## 1slbea2022001 ## Source details **Canonical URL:** [1slbea2022001](https://www.imf.org/-/media/files/publications/cr/2022/english/1slbea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1slbea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1slbea2022001.pdf.json) --- ### CONTEXT - Solomon Islands: small, low-income, geographically dispersed Pacific Island economy and a fragile state with long-standing socio-economic tensions, vulnerability to natural disasters and climate change, infrastructure gaps and governance and corruption vulnerabilities. - Logging: major contributor to growth, exports, and fiscal revenues; resources being depleted and production expected to decline over the medium-term. - Political unrest: violent protests in late November 2021 with three days of unrest in Honiara. - Vaccination: around 14 percent of the eligible population fully vaccinated (as of November 5, 2021); authorities target 90 percent of the eligible population to allow timely and safe border reopening in the course of 2022. ### RECENT DEVELOPMENTS: HEADWINDS FROM THE PANDEMIC Findings - Real GDP: contracted 4.3 percent in 2020. - Labor market: declines in formal NPF contributors; survey evidence of reduced incomes, decreased working hours, and lower business revenues. - Inflation: turned negative at end-2020 and remained low at 1.4 percent in August 2021. - Current account (CA) deficit: declined to 1.6 percent of GDP in 2020 owing to lower imports and strong income transfers. - External support and reserves: - SDR allocation: SDR19.94 million (about US$25 million, 1.5 percent of GDP). - Foreign reserves at end-October 2021: US$717 million (about 11.6 months of prospective imports). - Fiscal response: - COVID-19 prevention/containment spending: SI$137 million (1.1 percent of GDP). - Fiscal stimulus package: SI$319 million (2.6 percent of GDP), spread over two years and completed in July 2021. - 2020 fiscal deficit: 2.4 percent of GDP (financed by donor support and domestic borrowing). - Payment arrears: reportedly re-emerged; cash balance well below staff recommended minimum of two months of spending. - 2021 budget: prioritized COVID-19 response and recovery; CDF allocations increased by 43 percent (accounting for 36 percent of total development expenditure). - Monetary policy: CBSI cut cash reserve requirement from 7.5 to 5 percent, reduced Bokolo bills holdings, bought government bonds; private sector credit growth declined to close to zero in 2020. - DBSI: started providing loans in 2020 focused on rural and underserved customers. - Financial soundness (2021H1): - Regulatory Capital to Risk-Weighted Assets: around 33.4 percent. - Non-performing Loans to Total Gross Loans: 11.4 percent. - Return on Assets: 2.5 percent. ### OUTLOOK AND RISKS Projections and key numbers - Real GDP growth: projected 0.4 percent in 2021; forecast to average just above 3 percent over the medium-term. - Inflation: expected to average about 3.5 percent over the medium-term. - Current account: expected to widen to about 5 percent of GDP in 2021. - Reserves: expected to decline over the medium term but remain within reserve adequacy range estimated at 3-7.5 months of prospective imports. - Fiscal deficit: projected to widen to 2.9 percent of GDP in 2021 due to weak revenue performance. - Public debt: currently low but projected to rise, reaching authorities’ nominal debt threshold of 35 percent of GDP by 2029. - Debt distress risk: Debt Sustainability Analysis indicates moderate risk for external and public debt; stress tests including a tailored natural disaster shock result in breaches of indicative DSA thresholds. Risks - Downside: domestic virus transmission, new variants, vaccination delays, persistent social unrest, political instability, climate change, volatile commodity prices. - Fiscal risks: persistent payment arrears, low cash balance, shallow domestic financing, lack of international market access. - Upside: stronger global recovery, quicker tourism rebound, acceleration in infrastructure investment including projects linked to the 2023 Pacific Games. ### ECONOMIC POLICIES AND POLICY IMPLICATIONS Fiscal and PFM - Fiscal measures enacted: - SI$137 million on prevention/containment (1.1 percent of GDP). - SI$319 million stimulus (2.6 percent of GDP). - Financing: donor support, domestic borrowing, RCF/RFI emergency financing, SDR allocation. - Staff emphasis: - Rebuild fiscal buffers given medium-term pressures from declining logging revenues, potential lower donor grants, and higher public investment. - Strengthen PFM to address payment arrears and low cash balance. - Increase transparency of CDFs (CDFs up 43 percent; account for 36 percent of total development expenditure). Monetary, financial stability, and development - CBSI measures: cut cash reserve requirement from 7.5 to 5 percent; secondary market government bond purchases; reduced Bokolo bills. - Temporary waivers: loan classification and loan loss provision requirements (limited bank use). - Financial soundness concerns: rising NPLs, declining profitability; NPF earnings and capital deteriorated in 2020. Structural and sectoral policies - Need to foster diversification as logging declines; construction, fishing, and mining/investment projects expected to drive recovery. - Accelerate vaccination to meet 90 percent eligible target for border reopening in 2022. Policy recommendations (verbatim emphasis) - Accelerate vaccination rollout to reach the authorities’ target of 90 percent of the eligible population to enable timely and safe border reopening. - Rebuild fiscal buffers and ensure medium-term fiscal sustainability in light of declining logging revenues, potential lower donor grants, and planned public investment projects. - Strengthen Public Financial Management to address payment arrears and improve cash balance management, including enhancing transparency of Constituency Development Funds (CDFs). - Maintain accommodative monetary support in the near term while safeguarding financial stability; monitor rising NPLs and bank profitability. - Continue to prioritize investments that support economic recovery, diversification, and inclusive growth, including infrastructure projects tied