end of period)110.7109.3110.8119.0120.8
Sources: Data provided by the Vanuatu authorities; World Bank, World Debt Tables; and staff estimates.

Disbursed debt.

Includes valuation changes, transfers of debt from one category to another, and statistical discrepancy.

The World Bank figures prior to 1992. Data for 1993 is staff estimates in collaboration with the Vanuatu authorities.

As a percentage of exports of goods and nonfactor services.

Sources: Data provided by the Vanuatu authorities; World Bank, World Debt Tables; and staff estimates.

Disbursed debt.

Includes valuation changes, transfers of debt from one category to another, and statistical discrepancy.

The World Bank figures prior to 1992. Data for 1993 is staff estimates in collaboration with the Vanuatu authorities.

As a percentage of exports of goods and nonfactor services.

ANNEX
Vanuatu: Summary of Tax System, December 1994
TaxNature of TaxRates
I. Taxes on income and profits
1. Individual income taxNone.None.
2. Corporate taxNone.None.
3. Capital gains taxNone.None.
4. Withholding taxNone.None.
II. Taxes on property
1. Estate and death dutiesNone.None.
2. Rental and lease taxLessees of government-leased land in Port Vila and Luganville are charged an annual fee (land rental tax) and a municipal tax. Rental properties are subject to a half-yearly tax on the gross rental income. (Rental and Lease Tax Act.)Individuals

Tax is payable at 15 percent on gross rental in excess of VT 200,000 for the period.
Companies

Tax is payable at 15 percent of gross rental.
Municipal area taxes

Municipal tax: e.g., VT 30,000 for a square meter block in Port Vila Land rental (on lease): e.g., VT 15,000 for a 1,000 square meter block in Port Vila.
3. Stamp dutyIncurred on lease transfers and on mortgages.Individuals: 5 percent

Company-owned: 4 percent
III. Taxes on goods and services
1. Business licenses 1/Annual license fee to be paid quarterly in advance. There are 125 subcategories of business licenses with their form and operation depending on the particular industry involved and the composition of its work force. Currently, business licenses include flat fees, partial turnover with fixed fees, a combination of flat fees and gross turnover, gross turnover, and net turnover. Business license fees are levied on local businesses, overseas companies incorporated in Vanuatu, and branches of overseas companies trading in Vanuatu.Manufacturing industries and trade

1. General

Per citizen employee: VT 20,000. Per noncitizen employee, principal or partner: VT 50,000.

Minimum fee: VT 100,000.
2. Exceptions - citizen employee

a. Sawmills, wooden furniture, soap, weaving apparel: VT 15,000.

b. Home manufactures (pies, meatballs, sweetmeats and similar prepared food): VT 10,000.

c. Beverages of all kinds excluding kava products: VT 5,000.

d. Kava bars, Port Vila municipality: VT 20,000.

e. Kava bars, all other locations: VT 10,000.
Wholesale and retail merchandizing trades

1. General importers: 2.5 percent imports c.i.f.

2. Petroleum importers, wholesalers and retailers: 3 percent turnover on sales.

3. Retailers or wholesalers: VT 50,000.

4. Hotels and motels: VT 5,000-VT 350,000 depending on number of rooms.

5. Restaurants, cafes, and bars: VT 25,000-VT 100,000 depending on seating capacity.

6. Exporters: 0.5 percent f.o.b. value of exports.
1. Business licensesFinancial/business service sector

1. Legal and accounting practitioners: 4 percent gross turnover.

Minimum fee: VT 100,000.

2. Commercial banks: 4 percent net interest income plus income from all operational fees, charges and commissions, excluding foreign exchange earnings.

Minimum fee: VT 5 million.

3. Trust companies/financial institutions: 4 percent gross turnover.

Minimum fee: VT 300,000.

4. Local insurance companies: 2 percent net earned premiums.

Minimum fee: VT 300,000.
Utilities

1. Electricity generation and distribution: 4 percent gross revenue received from sales of principal services.

2. Telegraphic and telecommunication services: 4 percent total turnover.

3. Water works, distribution, and supply: 4 percent total turnover.

4. Radio and television broadcasting: 4 percent total turnover.
2. Taxes on tourist servicesAn annual turnover tax imposed on hotels and restaurantsTen percent applicable to all hotels, motels, and most restaurants, cafes, and bars. The exceptions are carry-out outlets and open air vendors which are charged flat fees of VT 30,000 and VT 5,000, respectively.
3. Registration feesAnnual fee levied on local business companies, overseas companies, and off-shore “tax-exempt” companies.Local companies

Incorporation fee: VT 50,000.

