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8 Tropical Cyclone Pam, March 2015 2.1 Pre-Disaster Economic Outlook Before Tropical Cyclone Pam struck on Friday, March 13, 2015, Vanuatu was looking forward to three years of economic growth of over 4.5% per year, following moderate growth of around 2% per year between 2012 and 2014. In 2014 the economy grew at an estimated rate of 2.3%, driven partly by strong growth in the information and communications sector following the completion of the submarine cable project. The implementation of large construction projects in the public sector continued to contribute to growth, although growth was lower than previously forecast due to delays in some projects. Performance in the tourism sector was mixed; although the number of air arrivals recorded a slight decline, the number of cruise ship arrivals continued to register steady growth. The agriculture sector continued to grow at a moderate pace, reflecting increases in livestock production. Prior to Tropical Cyclone Pam, it was projected that the economy would show strong growth over the medium term; the forecast was for 4.6% growth in 2015 and 4.7% growth in 2016, slowing slightly to 4.4% in 2017. This was underpinned by the boost in construction and other related activities, resulting from the implementation of key public sector infrastructure projects. Strong growth was also projected in the tourism sector and other related services. Inflation and Monetary Developments During 2014 inflation remained comfortably within the 0–4% range targeted by the Reserve Bank of Vanuatu (RBV). In the December quarter of 2014, the Consumer Price Index (CPI) rose by 1.1% over the same quarter of the previous year. Low global prices for fuel and food items had placed downward pressure on imported inflation while domestic inflation remained contained. In light of this situation, the RBV maintained an accommodative monetary policy stance, reducing its rediscount rate from 5.50% to 5.25% in November 2014. Despite these low levels, it was anticipated that CPI inflation would rise to 3.1% in 2015 due to the projected increase in domestic demand and overall economic activity. In the monetary sector, money growth was slower than trend growth levels in the immediate period preceding Tropical Cyclone Pam, although liquidity was high within the banking system. Balance of Payments The current account was projected to return to deficit in 2015 with an expanded trade deficit offsetting inflows from tourism earnings and remittances from the Recognised Seasonal Employers scheme. 6 The strong growth projected for imports in 2015 was due to the implementation of major projects, with fuel and other project-related items the main contributing factor. Imports were set to further increase in 2016, thus widening the current account deficit, before slowing in 2017. Exports were projected to be lower in 2015, falling to around 8% of GDP, due to low commodity prices. Tourism earnings and grants were not expected to offset the increase in imports in 2015/16 and 2017. Fiscal Developments The government fiscal position improved significantly over the past four years, with sizable fiscal surpluses. The 2015 national budget of VT 18,162.9 million was higher than the 2014 budget by 6 The Recognised Seasonal Employers scheme is a program in New Zealand that allows a quota of ni-Vanuatu to pick fruit and perform other seasonal agricultural work on a temporary basis.
Vanuatu | Post-Disaster Needs Assessment 9 13.2%. At the time the budget was passed, the fiscal outlook was positive, with sizable operating surpluses forecast to 2017. The government was projected to run a fiscal surplus of VT 613.5 million in 2015, which was going to be used to meet external debt repayments. However, since the budget was passed, the outlook for revenue has considerably worsened due to the anticipated loss in revenue of VT 950 million through the Permanent Residency Scheme. 2.2 Post-Disaster Economic Outlook The overall macroeconomic impact assessment includes revised projections for GDP, as well as updated fiscal and monetary outlooks. In order to determine the impact of Tropical Cyclone Pam on GDP, the existing baseline forecasts have been modified to incorporate the estimated losses and reconstruction needs as identified by each sector. Given that the cyclone hit in early 2015, a large proportion of the losses will be felt in the 2015 calendar year, although much of the recovery and some reconstruction activity will also occur in 2015. The remainder of the reconstruction activities are anticipated to be completed during 2016 and 2017. The losses resulting from Tropical Cyclone Pam are estimated to reduce GDP growth by 5.5 percentage points relative to the 2015 pre-cyclone forecast, bringing the growth rate down to -0.9%. This represents a significant contraction of the Vanuatu economy in 2015, moderated only by the significant effect of the already-planned construction projects on GDP growth. Recovery and reconstruction, some of which has already commenced, will have a large positive effect on GDP growth in 2015, thus offsetting part of the economic losses. Taking into account the effect of recovery and reconstruction, GDP growth in 2015 is estimated to be 1.4%. This represents a decline of 3.2% compared to the pre–Tropical Cyclone Pam baseline scenario. The positive growth figures for 2015 and beyond reflect the scale of the reconstruction activities under the assumption that all the identified recovery needs are met. The exact growth rate would depend not only on the availability of financial resources to meet the reconstruction needs, but also on capacity constraints. There is a risk of delays due to skill GDP (VT millions) 72,000 70,000 68,000 66,000 64,000 62,000 60,000 58,000 Figure 3. Constant Price of GDP Forecast: Pre- and Post-Tropical Cyclone Pam (VT million) Sources: Baseline estimate based on Macroeconomic Committee forecast; postdisaster estimate based on data submitted to PDNA team. 56,000 2014 2015 2016 2017 Calendar year Baseline forecast pre-cyclone Forecast post-cyclone
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152 Tropical Cyclone Pam, March 201
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Between March 12 and 14, 2015, Trop
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