SUMMARY OF FINDINGS 

PFM strengths and weaknesses 

The 2024 assessment highlights overall positive progress in Public Financial Management (PFM) systems and processes, despite critical weaknesses in specific areas such as procurement, accounting, in-year reporting, and internal and external audits. 

Budget reliability is relatively strong. Excluding extraordinary supplemental spending due to pandemic responses and natural disasters, the budget outturns aligned closely with estimates, reflecting sound fiscal planning. 

Transparency in public finances presents a mixed picture. While budget classification is well-developed and compliant with GFS standards, and the FMIS system enhances tracking and reporting of finances, public access to fiscal information remains limited. 

There has been notable improvement in the management of assets and liabilities. Ministries have clear roles in implementing the PFM roadmap, and debt management has progressed under the Medium

Term Debt Strategy (MTDS). However, the monitoring of public corporations and subnational governments is a concern. 

Policy-based fiscal strategy and budgeting show good progress, with macroeconomic forecasting led by a specialized committee. The medium-term fiscal framework supports robust planning for revenue, expenditures, and financing, with clear budget preparation processes in place. 

Mixed results are observed in budget execution predictability and control. Revenue accounting and expenditure arrears management are solid, but procurement and some aspects of internal audits require significant strengthening. 

Accounting and reporting have improved with timelier reconciliations and financial statement submissions. However, delayed transaction postings hinder the quality of monthly reports. External scrutiny and audits remain weak, with delayed parliamentary audit reports undermining accountability. 

Despite the overall progress in strengthening PFM systems, key areas such as procurement, external audit, legislative scrutiny, and aspects of project costing and monitoring require dedicated attention to further enhance fiscal governance.

Impact of PFM performance on three main fiscal and budgetary outcomes 

The main objectives of PEFA and PFM reform are to support: sustainable development and better and more effective service delivery outcomes that meet the citizens’ needs and priorities. Progress is measured through the contribution of PFM systems and processes to the following three main fiscal and budgetary outcomes. 

1. Aggregate fiscal discipline 

Vanuatu has implemented a number of reforms to strengthen its PFM processes. Earlier assessments in 2006 and 2009 and the 2013 PEFA assessment demonstrated commitment to take stock of the status of PFM progress. The 2015 Self Assessment reviewed progress since 2013. The 2017-21 PFM Roadmap was developed as an outcome of the Self Assessment. In May 2023, the 2022-2026 PFM Improvement Roadmap was launched with emphasis on:

 • strengthening business continuity across government; 

• improving public investment, 

• enhancing PFM reporting and controls; 

• strengthening budget accountability; 

• improving aid coordination and management; and 

• enhancing accountability through strengthening internal audit and external audit. 

The principles of sound fiscal management are embedded in Vanuatu’s PFEM Act. The objectives of the PFEM Act are to ensure effective economic, fiscal, and financial management and responsibility by Government; provide accountability arrangements, compliance, and adherence to fiscal discipline. Compliance with fiscal discipline is adhered to in the preparation of the annual budgets. Budget documentations are clearly presented in terms of the process, budget and planning framework, fiscal strategy including revenue and expenditure policy proposals and underlying assumptions.

2. Strategic allocation of resources 

Vanuatu’s NSDP 2016–2030 serves as the guiding policy document for developing the annual government budget. The country has established a program budgeting system that requires each agency to define clear programs and activities in alignment with the program budgeting format. The NSDP articulates Vanuatu’s national priorities, and each ministry is mandated to develop a five-year Corporate Plan aligned with the goals and objectives of the NSDP 2016–2030. 

To implement their Corporate Plans, agencies are further required to develop annual Business Plans and work plans that specify activities, objectives, and funding. Additionally, agencies must prepare an Annual Report for the Public Services Commission, detailing their performance in executing the work plans. The Business Plans are submitted to DSPPAC for review and funding endorsement. These plans include costed NPPs. 

