Enduring Fiscal Position Program (Subprogram 1)

proposed

The proposed Enduring Fiscal Position Program aims to strengthen the sustainability of Vanuatu's fiscal position through improved fiscal policy and public financial management (PFM) and strengthened management of fiscal risks from state-owned enterprises (SOEs), climate change, and disasters caused by natural hazards. The proposed program's policy-based lending (PBL) component will support critical structural reforms and provide budget financing at a time when fiscal space is constrained by substantial recovery and reconstruction efforts to address the damage caused by a 7.3 magnitude earthquake that struck the capital, Port Vila, in December 2024. It complements the multiyear reform program and development financing under the Asian Development Bank's (ADB) Finance Sector Development Program and immediate earthquake assistance provided through the Earthquake Emergency Response Project. The program also contains a new contingent disaster financing (CDF) component, given that the previous CDF was drawn down by Vanuatu after the earthquake under ADB's Pacific Disaster Resilience Program (Phase 5). The proposed program supports the implementation of Vanuatu's National Sustainable Development Plan - Vanuatu 2030: The People's Plan - and is aligned with ADB Strategy 2030 and its midterm review's strategic focus areas of (i) climate action and (ii) resilience and empowerment. The program is consistent with the objectives of the Pacific Approach, 2021-2025, which serves as ADB's country partnership strategy for Vanuatu, emphasizing sustainable service delivery, and preparing for and responding to shocks. The program design, which combines PBL and CDF, reflects ADB's differentiated approach tailored to the needs of fragile and conflict-affected situations (FCAS) and small island developing states (SIDS). The program is coordinated with the budget support operations of the World Bank and the governments of Australia and New Zealand through the joint policy reform group.