to the 2023 Pacific Games and resource-sector investments. - Manage external and public debt prudently, relying on concessional external loans and careful issuance of domestic development bonds in line with the Medium-term Debt Management Strategy. ### FISCAL REFORM SEQUENCING AND FINANCING NEEDS Revenue administration measures - Strengthen compliance, tackle tax arrears, control exemptions (which amounted to 4.6 percent of GDP in 2020), and strengthen revenue administration. - Tax Administration Bill: consolidates procedures; Cabinet approved; should be passed soon and implemented. Tax policy measures (details preserved) - VAT Act: - Proposed rate: 15 percent. - Proposed threshold: SI$ 600,000. - Intended to replace goods taxes, sales taxes, customs duty on most imports, stamp duty. - Status: Draft bill awaiting Cabinet decision regarding rates and threshold. - Income Tax Act: recognized need for review and simplification as next priority following VAT implementation. Expenditure measures and financing needs - Channel resources to growth-enhancing spending and SDGs; scale back non-essential recurrent spending and restrain CDFs. - MTRS and capacity upgrades: ensure funding and implementation capacity in Inland Revenue and Customs; upgrade IT systems. - SDG and climate adaptation spending need: - Estimated additional spending of about 6.9 percent of 2030 GDP per year to meet SDG targets on health, education, and infrastructure while building climate resilience. - Energy: scale up renewable energy investment and improve energy efficiency. Box 1 — Fiscal Anchor and debt calibration - Public debt: 13.4 percent of GDP in 2020. - Simulations: current debt target of 35 percent of GDP broadly appropriate; calibrated debt ceiling at 32.9 percent of GDP; limited space to further raise target. - Operationalization: publish Medium Term Fiscal Strategy annually; include an “escape clause” for temporary breach in response to shocks. ### EXTERNAL SECTOR ASSESSMENT - Staff view: external position moderately weaker than medium-term fundamentals and desirable policies. - 2020 assessments: - CA deficit weaker than norm by about 1 percentage point → REER overvaluation ~4 percent. - Reserve coverage: 13.5 months of prospective imports in 2020. - Projections: CA deficit expected to widen; reserve coverage expected to decline toward an adequacy range of 3-7.5 months of imports. - Specific external figures (selected): - Exports (US$ millions, selected components 2017–2026): Logs (e.g., 312.4 372.9 318.6 245.5 215.9 ...), Fish (e.g., 48.7 56.2 49.6 43.5 51.2 ...), Minerals (e.g., 16.8 19.0 19.8 18.1 14.7 ...). - Gross official foreign reserves (US$ millions): 577 613 574 661 700 641 589 566 547 514. - Reserves in months of next year's imports of GNFS: 9.3 9.8 12.4 13.5 10.9 9.0 8.5 8.1 7.5 6.7. Policy guidance - Pursue grant financing and highly concessional loans to reduce pressure on debt accumulation. - Periodically revise currency basket weights and intervention currency; increase transparency by publishing basket composition. - Foster forestry sustainability and export diversification; prioritize health infrastructure and social safety nets. ### FINANCIAL STABILITY, AML/CFT, AND DEVELOPMENT Financial sector observations - NPLs elevated pre-pandemic and rose further; close monitoring and supervision required. - Excess liquidity provides buffers; bank demand for government securities increased after bond issuance. - CBSI prudential guidelines re-established; future exemptions to be targeted. AML/CFT (Box 2 — Priorities) - Context: CBR pressures; AML/CFT framework not fully aligned with FATF standards; 2019 MER highlighted key technical deficiencies. - Legal and supervisory priorities: - Align AML/CFT legal framework with FATF standards; new framework expected to be submitted to Parliament in 2022. - Clarify AML/CFT supervisory responsibilities among agencies. - Capacity development: - Increase FIU staffing; develop AML/CFT supervisory tools for risk-based supervision (monitoring tools for high-risk customers, supervisory strategy, onsite inspection practices, enforcement actions). - Policy implication: Strengthening AML/CFT framework would help mitigate pressures on CBRs and safeguard financial stability. - Authorities’ actions: updated prudential guidelines, taskforce to improve lending environment, National Strategic Plan, increased FIU staffing, interest in regional KYC utility. ### DEBT COVERAGE, PROJECTIONS, AND SUSTAINABILITY ANALYSIS Coverage and recent stock - Coverage: central government debt, central government-guaranteed debt, central bank debt borrowed on behalf of government. - End-2020 public debt: 13.1 percent of GDP. - End-2020 PPG external debt: US$150.9 million (9.6 percent of GDP). - Outstanding IMF debt as of end-August 2021: SDR21.45 million (US$30.6 million; 1.9 percent of GDP). - Public domestic debt at end-2020: SI$451.6 million (3.5 percent of GDP). - Domestic development bonds issued in 2020: SI$180 million. - Domestic payment arrears estimated at SI$100 million (0.8 percent of GDP) at end-2020. 2021 developments and limits - New borrowing projected around SI$625 million in 2021. - Domestic development bonds issued in 2021: SI$120 million (NPF), SI$50 million (Pan Oceanic Bank), SI$120 million (Solomon Power and Port Authority) — total SI$290 million in 2021 domestic bond issuance noted elsewhere. - Public debt projected to increase to 16.2 percent of GDP in 2021. - Government limits: - Public debt-to-GDP ratio limit: 35 percent (nominal). - 2021 budget annual borrowing limit: SI$350 million. - Government plans 50 percent guarantee to Solomon Power’s loan for Tina hydro project (US$10.6 million) in 2022. - Annual T-bill issuance limit: SI$100 million. DSA assumptions and findings - Macro assumptions (selected): - Real GDP: -4.3 percent in 2020; 0.4 percent in 2021; medium-term average 2.8 percent over 2021–31. - Inflation (GDP deflator): average 4.1 percent during 2021–31. - Non-interest current account deficit: projected average 9.8 percent of GDP over 2021–31. - Official grants: projected to average 1.6 percent of GDP over the medium-term. - FDI inflow: expected around 2.6 percent of GDP. - Ten-year average primary deficit