The Office of the Prime Minister (PM) is responsible for setting Vanuatu’s strategic policy priorities. Most ministries comply by submitting their costed Business Plans and expenditure policy proposals, with noncompliance potentially resulting in reduced budget allocations for the given year. 

This framework ensures that budget resources are allocated in line with Vanuatu’s national objectives, reducing the risk of resource mismanagement and enhancing accountability.

3. Efficient use of resources for service delivery

 The government remains steadfast in its commitment to fiscal responsibility, maintaining macroeconomic stability, and prioritizing investments in education, health, infrastructure, tourism, and agriculture. Resource allocation reflects these priorities, ensuring that communities receive essential services while building resilience to mitigate the adverse impacts of external shocks. 

The Ministries’ Business Plans are closely aligned with the national strategies outlined in the NSDP, as well as the government’s budget priorities, creating a mutually reinforcing framework. This alignment has strengthened the linkages between national objectives and resource allocation, fostering greater policy consistency in the budgeting and planning process. 

In FY23, half of the total budget appropriation was allocated to education, health, infrastructure, and agriculture, underscoring the government’s focus on these critical sectors.

Performance change since previous assessment 

Over the years, Vanuatu has conducted numerous assessments to evaluate and strengthen its Public Financial Management (PFM) systems. The assessments conducted in 2006, 2009, and 2013 demonstrated a strong commitment to examining progress and addressing challenges in Vanuatu’s PFM systems. Subsequent initiatives, including the 2015 Self-Assessment, the 2017–2021 PFM Reform Roadmap, and the 2022–2026 PFM Improvement Roadmap, have maintained a focused effort on enhancing fiscal resilience, transparency, accountability, and integrity across all public entities. It is fair to say that Vanuatu has made notable progress in many areas of PFM. 

The enactment of the Public Finance and Economic Management Act [CAP 244], along with its associated financial regulations, has established a robust legislative framework to uphold principles of transparency and accountability. The government has demonstrated a clear commitment to fiscal sustainability and sound macroeconomic management. The establishment of the Macroeconomic Committee has further strengthened the oversight and approval processes for macroeconomic and fiscal forecasts. Additionally, the development of annual fiscal strategies has gained traction, with fiscal rules and anchors clearly articulated. 

The adoption of a medium-term fiscal framework has proven to be an effective tool for managing revenues, expenditures, and financing, with significant improvements evident in this area. Budget preparation and formulation processes are well-developed, emphasizing the alignment of national priorities with resource allocation. Ministries are required to ensure that new proposals align with the national priorities outlined in the National Development Plan. Debt management is another area that has seen substantial improvement, with the Medium-Term Debt Strategy (MTDS) providing a solid framework for managing government debt. Positive changes are also evident in accounting procedures and processes, payroll controls, project analysis, and project selection.

 Despite these positive developments, several areas still require significant attention. Key challenges include procurement oversight, project costing and monitoring, auditing, and external audit processes. Addressing these issues will be critical for sustaining and furthering the progress achieved so far.

Progress in Government PFM reform program

Since 2006, Vanuatu has undertaken multiple assessments to strengthen its Public Financial Management (PFM) systems. The 2006, 2009, and 2013 assessments, along with the 2015 selfassessment and the subsequent 2017–2021 PFM Reform Roadmap, underscore Vanuatu’s commitment to implementing reforms aimed at improving service delivery. 

The 2022–2026 PFM Improvement Roadmap, currently being implemented, focuses on enhancing government financial management systems with a strong emphasis on fiscal resilience, transparency, and accountability. Transparency and accountability foster public scrutiny of resource allocation, ensuring alignment with the government’s stated policies. Furthermore, better integration of planning, budgeting, and expenditure management at both the policy and activity levels is expected to enhance service delivery and address community needs effectively. 

The 2024 assessment results will inform the review and update of the current Roadmap. In alignment with government priorities, these results will identify strengths and weaknesses, helping to refine and refocus the PFM reform agenda moving forward.