Vector-base amplitude panning (VBAP) aims at creating virtual sound sources at arbitrary directions within multichannel sound reproduction systems. However, VBAP does not consistently produce listener-specific monaural spectral cues that are essential for localization of sound sources in sagittal planes, including the front-back and up-down dimensions. In order to better understand the limitations of VBAP, a functional model approximating human processing of spectro-spatial information was applied to assess accuracy in sagittal-plane localization of virtual sources created by means of VBAP. First, we evaluated VBAP applied on two loudspeakers in the median plane, and then we investigated the directional dependence of the localization accuracy in several three-dimensional loudspeaker arrangements designed in layers of constant elevation. The model predicted a strong dependence on listeners' individual head-related transfer functions, on virtual source directions, and on loudspeaker arrangements. In general, the simulations showed a systematic degradation with increasing polar-angle span between neighboring loudspeakers. For the design of VBAP systems, predictions suggest that spans up to 40° polar angle yield a good trade-off between system complexity and localization accuracy. Special attention should be paid to the frontal region where listeners are most sensitive to deviating spectral cues.