projected at 3.3 percent of GDP. - Average grant element of new borrowing: around 45 percent. - Debt-carrying capacity: - Composite Indicator (CI) index: 2.651 → assessed as "weak". - Indicative thresholds for "weak": PV total public debt-to-GDP ratio: 35 percent; PV PPG external debt-to-GDP ratio: 30 percent; PV PPG external debt-to-exports ratio: 140 percent; PPG external debt service-to-exports ratio: 10 percent; PPG external debt service-to-revenue ratio: 14 percent. - Stress tests: - Natural disaster shock: 14 percent of GDP shock to GDP (based on DAT) — substantial impact; PV public debt-to-GDP breaches 35 percent by 2027 under this shock. - Commodity price shock and export shock produce large increases in debt ratios; export shock can breach external thresholds. - Baseline public debt trajectory: - Nominal public debt-to-GDP: 2018: 8.3; 2019: 8.2; 2020: 13.1; 2021: 16.2; 2022: 18.3; 2023: 20.7; 2024: 23.1; 2025: 25.6; 2026: 28.3; (table presents series through 2026 and beyond). - PV of PPG external debt-to-GDP expected to grow from 7 percent in 2020 to 13.8 percent in 2031. - Debt profile and risks: - About 70 percent of public debt is external loans on highly concessional terms. - T-bills: about 17 percent of domestic debt. - Yields: one-year T-bills around 1.9 percent. - ATM external (domestic) debt: 13.6 (6.2) years. - Weighted average interest rate external loans: 1 percent; domestic borrowing costs: 4.9 percent. Policy implications (verbatim emphasis) - Rebuild fiscal buffers to strengthen resilience to natural disasters and contingent liabilities. - Maximize concessional financing to keep the debt burden contained. - Strengthen revenue mobilization measures and revenue administration, reduce tax arrears, and improve revenue compliance. - Rationalize expenditure and prioritize investment projects that build resilience to natural disasters and climate change. - Broaden the export base and boost medium-term potential growth. - Continue development of the domestic debt market while managing rollover risk and maintaining monetary policy credibility. ### SCENARIO: FASTER CONTAINMENT OF THE COVID-19 PANDEMIC Key assumptions - Faster vaccine production and distribution leading to rapid containment and recovery. - Likelihood: Medium; Overall level of concern: High / ST, MT. Policy recommendations under upside scenario (verbatim) - Increase public expenditure in health infrastructure, education, and social safety nets. - Seek additional concessional financing to ensure critical capital expenditure projects can continue. - Review and realign the basket exchange rate peg with underlying fundamentals and competitiveness. - Undertake structural reforms to improve business environment and diversify growth sources. - Sustain the fiscal buffer and contain spending on CDFs. - Contain spending on the Pacific Games and ensure financing is grants or on concessional terms. Risk Assessment Matrix (selected risks and guidance) - Covid-19 local outbreaks: Likelihood Downside; Probability assessment: Medium; Overall concern: High / ST. - Global resurgence of Covid-19: Likelihood High; Overall concern: High / ST, MT. - Fiscal policy slippages (including Pacific Games): Likelihood High; Policy guidance: additional spending on vulnerable households, social protection, health, and education; strengthen anti-corruption efforts. - Reduced correspondent banking services: Likelihood Medium/ High; Policy guidance: build fiscal buffers against natural disaster shock; invest in resilient infrastructure; strengthen AML/CFT. ### ANNEX IV — TA PRIORITIES FOR FY22–FY23 (selected) Public Financial Management - Asset and liability management; fiscal reporting; PFM laws and institutions. - Implement roadmap for accounting/reporting of non-financial assets; database for non-financial assets. Revenue Administration & Tax Policy - Strengthen revenue administration, core tax functions; PFTAC assistance for VAT implementation in 2022. - Develop MTRS and improve non-tax revenue (including mineral pricing). Financial Market Supervision & Debt Management - Strengthen banking regulations, risk-based supervision, MTDS formulation and workshop; training on MTDS Analytical Tool. Central Bank Operations & Statistics - Strengthen FX reserve management policy framework; TA on Exchange Control Act review; improve macro and financial statistics, implement e-GDDS. Governance and Anti-Corruption - Strengthen OAG capacity for audits of emergency spending and follow-up. ### CONCLUSION (selected) - Authorities thanked the Fund for support; noted benefit from Catastrophe Containment and Relief Trust debt service relief and RCF/RFI emergency financing in June 2020. - Authorities value capacity development and technical assistance, particularly on public financial management and audits of COVID expenditures. - Authorities committed to Medium-term Debt Strategy and rebuilding fiscal buffers, including domestic development bond issuance. *Based on IMF staff report text provided for Solomon Islands (1slbea2022001).* ### 2021. The staff team comprised J. Turunen (head), M. Deo, G. Cugat, Y. ### SOLOMON ISLANDS ### CONTEXT - Solomon Islands is described as a small, low-income, and geographically dispersed Pacific Island economy and a fragile state, facing long-standing socio-economic tensions, vulnerability to natural disasters and climate change, infrastructure gaps and governance and corruption vulnerabilities. - Logging has been a major contributor to growth, exports, and fiscal revenues, but resources are being depleted and production is expected to decline over the medium-term. - Political protests turned violent in late November 2021, resulting in three days of widespread unrest in Honiara. - Only around 14 percent of the eligible population has been fully vaccinated (as of November 5, 2021). Authorities target 90 percent of the eligible population to allow timely and safe border reopening in the course of 2022. ### RECENT DEVELOPMENTS: HEADWINDS FROM THE PANDEMIC Findings - Real GDP is estimated to have contracted 4.3 percent in 2020, reflecting falls in logging and fisheries exports and impacts of containment measures on trade, tourism-related activity, infrastructure projects, and