Vanuatu daily news digest | 2 December 2014Posted: December 2, 2014
The Budget sitting of Parliament is over and the courts have ruled the suspended Members of the Opposition return to Parliament. The Opposition withdrew its motion against the Natuman Government.
More detail will be given tomorrow.
For the information of readers, here is the Budget Speech …
Hon. Maki S. Simelum, Minister for Finance & Economic
24 November 2014 Port Vila, Vanuatu
2st Ordinary Session of Parliament (24 November 2014 – 2 December 2014)
Honourable Speaker of Parliament
Honourable Prime Minister
Honourable Deputy Prime Minister
Honourable Leader of Opposition
Members of Parliament
People of Vanuatu
MR. SPEAKER, as Minister of Finance and Economic Management it is
my privilege and honour to present to the House the Government’s
Budget for 2015. MR SPEAKER, despite going through half a decade of
economic difficulties, the region including Vanuatu is experiencing
slight economic growth. The Budget which I present before you today
continues to reaffirm the Government’s commitment to an ‘educated,
healthy and wealthy Vanuatu’
MR SPEAKER before going through the budget proper, I wish to
inform this honourable house that in 2013, we have managed to incur a
budget surplus of approximately VT 390 Million, after 3 consecutive
years of budget deficit. These surpluses were due to improved
compliance, and tight expenditure control measures, imposed by the
Ministry of Finance and Economic Management. MR. SPEAKER, this
surplus is likely to continue into 2014. Suppose all ministries do adhere
to all the Expenditure control measures recommended by the Ministry of
finance and Economic management in the recent financial circular, then
we will expect another VT 590 million worth of surplus by year end.
The cancellation of major expenditure activities such as the ACP EU
meeting will also contribute to this surplus as well as providing that
fiscal space for the government to meet some of its financial obligations.
Global Economic Outlook
MR. SPEAKER the Vanuatu economy continues to recover, although at
a slower rate than originally anticipated, due to a general slowed down
in global economic recovery. Despite signs of economic improvement,
growth in global output has been disappointing following severe weather
conditions, financial market turbulences and political conflict. Mr
SPEAKER, these events together have contributed to the downward
revision of global growth to 3.3 per cent this year, while a slight
recovery expected for 2015 at 3.8 per cent.
MR SPEAKER, in forward looking, the International Monetary Fund
projected for global growth to pick up assisted by implementation of key
reform measures including strong commitment to containing budget
deficits; support domestic demand conditions; restoring key
fundamentals in financial market; encourage private sector participation
that realises the benefit of free capital mobility. Among advanced
economies, growth is projected to increase, but will be slower in the
Euro area and Japan and generally faster in the United States and
elsewhere. Growth is projected to remain high in major emerging
markets with a modest slowdown in China and a pick-up in India.
Elsewhere, there are needs for continued structural reforms to allow their
economies grow at full potentials.
MR SPEAKER Vanuatu is not immune to shocks, given that our
economy is small and open. Volatility in commodity prices has direct
impact to our agriculture sector affecting the livelihood of majority of
our people. The continuous conflicts in major oil-exporting countries
have major implications for our transport sector, especially travellers.
However, the recovery in the United States has brought hope for
prosperity but the rising dollar mean increasing cost for debt repayment
for indebted countries.
MR SPEAKER These brings about major challenges to our economy
which calls for major reforms to the ways in which our decisions are
being crafted and implemented; shaped by our very own ways of doing
things. We need to design policies that are both pro-cyclical and
counter-cyclical to ensure we built a Vanuatu that is inclusive,
sustainable and equitable.
Domestic Economic Outlook
MR SPEAKER economic growth in Vanuatu in 2013 was slow growing
by only 2 per cent. Although economic activity was weaklast year but if
comparing across time, it is a considerable improvement compared to
2012.The rebound in economic activity is attributed to rising activity in
the industry sector, particularly construction assisted by the services and
agriculture sectors. In the agriculture sector, production of major
commodities such as copra, coffee, cocoa and beef were held up
injecting a lot of liquidity into the local economy. The recent under-
supply of global copra and related bi-products has push-up prices
domestically and created opportunity for local copra producing islands
to respond by increasing copra production. Assisted by animal
production, we have seen that growth contribution of the agriculture
sector has been resilient. Meanwhile, growth in the construction sector
has been strong throughout 2013 expanding by 43.5 per cent; but was
weaken by 17.9 per cent decline in mining and quarrying sector.
