Press Release No. 14/06

Press Release: IMF Completes Second Review Under the Extended Credit Facility Arrangement for Solomon Islands

January 8, 2014

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Solomon Islands' economic performance under the Extended Credit Facility (ECF) arrangement. The Executive Board also approved a request for modification of the end-December 2013 performance criterion on net credit to the government.

Completion of the second review enables Solomon Islands to draw an amount equivalent to SDR 0.149 million (about US$ 0.23 million) immediately, bringing total disbursements under the arrangement to an amount equivalent to SDR 0.446 million (about US$ 0.68 million).

The three-year ECF arrangement was approved on December 7, 2012, in an amount equivalent to SDR 1.04 million (about US$1.59 million), or 10 percent of the country’s quota (see Press Release No. 12/479).

Following the Executive Board’s discussion on Solomon Islands, Mr. Min Zhu, Deputy Managing Director and Acting Chair, stated:

“The Solomon Islands authorities are to be commended for the broadly satisfactory implementation of their economic and financial program supported under the ECF.. Sound policies helped the economy deal with adverse shocks in the first half of 2013. However, the scaling down of development assistance by donors and downside external risks pose significant challenges. It will be important to strengthen public finances, enhance monetary and exchange rate policy, safeguard financial stability, and bolster the sources of growth.

“Policy buffers should be protected by keeping overall public expenditure, including from the supplementary budget, within the original spending envelope. The quality of public spending should be improved through greater transparency and accountability and by implementing the newly-approved Public Finance Management Act. Remaining fiscal reforms should be completed, including adoption of a new mining tax regime and a new customs and excise law.

“The central bank should continue to strengthen its monetary policy instruments and stand ready to mop up liquidity should inflationary pressures arise. The basket peg remains appropriate. Widening the operational band against the U.S. dollar would help reap the full benefit of the peg.

“Banks remain adequately capitalized and profitable. The authorities’ efforts to strengthen the legal and oversight frameworks of the financial system should be continued.

“Diversification will be crucial for sustained and inclusive growth. Critical infrastructure bottlenecks in power, telecommunications, and transportation should be addressed. A clear and transparent tax regime and improved access to finance will also facilitate private sector growth.”