domestic demand. - Labor market conditions deteriorated: declines in the number of formal workers contributing to the National Provident Fund (NPF) and survey evidence of reduced incomes, decreased working hours, and lower business revenues due to partial market closures. - Inflation turned negative at the end of 2020 and remained low at 1.4 percent in August 2021. - The current account (CA) deficit declined to 1.6 percent of GDP in 2020 owing to lower imports and strong income transfers. - Donor inflows, official disbursements including RCF/RFI emergency financing, and an SDR allocation of SDR19.94 million (about US$25 million, 1.5 percent of GDP) supported foreign reserves. At end-October 2021, foreign reserves stood at US$717 million (about 11.6 months of prospective imports). - The government spent about SI$137 million (1.1 percent of GDP) on COVID-19 prevention and containment measures and implemented a fiscal stimulus package of SI$319 million (2.6 percent of GDP), spread over two years and completed in July 2021. - The 2020 fiscal deficit was financed by additional donor support and domestic borrowing; the fiscal deficit in 2020 was 2.4 percent of GDP. - Payment arrears reportedly re-emerged, reflecting structural Public Financial Management (PFM) weaknesses and increased liquidity pressures; the cash balance remained well below the staff recommended minimum of two months of spending. - The 2021 budget prioritized COVID-19 response and economic recovery; Allocations to Constituency Development Funds (CDFs) were increased by 43 percent (accounting for 36 percent of total development expenditure). - Accommodative monetary conditions: CBSI reduced the cash reserve requirement from 7.5 to 5 percent, reduced holdings of central bank (“Bokolo”) bills, and bought government bonds in the secondary market. Private sector credit growth declined to close to zero in 2020. - Development Bank of Solomon Islands (DBSI) started providing loans in 2020 focused on rural and underserved customers. - Financial soundness indicators show resilience but with vulnerabilities: non-performing loans (NPLs) had been increasing before the pandemic and profitability declined; anecdotal evidence suggests delays in government payments are contributing to an increase in NPLs in some sectors. ### OUTLOOK AND RISKS Projections and key numbers - Real GDP growth is projected to have remained subdued at 0.4 percent in 2021, with increases expected in fishing, construction, and manufacturing. - Growth is forecast to average just above 3 percent over the medium-term. - Inflation is expected to average about 3.5 percent over the medium-term. - The CA deficit is expected to widen to about 5 percent of GDP in 2021 as imports recover faster than exports; the deficit is expected to widen over time as logging exports decline and project-related imports increase. - Reserve coverage is expected to decline over the medium term but remain within the reserve adequacy range estimated at 3-7.5 months of prospective imports. - The fiscal deficit is projected to widen to 2.9 percent of GDP in 2021 due to weak revenue performance. - Public debt is currently low but projected fiscal deficits are expected to drive the public debt-to-GDP ratio upward, reaching the authorities’ nominal debt threshold of 35 percent of GDP by 2029. - The Debt Sustainability Analysis indicates moderate risk of debt distress for both external and public debt; stress tests, including a tailored natural disaster shock, result in breaches of indicative DSA thresholds. Risks - Downside risks predominate: any domestic virus transmission could lead to significant human and economic costs; new variants and vaccination delays could postpone border reopening. - Fiscal risks: persistent government payment arrears, low cash balance, shallow domestic financing sources, and lack of international market access increase dependence on development partner support and limit shock response capacity. - Additional downside risks include persistent social unrest and political instability, negative impact of climate change, and volatile commodity prices. - Upside possibilities: stronger global recovery, quicker rebound in tourism driven by regional reopening, and acceleration in infrastructure investment (including projects linked to the 2023 Pacific Games) could spur a stronger recovery. ### ECONOMIC POLICIES AND POLICY IMPLICATIONS Fiscal and PFM - Authorities enacted strong fiscal measures to contain COVID-19 and support the economy: SI$137 million on prevention/containment and SI$319 million stimulus (1.1 percent and 2.6 percent of GDP respectively). - Financing included donor support, domestic borrowing, and use of RCF/RFI emergency financing and SDR allocation. - Staff note structural PFM weaknesses have contributed to re-emergence of payment arrears and lower-than-recommended cash balance; rebuilding fiscal buffers is emphasized given medium-term pressures from weak logging revenues, lower donor grants, and higher public investment spending. - CDFs increased by 43 percent and account for 36 percent of total development expenditure; greater transparency is needed to demonstrate alignment with the National Development Strategy. Monetary, financial stability, and financial development - CBSI adopted expansionary monetary policy measures to mitigate pandemic effects: cash reserve requirement cut from 7.5 to 5 percent, purchases of government bonds in secondary market, and reduction in Bokolo bills holdings. - CBSI temporarily waived loan classification and loan loss provision requirements; banks have not made extensive use of the loan classification exemption. - Development Bank of Solomon Islands (DBSI) reintroduced lending targeted at rural and underserved customers. - Financial soundness: capital adequacy remained strong (e.g., Regulatory Capital to Risk-Weighted Assets around 33.4 percent in 2021H1), but NPLs rose (Non-performing Loans to Total Gross Loans 11.4 percent in 2021H1) and profitability declined (Return on Assets 2.5 percent in 2021H1). Structural and sectoral policies - The report underscores the need to foster diversification and sustainable growth as logging resources decline; construction, fishing, and