MR SPEAKER the Services sector continues to register growth in 2013
although slower by 0.1 per cent – the slowest over the last decade.
Strong growth was recorded in the information and communication
sectors together with activities in the finance and insurance sector. This
was supported by activities in both the tourism and retail trade sectors
but was offset by rising transportation costs, leading to contracting
transport activities. There are signs that growth will be higher this year
with the current forecast being about 3.7 per cent. It is projected that the
economy will further accelerate in the coming years, if downside risks
are managed appropriately and the global economy continues to recover.
MR SPEAKER delayed project implementation continues to pause
major risks and is slowing economic growth. The current Government
will work with its donor partners, creditors and local communities to
ensure that scheduled projects do implemented as scheduled starting in
2015 and to ensure no further delays to major infrastructure projects.
These projects include the existing Port Vila Lapetsai International
Multi-Purpose wharf project, the Vanuatu Inter-Island Shipping Project,
the Port Vila Urban Development project, the South Tanna and
Malekula roads, the Luganville wharf, the Bauerfield airport and
Housing and are expected to boost growth further. These projects will
have a large direct effect on the construction sector as well as feeding
through to the other sectors of the economy such as retail and wholesale
trade, transport, finance and insurance, real estate and professional,
scientific and technical services.
MR SPEAKER the Government will remain committed to restoring
confidence and creating a sound environment for businesses to grow.
MR SPEAKER the Government recognizes that there are a number of
constraints that are limiting our economy to realise its full potential.
These include human constraints such as a lack of highly skilled workers
and adequate road networks. The Government budget for 2015 focuses
on these two factors with more focus on money being diverted towards
the productive sector including infrastructure. MR SPEAKER, at the
same time the Government will continue to work on addressing other
constraints such as access to financial credit and issues related to land
MR SPEAKER the Government remains committed to ensuring
macroeconomic stability including prudent management of its annual
budget and debt levels. General macroeconomic stability contributes to
private sector confidence and economic growth. MR SPEAKER, we
now turn to the specific sectors of the economy; starting with the service
MR SPEAKER, the service sector continues to be the largest sector of
our economy in terms of economic output. The service sector has a
strong projected growth for 2015 and is estimated to expand by 4.4 per
cent. Tourism is a major component of this sector and visitor arrivals are
growing robustly. This is a result of strong economic activity in
neighbouring Australia, New Zealand and New Caledonia.
MR SPEAKER in 2013 day arrivals by cruise ship went up by 13 per
cent, while air arrivals grew more slowly, but still significant at 2 per
cent. These trends have continued into 2014 and it is anticipated that
2015 will see even more tourists coming to our country. More tourists
mean more income directly for those running tourism related businesses
such as bungalow owners and mamas in the markets near cruise ship
wharfs. There is also the benefit of significant spill over into other
sectors such as domestic transport, retail and wholesale, accommodation
and food services, real estate and finance and insurance. Eventually
money spent by tourists will be used to buy taxable products that will be
collected by the Government as revenue. An expanding tourism sector is
good for all of Vanuatu.
MR SPEAKER the agricultural sector continues to play a central role in
the lives of the majority of the people of Vanuatu. Agriculture employs
over 75 per cent of the total population. Production in the agriculture
sector expanded by 4.3 per cent owing to increasing animal production
in particular chicken production and sawn timbers. However, copra
production contracted by 58 per cent in 2013 as a result of declining
export copra prices, falling prices of coconut oil and much improved
supply conditions elsewhere. However, copra production recovered early
this year following improvements of copra price due to declining
production in the Philippines (caused by the recent typhoon).The current
lift of the kava export ban to Europe suggests that kava production will
remain in high demand domestically and internationally in 2015.Value
adding must be central to Vanuatu’s agricultural policy. Competition for
raw agricultural goods such as copra remains tough with ageing coconut
tree and the resulting need for replanting; is unlikely to raise copra price
to historical heights. The ageing coconut is becoming an issue in the
medium and long term with lower, yearly yields.
