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Mr. Tamim Bayoumi, Mr. Saad N Quayyum, and Sibabrata Das
The paper analyzes the impact of natural disasters on per-capita GDP growth. Using a quantile regressions and growth-at-risk approach, the paper examines the impact of disasters and policy choices on the distribution of growth rather than simply its average. We find that countries that have in place disaster preparedness mechanisms and lower public debt have lower probability of witnessing a significant drop in growth as a consequence of a natural disaster, but our innovative methodology in this paper finds that the two policies are complements since their effectiveness vary across different disaster scenarios. While both are helpful for small to mid-size disasters, lower debt—and hence more fiscal space—is more beneficial in the face of very large disasters. A balanced strategy would thus involve both policies.
International Monetary Fund. Asia and Pacific Dept
Border closures and other pandemic containment measures have kept Vanuatu free from COVID-19. However, they have dealt a heavy blow to economic activity as tourism has come to a virtual halt. On top of the pandemic, Tropical Cyclone Harold and a volcanic eruption in Tanna Island caused extensive economic damage in 2020. In the context of a continued loss of correspondent banking relationships (CBRs) in the Pacific, Vanuatu also lost a key CBR at end-June 2021. Air Vanuatu, one of the state-owned enterprises (SOEs), is in the process of being restructured.
International Monetary Fund. Asia and Pacific Dept

Our authorities in Vanuatu appreciate the open and constructive engagement with the mission team during the 2021 Article IV virtual consultations. At this very difficult time for Vanuatu the advice of the Fund is needed more than ever. The authorities attach significant value to the high-quality policy advice and assistance received through their Fund membership. The authorities also broadly concur with staff’s assessment, analysis, and tailored policy recommendations.

International Monetary Fund. Asia and Pacific Dept

1. Vanuatu graduated in 2020 from the United Nation’s list of least developed countries, but its development needs remain high.1 Consisting of 83 islands with a population of about three hundred thousand, Vanuatu’s GDP per capita remains below that of most of its peers in the Pacific. Accelerating economic development in an archipelago that is far removed from the closest continent will require infrastructure investment in various areas, including transportation, energy, and information and communications technology. While the tourism sector remains integral to Vanuatu’s economy, further economic diversification is needed to enhance sustainable and inclusive growth and resilience.