Annual registration fee: VT 30,000
International/off-shore companies

Incorporation fee: US$150.

Annual registration fee: US$300.
4. Work permit feesAnnual fee imposed on noncitizen workers in Vanuatu.General

VT 50,000.

Certain persons from selected Pacific islands

VT 25,000.

Expatriate church workers

VT 10,000
5. Liquor licensesFlat annual fees imposed on businesses who as a result of their trading activities, sell alcohol.1. Urban general off-license: VT 60,000

2. Rural general off-license: VT 30,000

3. Combined general on and off-license: VT 85,000.

4. Combined limited on and off-license: VT 40,000.

5. Night club license: VT 45,000.
IV.Taxes on international trade
1. Import duties. 2/The tariff schedule is highly differentiated. Most rates are ad valorem with higher rates levied on basic foodstuffs compared to luxury goods. Valuation is on a cost, insurance, and freight (c.i.f.) basis. There is also an ad valorem service tax levied on a base including duty plus imports c.i.f.Duties vary between zero percent and 200 percent, with most rates falling in the 20-35 percent range. Notable exceptions are fruits and vegetables (40 percent), meat (30 percent-75 percent) and military weapons and revolvers (200 percent). Service tax is 5 percent for all products except beer and alcoholic beverages, some mineral fuels, and tobacco and manufactured tobacco where the tax varies according to the volume.
Zero rates

Live sheep, cows, horses; most cereals except rice; coal, coke; pharmaceutical products; fertilizer; sports gloves, articles of apparel, clothing accessories and other articles of fur skin; printed books, newspapers, maps; nonindustrial diamonds, precious stones; silver and gold; opthalmic lenses, contact lenses, camera lenses and medical appliances, sports and fishing equipment; works of art.
Rates at or below 30 percent

Meat of sheep or goats; crustaceans; milk; cream yogurt; selected vegetable products and fruits; rice; tea; products of milling industry; selected mineral fuels; inorganic and organic chemicals and compounds; plastics and articles thereof; most textiles; glass and glassware; semiprecious stones; precious metals; jewellery; iron and steel and articles thereof; most electrical equipment; vehicles; aircraft; boats (except for cars greater than 1,000 cc. and motorboats excluding motor); optical appliances; nuclear reactors; boilers, condensors, turbines; commercial refrigerators; cranes; fork-lift trucks; bulldozers; scrapers, rollers, excavators; ploughs, harrows, seeders; balers, harvesters, slashers; milking machines; household and industrial sewing machines; machine tools; chain saws; computers.

Rates above 30 percent

Most vegetable products and fruits; most meat; coffee; sugar and confectionary; toilet paper; t-shirts with designs and motifs; airconditioners for windows; cars; arms and ammunition (except swords); most furniture and bedding mattresses.

Beer and selected alcoholic beverages

1. Beer with less than 3 percent alcohol by volume: VT 170 per liter. Service tax: VT 10 per liter.

2. Other beer: VT 210 per liter. Service tax: VT 100 per liter.

3. Sparkling wine: VT 200 per liter. Service tax: VT 100 per liter.

4. Gin and geneva: VT 1,000 per liter. Service tax: VT 100 per liter.
2. Export dutiesMostly ad valorem, with valuation on an f.o.b. basis.General

1. Coffee: zero percent.

2. Copra: 4 percent.

3. Cocoa: 7 percent.

4. Squash pumpkins: 3 percent.

5. Meat, chilled and frozen: 2 percent.

6. Meat canned: 3 percent.
Natural resources

1. Milktree logs: 8 percent.

2. Logs of other species: 15 percent, plus a flat fee of VT 1,300 per cubic meter (the latter was introduced in December 1993).