MR SPEAKER, the copra subsidy has been temporarily suspended yet
again for 2015. The Government recognized that without clear policy
guidelines in place, the subsidy was vulnerable to being used
inappropriately – not benefiting the farmers of Vanuatu. Despite the
temporary suspension of the copra subsidy the Government remains
committed to agriculture. Increasing access to agricultural extension
services is a key objective of the Government and the Budget 2015
commits money towards this vital activity, in order to support economic
development in rural areas.
MR SPEAKER the industrial sector experienced a big improvement to
growth in 2013, expanding by 9.7 percent compared to a 22.1 per cent
contraction experienced in 2012.The increasing growth was evident in
the construction sector expanding by 45.3 per cent in 2013; with activity
emerging from the private sector growing by 21.2 per cent. However,
the impact of strong growth experienced in 2013 were offset by
declining activity in the mining and quarrying sector together with
MR SPEAKER I can report that the construction sector is recovering in
2014 and will become the main driving force for the country’s economic
expansion in 2015 and 2016. Significant expansion in this sector
happened in the past when the MCC projects were moving forward and
ended in 2010. The Government is working with its partners to ensure
that these projects begin in 2015. When they do they will significantly
increase economic growth and have considerable spill overs into non-
construction related sectors.
Monetary sector update
MR SPEAKER monetary conditions were weak for the first half of 2014
reflecting economic conditions prevailing over that period. Growth in
money supply contracted reflecting declining trends in Net Foreign
Assets and a slowdown in private sector credit. As the Reserve Bank
closely monitor the current trend of non-performing loans, there is
adequate provisions remain in the banking system. With commercial
banks liquidity remain sufficiently high; private sector credit have grown
considerably slower this period pushing down the inflationary rate to 0.1
MR SPEAKER inflation, which summarizes how much prices have
increased over time, remains low. Over the year to June the Consumer
Price Index rose by just 0.6 percent. This is well below the upper level
target range of the RBV of 4 percent. There is a risk that as the
construction sector recovers; there will be more pressure on the prices of
fuel and imported construction materials in 2015. These risks will need
to be appropriately managed. MR SPEAKER in addition to pressure on
prices; increased economic growth may mean a worsening of current
account deficit. As the economy grows people will demand more
consumables. Most of these things will unfortunately come from
overseas rather than home grown. MR SPEAKER Vanuatu has a limited
export base and Vanuatu has for a long time imported far more things
than it exports. Despite this Vanuatu’s overall external position is sound.
Official reserves are currently able to finance up to 6.0 months of
imports. This is comfortably above the RBV’s 4 months threshold.
2014 Budget Outruns
MR SPEAKER, moving on to the Government’s finances – in 2014 the
Government has been able to maintain an efficient fiscal position,
despite pressure from a number of unexpected legal obligations and
unplanned expenditures resulting in supplementary budgets.
MR. SPEAKER, the budget position excluding donor financed spending,
published in the Budget 2014 predicted a surplus worth VT 591.0
million. This was an improvement from last year’s 2013,with an
increase by 51.5 per cent. MR SPEAKER, I am happy to report that for
the first 9 months of this year and excluding donor financed spending,
the Government has recorded a fiscal surplus worth VT 177.0 million
following strong revenue collections this year – which is 6 per cent
higher compared to last year’s.
This strong revenue performance reflects continue improved compliance
measures undertaken by the Department of Customs and Inland Revenue
to enhance VAT collection as well as inflows from the Hong-Kong
based Permanent Residency program. Total revenue, excluding project
grants, amounted to VT 11.4 billion at the end of September.
MR SPEAKER, the Government spent VT 11.1 billion against an annual
budget of VT 14.2 billion at the end of September 2014. The
Government has spent 78 per cent of the budget target. When including
donor funding, the government has spent VT 12.1 billion at the end of
MR SPEAKER, I would like to take this opportunity to highlight some
major items that already overspent their annual budgets for 2014 at the
end of September. These include acting allowance which totalled VT
62.3 million against an annual budget of VT 0.5 million and subsistence
allowance which totalled VT 154.9 million against a budget of VT 90.4
million. We also spent VT 290.6 million on internet and satellite
communications against a zero budget, vehicles repairs and maintenance
totalling VT 105.9 million against a budget of VT 55.6 million and
scholarship allowances which totalled to VT 345.5 million against an
annual budget of VT 162.9 million.