mining/investment projects are expected to drive recovery in coming years. - Emphasis on accelerating vaccination rollout to meet the 90 percent eligible population target to allow timely and safe border reopening in 2022. Policy recommendations and priorities (as reflected in the text) - Accelerate vaccination rollout to reach the authorities’ target of 90 percent of the eligible population to enable timely and safe border reopening. - Rebuild fiscal buffers and ensure medium-term fiscal sustainability in light of declining logging revenues, potential lower donor grants, and planned public investment projects. - Strengthen Public Financial Management to address payment arrears and improve cash balance management, including enhancing transparency of Constituency Development Funds (CDFs). - Maintain accommodative monetary support in the near term while safeguarding financial stability; monitor rising NPLs and bank profitability. - Continue to prioritize investments that support economic recovery, diversification, and inclusive growth, including infrastructure projects tied to the 2023 Pacific Games and resource-sector investments. - Manage external and public debt prudently, relying on concessional external loans and careful issuance of domestic development bonds in line with the Medium-term Debt Management Strategy. *Based on IMF staff report text provided for Solomon Islands (2021).* ### 12. Authorities broadly agreed with staff’s assessment of the outlook and balance of risks. ### 1slbea2022001 - 12. Authorities broadly agreed with staff’s assessment of the outlook and balance of risks. ### Outlook and balance of risks - Recovery depends critically on vaccination progress and border reopening. - Near-term growth support expected from donor-supported infrastructure projects, logging, and fishing activities; mining contribution to increase over the medium term. - Authorities noted investment in reforestation and higher domestic value-added in forestry can help bridge some of the gap from expected decline in logging activity but recognized the need to generate new sources of growth. - Fiscal revenues were hit hard by the economic slowdown; authorities emphasized efforts to reduce financing gaps including through streamlining recurrent expenditures. - Payment arrears from end-2020 were cleared; while there had been further delays in payments, the government expected to clear all outstanding payments before the end of 2021. ### A. Fiscal policy to support the economy — near-term support and governance - Near-term targeted and transparent fiscal support is needed given projected low growth and pandemic-related uncertainties. - Support should prioritize productive and resource sectors and provide targeted assistance to vulnerable households and businesses, including SMEs and the agriculture sector. - Shift spending away from inefficient and non-transparent spending, including CDFs, and improve efficiency of health and education spending to create fiscal space. - Authorities should avoid delays in government payments to help reboot private sector activity and prevent negative spillovers to the financial sector. - COVID-19 related spending governance measures: - An Oversight Committee has been established to oversee COVID-19 spending and guard against abuse or misuse. - Authorities have published information on stimulus recipients and are conducting an impact evaluation. - Recommendation to promptly publish crisis-related procurement details, including names of entities awarded contracts and their beneficial owners. - An audit of COVID-19 related expenditures is being prioritized and should be completed in 2022. - Authorities’ views: - Near-term twin objectives: protecting the country from COVID-19 and accelerating the economic recovery. - 2022 budget will focus on resilience and sustainable recovery by prioritizing investment in productive and resource sectors while safeguarding essential services. - Fiscal stimulus support to SMEs and agriculture will be included in development spending rather than a separate package. - Newly appointed Auditor General has made progress in audits related to COVID-19 spending and plans for audit of the economic stimulus package. ### B. Restoring fiscal buffers and medium-term sustainability - Gradual fiscal adjustment should start once the economic recovery is firmly underway and aim at gradually rebuilding fiscal buffers towards a broad cash balance of at least two months of total spending. - Once cash balance is restored, fiscal measures should create space for policy to support inclusive growth and development. - An effective debt-based fiscal anchor can help guide policy. - Staff’s illustrative reform scenario: mix of additional donor support and fiscal measures focused on strengthening revenue administration and improving quality of spending and restraining expenditures on CDFs to create space for spending on SDGs and climate adaptation. Key reform areas and elements: - Revenue administration measures: - Recent efforts yielded positive results. - Strengthen compliance, tackle tax arrears, control exemptions (which amounted to 4.6 percent of GDP in 2020), and strengthen revenue administration. - Tax Administration Bill aims to consolidate procedures and modernize tax administration; should be passed soon and implemented accordingly. - Expenditure measures: - Channel resources to growth enhancing spending and SDGs. - Scale back non-essential recurrent spending, restrain CDFs, and improve budget planning (including for the Pacific Games). - Build on the World Bank’s upcoming public expenditure review to identify efficiency gains. - Tax policy measures: - Prompt VAT introduction and effective implementation can yield additional revenues over the medium-term. - VAT reforms should consider rates to offset projected decline in other revenues, aim at a broad base, and ensure timely VAT refunds. Tax reform details preserved from source: - Tax Administration Bill - Consolidates tax administration procedures scattered throughout various tax legislations. - Modernizes and unifies administration of all tax types; framework for self-assessment and electronic payment and lodgment. - Status: Cabinet has