3. Sawn wood, thicker than 200 mm: 10 percent.

4. Sawn wood, of a thickness between 6 mm. and 200 mm: 5 percent.

5. Veneer sheets and sheets for plywood, of a thickness not exceeding 6 mm: 3 percent.

6. Shells unworked: 15 percent.

7. Shark fins: 10 percent.
V. Other taxes
1. Excise dutyImposed on locally produced beer.VT 60 per liter.
2. Airport taxDeparture tax collected as revenue from all international travelers departing from the airport.VT 2,000.
3. Social security contributions 3/The Vanuatu National Provident Fund (VNPF) is a statutory body established in 1986 with the objective of assuring retirement savings for all salaried employees in Vanuatu. Contributions are proportional to the employees’ income, and compulsory for all employees earning above VT 3,000. Self-employed persons can voluntarily join the scheme. Payments from the scheme are made in the event of (i) retirement at the age of 55; (ii) emigration from Vanuatu; (iii) inability of the employee to continue employment due to incapacitation; and (iv) death of the member in which case the surviving family members receive the benefits.Employers

3 percent of income earnings.

Employees

3 percent of income earnings.

Self-employed persons

Contribution of at least VT 1,000 a month.
Sources: IMF, Fiscal Affairs Department, “Vanuatu: Proposals for Reform of the Tax System and Public Investment Expenditure” (January 1993) and Neil Warren, “Reform of the Vanuatu Taxation System”, Draft (September 1994).

Under the 1986 Companies Act, off-shore companies, i.e., companies that conduct business outside Vanuatu but are registered in Vanuatu are given exempt status.

Under the Customs Act, the Minister of Finance has discretionary powers in decreeing certain goods as either exempt of tax or taxable at concessionary rates.

Expatriate employees may opt not to join the scheme if they can prove mat they are members of some other retirement scheme in their home country and that they will continue contributing to the scheme throughout their employment in Vanuatu.

Sources: IMF, Fiscal Affairs Department, “Vanuatu: Proposals for Reform of the Tax System and Public Investment Expenditure” (January 1993) and Neil Warren, “Reform of the Vanuatu Taxation System”, Draft (September 1994).

Under the 1986 Companies Act, off-shore companies, i.e., companies that conduct business outside Vanuatu but are registered in Vanuatu are given exempt status.

Under the Customs Act, the Minister of Finance has discretionary powers in decreeing certain goods as either exempt of tax or taxable at concessionary rates.

Expatriate employees may opt not to join the scheme if they can prove mat they are members of some other retirement scheme in their home country and that they will continue contributing to the scheme throughout their employment in Vanuatu.

The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.

Official national accounts statistics are only available up to 1990; data shown for later years are staff estimates made in collaboration with Reserve Bank staff.

Excluding interest income and other services receipts.

With manufacturing making up 6 percent, electricity 2 percent, and construction 7 percent.

The Games were held in Port Vila during December 1993 and involved more than 1,000 athletes from 15 nations in the region.

National accounts by demand components are not available beyond 1990.

The four union groups are: National Union Blong Leba, the Public Service Association, the Teachers Union, and the Health Workers Union.

In 1992, the minimum wage was increased by about 50 percent to VT 13,200 per month for urban employees and VT 11,440 per month for rural employees. Effective labor costs need to take into account the relatively large number of leave days expected as well.

See Section 3 of this chapter.

See the report on recent economic developments, SM/94/40, 2/14/94, for an overview of the institutional structure of the public sector. The major institutional change for 1995 is the reduction in the number of local councils from 11 to 6. Selected services (yet to be determined), previously rendered by the central government, would be transferred to the six newly formed provincial governments. The provincial governments are expected to receive VT 300 million in transfers from the 1995 recurrent budget.

A supplementary appropriation of VT 291 million was approved late in the year.

The remaining debt, amounting to VT 465 million, was retired.

The general wage increase was, in fact, awarded at end-1993, to be implemented in three tranches: the first 5 percent would be granted in January 1994; the second 5 percent in June 1994; and the last 5 percent in January 1995.

The two appropriations were required to cover expenditure overruns in various ministries, including the Vanuatu Military Force, the Education and Agriculture Departments, and to meet local election expenditure in 1994.

Of the civil servants who went on strike, approximately 300 were permanently dismissed. Of these, 100 positions have been filled by new recruits, resulting in a net reduction of 200 positions, incidentally coinciding with the government civil service retrenchment target.

The loan is treated as a subsidy from the Government in Tables 10 and 11.

The VCMB has so far received only VT 100 million from its total allocation of VT 140 million (20 percent of total STABEX grants). The STABEX receipts were not included in Table 10 as it was not clear if the funds were paid into the recurrent budget.

Freight charges to Europe were reduced from US$85/metric ton in 1993 to US$83/metric ton in 1994, and those to Asia from US$72/metric ton in 1993 to US$68/metric ton in 1994.

