The International Monetary Fund (IMF) has warned Vanuatu that while the country is trying to recover economically, government spending must focus on critical areas such as infrastructure and support for vulnerable communities and not on non-essential projects.

During a two-week mission to Port Vila, IMF officials released their assessment yesterday on Iririki Island, highlighting ongoing risks to Vanuatu’s economy following the December earthquake, the collapse of Air Vanuatu, and the severe cyclones of 2023.

The IMF estimates that Vanuatu’s economy is expected to grow by 1.6% in 2025 and 2.6% in 2026, but warns that the country’s budget deficit is expected to increase due to low revenue and high rebuilding costs.

Mike Li, Head of the IMF mission, said:

“Government spending must directly reach those who need support most. Debt must not grow too high.”

He urged Vanuatu to prioritize smart financial management, avoid unnecessary expenses, and ensure recovery efforts benefit the public—especially those most affected by disasters and economic hardship.

Li also warned that unpaid loans remain at a high level and called for stronger controls in the banking system to manage risk and future crises.

On governance, the IMF encouraged Vanuatu to implement the Commercial Government Business Enterprises Act to ensure that state-owned companies operate professionally and free from political influence.

In addition, the IMF recommended that the government invest more in education, skills development, and climate-resilient infrastructure.

The Governor of the Reserve Bank of Vanuatu, August Letlet, was present during the IMF’s press briefing and thanked the mission team for their support and open discussions.

He acknowledged the need for action to control debt and build a stronger, more resilient economy and stated that “it is very important to get that independent external view of the policies of this country and how the economy is going into the future and what policies are suitable for this nation.”