MR SPEAKER, I would like to highlight the issue of outstanding bills,
particular telecommunications and electricity. This Government has
taken proactive steps for the last two months of this year to ensure that
all Ministries, Departments and Constitutional Agencies are able to
spend their 2014 Budget on bills accrued in 2014.
MR SPEAKER, the Government has so far passed on two
supplementary budgets this year in April and in August. The key
expenditures met by the supplementary budget in April include a VT
29.3 million for the Vanuatu 2017 min-Games operational budget, VT
135.0 million for Bandwidth payment to Interchange Vanuatu Limited
and VT139.3 million for the Vanuatu Government contribution to the
Electrification project for Torba, Penama and Malampa. MR SPEAKER,
continuing on to the second supplementary that was held in August, the
key expenditures thereof include VT 97.3 million for the Police GRT
determination, VT 12.0 million being for the Attorney General special
skills top-up allowance, VT 7.5 million for interactive gaming, VT 31.1
million for Tanna school fee subsidy, VT 40 million for the Health
services in Vanuatu and VT100 million being for the EU-ACP meeting –
which has now been postponed.
MR SPEAKER, in addition to the supplementary, the Government also
utilised Section 34(C) of the PFEM Act (Cap 244) to enable VT 135.0
million to be used to relieve the Financial Emergency created by
meeting a legal payment towards the Bandwidth for Interchange Limited
establishment early this year within the OGCIO at the Prime Minister’s
Office.MR SPEAKER, as discussed earlier VT 500 million of new
domestic bonds was issued during the year, in order to fund the
supplementary budget. However, despite the supplementary budgets, we
have continued to maintain a strong fiscal position and were even able to
pay out a VT 238.4 million worth of bond in April.
MR SPEAKER, I would like to briefly touch on the issue of our
domestic and external debt. As a percentage of GDP our public debt
level is forecasted to be 21 per cent at the end of 2014. This means that
the Government’s debt level is well within the internationally accepted
40 per cent threshold. MR SPEAKER, turning to external debt, after
many delays over the previous years, I am happy to announce that new
major infrastructure projects will begin next year and so we will be
expecting new drawdowns thereafter. These additional borrowings are
expected to raise our total stock of debt to some new higher level over
the next few years. On the other hand, we are expecting to pay back VT
591 million worth of external loans this year.MR SPEAKER, the
Government expects to pay back VT 597 million in interest payments on
both external loans and domestic bonds in 2014, marginally less than the
VT 603 million budgeted for 2013. In addition, the Government has
budgeted to pay back VT 594 million in principal on external loans in
2014. This is an increase of VT 100 million from what the government
is forecasted to pay back this year; as a result of two payments per year
now required to service the Exim Bank loan for the E-Government
project.MR SPEAKER, I would like to remind the house that running a
fiscal surplus is the only way that the government will be able to reduce
its stock of public debt and free up money in future budgets to fund
service delivery rather than meet interest payments.
MR SPEAKER, I will now move on to 2015 Budget. The 2015 Budget
is framed to meet the principles of responsible fiscal management
outlined in Section 22 of the Public Finance and Economic Management
Act (CAP 224). The public finance law requires the Government to
target a balanced or surplus budget over the medium term. Budget 2015
will therefore reconfirm the Government’s commitment to this
MR SPEAKER, the Budget 2015 has estimated for the government to
collect VT 16,097.4 million in revenue – which is 5.5 per cent higher
than the revenue target for 2014. MR SPEAKER, I would also like to
inform the honourable house that the 2015 Budget includes no direct
MR SPEAKER, VAT will continue to dominate the stream of tax
revenues in 2015 being forecasted to collect VT 5,775.5 million
followed by import duty and excise tax forecasted at VT 2,695.5 million
and VT 2,010.7 million respectively.
MR SPEAKER, the Government is focused to improve collections
through increasing compliance and the enforcement of existing revenue
measures. The Government will continue to work on implementing the
quick gain and medium term initiatives, which came out of the 2013
revenue forum. The Government is also committed to looking at the
long-term revenue initiatives, which have the potential to widen our tax
based. The long-term proposed initiatives have not been factored into the
2015 Budget target, but if implemented during the year, I am confident,
will assist in further boosting collections.