approved. - VAT Act - The VAT is intended to replace a range of existing taxes (goods taxes, sales taxes, custom duty on most imports, stamp duty). - Proposed rate: 15 percent. - Proposed threshold: SI$ 600,000. - Base recommended to be broad with few concessions. - Status: Draft bill is awaiting Cabinet decision regarding rates and threshold. - Income Tax Act - Authorities recognize that the Act needs to be reviewed and simplified; this will be the next priority item following VAT implementation. ### Fiscal reform sequencing and financing needs - Further fiscal reforms needed: set a comprehensive Medium-term Revenue Strategy (MTRS), broaden the tax base, mitigate decline in logging revenues and trade tariffs, identify new revenue sources, strengthen mining taxation (including by reviewing the Mining Bill). - Ensure adequate funding and implementation capacity in Inland Revenue and Customs; upgrade IT systems to ease taxpayer compliance and reduce administrative costs. - Achieving SDGs and climate adaptation requires investment in health, education, and key infrastructure: - It is estimated that Solomon Islands would need additional spending of about 6.9 percent of 2030 GDP per year to meet SDG targets on health, education, and infrastructure while building climate resilience. - Scale up renewable energy investment and improve energy efficiency to increase access and lower the cost of electricity. ### Box 1 — Fiscal Anchor and debt calibration - Public debt amounted to 13.4 percent of GDP in 2020. - Simulations suggest the current debt target (at 35 percent of GDP) is broadly appropriate. - The model calibrates a debt ceiling at 32.9 percent of GDP, suggesting current debt level is well below the ceiling with sufficient safety margin; the government’s current debt target is close to the calibrated ceiling and therefore still offers a reasonable anchor, but there is limited space to further raise the target. - Operationalizing the fiscal anchor requires an appropriate operational target and strengthening PFM; Medium Term Fiscal Strategy (including financing) should be published annually. - The fiscal anchor could include an “escape clause” to allow temporary breach for emergency spending in response to shocks. Notes and references embedded in source: - Explanatory notes reference IMF (2018) “How to Calibrate Fiscal Rules: A Primer” and other modeling/threshold conventions (reference threshold of 57 percent consistent with present-value of public debt-to-GDP ratio 35 percent for LICs with weak debt-carrying capacity, minus 8 percent to account for fiscal risk related to natural disasters). ### Strengthening fiscal governance and transparency - Immediate priorities: finalize regulations under the PFM Act, improve liquidity forecasting, cash management, and expenditure control to prevent payment arrears. - Ensure budget allocations align with development priorities; implement expenditure controls and develop a medium-term expenditure framework. - Investment decisions, borrowing and procurement for infrastructure projects should be transparent, aligned with development agenda, follow robust project appraisal and selection, consider maintenance costs, and be on grant or highly concessional terms. - Strengthen regulatory and enforcement fiscal regime on mining. - Use of CDFs should be transparent with regular monitoring and reporting; review of the CDF Act and supporting regulations should be completed. - Address capacity issues at constituency level; budget should report on extent to which CDF spending is promoting main social development areas. - Authorities’ views: - Agreed on rising fiscal challenges and need for revenue mobilization. - Tax Administration Bill has been sent to Parliament for approval. - Other reforms: National Payment System, recently completed PFM Procurement Regulation. - Committed to Medium-term Debt Strategy and expect to begin rebuilding fiscal buffers, including leveraging resources mobilized through domestic development bond issuance. - Recognized importance of reviewing CDF Act and regulations. ### C. Monetary and exchange rate policy - Accommodative monetary policy continues to support the economy; stance appropriate given subdued activity, low private sector credit growth, and limited inflationary pressures. - Transmission channels are weak. - Any additional CBSI purchase of government bonds should be transparent and limited in time and scale. - CBSI should clearly communicate a cohesive exit strategy from quantitative easing to limit risks to monetary policy credibility and central bank operational independence. - Authorities committed to an updated safeguards assessment as part of the RCF/RFI emergency financing. - Exchange rate regime: - Current regime based on a basket of currencies remains appropriate. - Additional injection of foreign reserves during the pandemic has supported the exchange rate regime. - CBSI relaxed some exchange control measures on payment limits (for trade, all services, and personal remittances). - As of end-October 2021, the currency basket that anchors the exchange rate regime has depreciated by 1.9 percent, mostly due to nominal depreciation against the US dollar. - Recommendations: improve exchange rate management by annual revisions of the basket, choice of intervention currency, and increasing transparency by publishing composition of the basket. ### External sector assessment - Staff assess the external sector position to be moderately weaker than suggested by medium-term fundamentals and desirable policies. - In 2020 the CA deficit was weaker than the norm by about 1 percentage point, equivalent to an overvaluation of the real effective exchange rate of about 4 percent. - Reserve coverage was adequate at 13.5 months of prospective imports, well above the adequacy range estimated at 3-7.5 months of prospective imports. - CA deficit expected to widen and reserves coverage to decline. - Given resource-rich, fragile, and small economy characteristics, maintaining sufficient reserves buffers is warranted. Authorities’ views on monetary/external policy: - Expect to maintain an accommodative monetary policy stance and view basket exchange rate regime as working well. - CBSI does