See the report recent economic developments, SM/94/40, 2/14/94, for an overview of the structure of the financial system in Vanuatu.

The reserve requirement is 10 percent on vatu deposits, up to half of which can be held in government bonds carrying a 1.5 percent interest rate; there are no reserve requirements on foreign currency deposits.

There are minor discrepancies among data from different tables, which come from different sources, including unaudited accounts.

See Chapter III below for a more detailed examination of the structure of interest rates since 1990.

Licensing of international companies is granted by the Financial Services Commission (FSC), instead of the Minister of Finance as in the case of “exempt” companies.

In comparison, the number of local companies was about 1,200.

The Offshore Group of banking Supervisors was established in 1980 at the instigation of the Basle Committee on Banking Supervision. Its purpose is to promote effective international cooperation in banking supervision, including between the members and the Basle Committee, in order to assist in the effective supervision of banks in offshore centers. As of mid-1993, its membership comprised Aruba, the Bahamas, Bahrain, Barbados, Bermuda, the Cayman Islands, Cyprus, Gibraltar, Guensey, Hong Kong, Isle of Man, Jersey, Lebanon, Malta, Mauritius, the Netherlands Antilles, Panama, Singapore, and Vanuatu.

The Task Force was set up by the OECD countries. The report’s recommendations include the criminalization of money laundering and specific actions to prevent the utilization of the financial institutions for the purpose of money laundering, such as positive identification of customers; maintenance of transaction records; special attention to be paid to suspicious transactions and especially transactions with counter parties who cannot be traced (such as letter-box corporations) or in countries that have not adopted sufficient measures to counter money laundering; provisions of assistance to financial institutions in recognizing suspicious transactions; and expeditious actions in response to requests by other supervisory and law enforcement authorities in their efforts to combat money laundering.

Balance of payments data suffer from a number of classification and coverage problems; in particular, net errors and omissions are very large and variable.

Owing to the civil service strike in 1993-94, customs data on imports for 1993 are not available.

Data on external debt up to 1992 are World Bank estimates, while 1993 data are based on the Vanuatu authorities and staff estimates.

In comparison, total tax revenue of Fiji averaged 23 percent of GDP during the same period.

Offshore companies are exempt from business licenses taxes but are required to pay registration fees (see Annex I).

A similar turnover tax is to be extended to wholesalers and retailers from January 1995.

Total import duty collected, including service tax, divided by total imports for domestic consumption.

Total import duty collected, including service tax, divided by total taxable imports, as of 1992. Source: Neil Warren, Reform of the Vanuatu Taxation System, Draft, September 1994.

Little data, however, are available on tax arrears.

Under the Customs Act, the Minister of Finance retains discretionary power to grant import duty concessions in cases considered to be beneficial to the country.

Export duties were higher during the early 1980s, reflecting higher copra prices and export volume.

The Warren Report was commissioned by the Vanuatu Government under a technical assistance program provided by Australia. The recommendations outlined in the report are similar in many respects to the recommendations of the 1992 FAD technical assistance mission. See “Vanuatu: Proposals for Reform of the Tax System and Public Investment Expenditure,” J. Horne, D. Webber, and P. McDermott, January 1993, Fiscal Affairs Department.

The applicable tax base excludes government employees.

Currently, only domestic companies with turnover of more than VT 20 million are required to lodge audited returns with the FSC.

There are four commercial banks in Vanuatu, only one of which has branches outside the two major urban areas.

The guidelines put a cap of 14 percent on the weighted-average loan rate, with interest rates on loans to “productive” sectors (defined by the Reserve Bank to comprise agriculture, fisheries, mining and quarrying, manufacturing, tourism, transportation and construction) not to exceed 14 percent.

Indeed, detailed data show that during 1990-92 the proportion of loans to “productive” sectors charging higher than 14 percent interest rates was relatively small and lower than the comparable figure for the remaining sectors, but the proportion rose somewhat in 1993-94. As of end-June 1994, the proportion for both categories was roughly the same, at about 45 percent.

The three largest banks account for 96 percent of commercial banks’ total assets.

The Merchant Bank of Hong Kong was recently granted a license but has not begun operation.

The Tourism Master Plan was commissioned by the Government as an offshoot of the Third National Development Plan (1992-96).

Since 1988, the vatu has been pegged to a basket of currencies of its major trading partners.

Other Resources Citing This Publication