MR SPEAKER on the expenditure side, the Ministry level budget
ceilings remain largely unchanged from last year, but funding has still
been increased in key areas. MR SPEAKER, the total estimated
expenditure for the government, including known donor support in 2015
is VT 18,162 million.
MR SPEAKER, the 2015 budget has estimated for the Government to
spend VT 15,271 million. MR SPEAKER, the 2015 budgeted expense is
7.4 per cent higher than the 2014 original budget target and will be
driven mainly by the increased costs related to Government
commitments, legal obligations, productive sectors and other specific
new policy proposals.
MR SPEAKER, I would like to enlighten the house that the wage bill of
the government continues to go up, reducing the operational budget that
can be used to provide services. There is a need for financial checks of
new structures before they are approved by the PSC. Furthermore,
management of allowances should be improved. I would like to take this
opportunity to remind public servants that they are earning public money
and as such claims and management of allowance should be made
New Policy Proposals
MR SPEAKER, the 2015 Budget includes additional funding for
Government commitments, legal obligations and New Policy Proposals.
This additional funding reflects Government policies and the increasing
needs of the people of Vanuatu and allocates more funding towards the
MR SPEAKER, budget 2015 includes VT 300 million for severance
payment for public servants that are no longer working and those that
are working but will retire next year.
MR SPEAKER, in 2015 the Government will put more emphasis in
growing the economy. Therefore, a total funding of VT 179.8 million
has been allocated to the productive sectors including the Ministry of
Commerce, Industry and Tourism, Ministry of Lands and Ministry of
Agriculture, Livestock, Forestry, Fisheries and Biosecurity.
MR SPEAKER, the Government also acknowledges and supports the
operations of the social sectors with a total additional funding of VT
114.3 million allocated to the Ministry of Health, Ministry of Education
and Training and Ministry of Youth and Sports.
MR SPEAKER, I would like to acknowledge the continued support from
our donor partners. 2015 is an important year as the construction phase
of some major public infrastructure projects are expected to kick-off.
These major projects include the Port Vila Lapetasi International Multi-
Purpose Wharf Project, the Port Vila Urban Development Project, the
Vanuatu Inter-Island Shipping Project, the South Tanna and Malekula
road projects and the Luganville wharf.
MR SPEAKER, donor grant funding is estimated at VT 2,891.7 million
for the 2015 Budget. The donor grant funded projects for 2015 include
VT 735.6 million for the road for development program VTSSP within
the Ministry of Infrastructure and Public utilities, VT 158.8 million for
the Vanuatu Health Sector project at the Ministry of Health, VT 105.7
million for the Vanuatu women’s centre phase 6 at the Ministry of
Justice and Social welfare, VT 307.6 million for the Education support
program and VT 253.6 million for the AusAID scholarships at the
Ministry of Education and Training.
MR SPEAKER, to implement budget 2015, the Government will
continue to increase compliance and strengthen the administration of tax
and non-taxes revenues and at the same time continue to implement the
expenditure control measures approved by the Council of Ministers this
year. This means the Government will continue to ensure that all
agencies must be prudent in ensuring that the Government meets the
fiscal responsibility requirements as stipulated in the Public Finance and
Economic Management Act.
MR SPEAKER I would also like to emphasise the importance of the
Public Accounts Committee to be effectively active, because then it
allows for accountability and better management of public funds.
MR SPEAKER, I would like to take this opportunity to thank all the
Ministries, the hard working staff of the Department of Finance &
Treasury and the office of the Prime Minister in putting together this
budget. May I also extend a big thank you to my colleague members of
the Ministerial Budget Committee in their tireless efforts and support in
finalising Budget 2015.
MR SPEAKER, as the Minister responsible for public Finance and
Economic Management, I therefore confirm that Budget 2015 is
consistent with the ‘Principles of Responsible Fiscal Management’ as
specified in the Public Finance and Economic Management Act. MR
SPEAKER, we reinforce today our commitment to fiscal responsibility,
not just this year but also for the years ahead. And so to the Honourable
Members of Parliament and citizens of Vanuatu, it is my honour to
commend to you Budget 2015.