not expect further government bond purchases in 2021; any future purchases depend on recovery strength. - Review of exchange rate basket postponed due to pandemic; will consider updating currency weights and management of exchange rate operations. - Authorities intend to promote accumulation of foreign exchange reserves through increased exports and plan to hold new SDR allocations as reserves. ### D. Financial stability and development - Financial sector remained stable but vulnerabilities need proactive addressing. - NPLs were elevated before the pandemic; anecdotal evidence suggests additional pressure in some sectors; close monitoring and supervision required. - As of end-October, after a temporary halt, the CBSI re-established its prudential guidelines in consultation with financial institutions; future exemptions expected to be targeted and case-by-case. - Excess liquidity in the system has remained high, providing buffers. - NPF’s earnings and capital deteriorated in 2020; NPF exposure to government debt remains low despite recent purchases of government bonds. - Effective CBSI supervision of the DBSI and its management practices is needed to minimize government contingent liability risks. AML/CFT and financial integrity priorities: - Strengthening the AML/CFT legal framework would help mitigate pressures on CBRs and safeguard financial stability. - CBRs have been under pressure throughout the region, highlighting need to strengthen AML/CFT effectiveness (see Box 2: Priorities for AML/CFT Reforms). - Banks and the CBSI should seek alternative solutions and establish contingency plans in case pressures re-emerge. - Alignment of AML/CFT legal framework with FATF standards and improving risk-based supervisory capacities are needed to reduce financial integrity risks. *Source: 1slbea2022001 - 12. Authorities broadly agreed with staff’s assessment of the outlook and balance of risks.* ### Box 2. Priorities for AML/CFT Reforms ### Box 2. Priorities for AML/CFT Reforms ### Context and risks - The region is facing acute pressures on CBRs. Several banks operating in Solomon Islands have seen CBRs under pressure over the past several years. - Contributing factors: - Weaknesses in AML/CFT supervision of banks and other financial institutions. - High cost of conducting due diligence for transactions. - Profitability concerns. - Deficiencies in the AML/CFT legal framework and supervision create financial integrity risks. - The AML/CFT legal framework is not fully aligned with the FATF standards. - The 2019 Mutual Evaluation Report (MER) by the Asia Pacific Group on Money Laundering highlighted key technical deficiencies including on the AML/CFT supervisory framework and implementation, as well as preventative measures implemented by reporting institutions. ### Legal and supervisory priorities - Alignment of AML/CFT legal framework with the FATF standards should be prioritized. - The Anti-Money Laundering Council has endorsed the National Strategic Plan. - A new AML/CFT legal framework is expected to be submitted to the Parliament in 2022. - Clarifying AML/CFT supervisory responsibilities among the agencies is needed to maximize limited resources. - Risk-based supervisory capacities need to be improved. - Once supervisory roles are clarified, focus should turn to enhancing offsite monitoring and onsite inspections, with focus on high-risk sectors and institutions. ### Capacity development and supervisory tools - The CBSI has taken steps to address the 2019 MER findings, such as increasing FIU staffing. - With capacity development assistance from the Fund: - AML/CFT supervisory tools should be developed to support a risk-based approach. - Recommended tools and areas of development: - Monitoring tools (covering high risk customers). - Supervisory strategy. - Onsite inspection practices. - Enforcement actions. - Strengthening institutional capacities and practices. ### Policy implications and links to financial sector stability - Strengthening the AML/CFT framework would help mitigate pressures on CBRs and safeguard financial stability. - Risk-based supervision and clearer agency responsibilities are necessary to maximize limited resources and target high-risk institutions and sectors. ### Authorities’ views (as presented) - Authorities agreed with the need to promote private sector credit growth and financial development, and to strengthen the AML/CFT framework. - Actions and positions noted by authorities: - CBSI is close to completing its review and update of prudential guidelines. - A taskforce was created to make the lending environment more conducive to increasing private sector credit. - Highlighted importance of DBSI financing and new instruments targeted to SMEs, rural and exporting sectors. - Introduced a National Strategic Plan, increased staffing and supervisory capacity at the Financial Intelligence Unit, and conveyed strong interest in addressing AML/CFT challenges including through continued technical assistance. - Argued in favor of a regional approach to resolving CBR challenges and are actively participating in the development of a regional electronic know-your-customer utility. *Prepared by Jonathan Pampolina and Yong Sarah Zhou.* ### 44. It is proposed that the next Article IV consultation takes place on the standard 12- ### 44. It is proposed that the next Article IV consultation takes place on the standard 12-month cycle. ### Macroeconomic developments and outlook - A modest recovery is expected this year following a contraction in 2020. - Commodity prices have risen sharply. - The real exchange rates have depreciated. - The current account deficit narrowed during the pandemic, it is expected to widen. - Drivers and projections (figures illustrated in source): - Real GDP Growth Rate (In year-on-year percent change): Solomon Islands and PICs Average shown for 2014–2022 with Proj. 2021 and Proj. 2022. - CPI Inflation and World Food/Fuel Price Index (In year-on-year percent change): CPI year on year percent change, 3 months moving average. - Nominal and Real Exchange Rates (Jan-2015 = 100): REER and NEER series shown. - Current Account Balance (In percent of GDP): Trade Balance - Goods, Trade Balance - Services, Income Balance, Current Transfers, Current Account Balance (2013–Proj.2022). - Total Exports (In percent of GDP): Logs, Fish, Minerals, Other (2013–Proj.2022). - Total Imports (In percent of GDP): Food, Fuel, Machinery and transportation, Other (2013–Proj.2022). *Sources: World Development Indicators and IMF staff calculations.* ### Fiscal indicators and dynamics - Tax revenue is highly volatile and exhibits high reliance on logging revenue. - Cash balance has declined significantly; the fiscal deficit has widened reflecting negative impact of COVID-19 on revenues. - Spending declined but infrastructure projects are expected to drive total expenditure higher, leading to a significant increase in public debt. - Key fiscal indicator highlights and exact figures from tables and charts: - Volatility of Tax Revenue (Standard deviation of tax revenue to GDP ratio, 2008-2021): comparative across jurisdictions shown. - Composition of Tax Revenue (In percent of total tax revenue) for 2017–2021: Income and profits; Goods and services; International trade - logging; International trade - others. - Fiscal Balance and Financing (In percent of GDP): Domestic financing, External financing, Overall balance (-deficit), Cash balance (stock) (RHS). - Government Revenue and Expenditure (In percent of GDP) series for 2014–Proj.2022: Total revenue, Grants, Development, Recurrent, and Government Expenditure breakdowns. - Public External Debt (In percent of GDP) trends 2010–Proj.2022. - Table 1 selected economy-wide fiscal and macro indicators (2017–2026) — key exact values: - Per capita GDP (2019): US$2,215 (p) - Population (2019): 721,455 (p) - Poverty rate (2006): 23 percent - Quota: SDR 20.8 million - Real GDP: 2017–2026 row: 5.3 3.9 1.2 -4.3 0.4 2.3 3.4 2.9 3.1 3.1 - CPI (period average): 0.5 3.5 1.6 3.0 -0.2 3.8 3.5 3.6 3.5 3.5 - Nominal GDP (in SI$ millions): 11,703 12,522 12,833 12,697 13,290 14,211 15,299 16,442 17,657 18,950 - Total revenue and grants (In percent of GDP): 39.2 40.4 32.8 33.2 30.9 30.7 30.1 30.7 30.4 30.2 - Total expenditure (In percent of GDP): 42.1 39.5 33.7 35.6 33.8 33.9 32.9 33.9 34.4 34.6 - Overall balance (In percent of GDP): -2.9 0.9 -0.9 -2.4 -3.2 -2.9 -3.1 -3.8 -3.7 -4.2 -4.4 (table presents series through 2026) - Central government debt (In percent of GDP): 8.4 8.3 8.2 13.1 16.2 18.3 20.7 23.1 25.6 28.3 - Gross official reserves (in US$ millions, end of period): 576.9 613.1 574.1 660.6 700.3 640.9 588.9 565.7 547.2 513.7 - Reserves in months of next year's imports of GNFS: 9.3 9.8 12.4 13.5 10.9 9.0 8.5 8.1 7.5 6.7 - Cash balance (in SI$ millions): 343 311 206 206 104 104 104 104 104 104 - SIG Deposit Account (SI$ millions): 140 140 140 120 120 120 120 120 120 120 - Broader cash balance (=Cash balance+ SIG Deposit Account; in SI$ millions): 483 451 346 326 224 224 224 224 224 224 - Public domestic debt, including arrears (in SI$ millions): 193 245 273 452 747 843 1,010 1,244 1,620 2,054 *Sources: Data provided by the authorities; and IMF staff estimates and projections.* ### Money and credit developments - Foreign exchange reserves have improved thanks to external financing and reserve cover remains comfortable. - Banking sector spreads are declining reflecting downward trending lending rate. - Broad money growth is relatively modest; credit growth is weak as banks have pulled back lending. - Bank excess reserves continue to increase; credit to central government ticked up after recent bond issuance. - Exact indicators and series: - Gross International Reserves (In millions of USD; in months of next year's import coverage (RHS)) series from Jan-2015 to Apr-21. - Lending and Deposit Rates (In percent per annum): Lending rate and Deposit rate series and Spread indicated. - Broad Money (Year-on-year percent change) series shown (Jan-15 to Oct-21). - Credit Growth (Year-on-year percent change) and Loan-to-deposit ratio (RHS) series. - Bank Reserves and Liquid Asset Ratio (In percent) series. - Net Credit to Central Government (In millions of SI$) series showing Other Depository Corporations and Other Financial Corporations contributions. - Table 4 summary banking system accounts (2017–2026) — selected exact values: - Reserve money (level, SI$ millions): 2,783 3,077 2,859 3,515 3,590 3,661 3,737 3,815 3,886 3,957 - Broad money (M3, SI$ millions): 4,909 5,244 5,082 5,418 5,601 5,802 6,053 6,294 6,536 6,805 - Credit to private sector (annual percent change): 6.4 4.1 6.1 0.3 1.0 4.0 7.0 6.0 5.5 5.0 - Loan-to-deposit ratio (in percent): 58.0 55.8 61.5 59.6 (N.A. for subsequent years as published) - Deposit rate (percent per annum, period average): 0.3 0.3 0.4 0.5 - Lending rate (percent per annum, period average): 10.6 10.5 10.4 10.7 *Sources: CBSI and IMF staff calculations; IMF-IFS.* ### Progress and remaining gaps related to SDGs and vulnerabilities - Financial inclusion has been improving slowly; access to traditional banking is limited, mobile transactions are higher than in other PICs. - Progress towards SDGs related to human capital is still lagging peers; progress towards improving basic infrastructure is lagging. - Climate readiness and vulnerability have improved but health, infrastructure, and settlements remain highly susceptible to extreme events compared with peers. - Exact indicators and comparative datapoints presented: - Deposits, Loans and SME Loans (In percent of GDP) — outstanding deposits, outstanding loans, outstanding SME loans. - Commercial Bank Branches and ATMs (Per 1,000 adults) and mobile money transactions (per 1,000 mobile money transactions in given year) for LICs, PICs (excluding Solomon Islands), and Solomon Islands for 2018 and 2020. - Sustainable Development Goals scores (range 0–100) on Health and Education and on Infrastructure — PICs Median and Solomon Islands positions referenced (United Nations Sustainable Development Report, 2020). - Climate Readiness Index and Vulnerability Index (higher readiness = greater readiness; higher vulnerability = greater vulnerability) values for Solomon Islands (2019 and 2010) and comparisons to PICs, Asia EMDEs, and LICs. - Climate Vulnerability Index by Sector, 2019: PICs Median, Solomon Islands 2019 and 2010. *Sources: Financial Access Survey, IMF; United Nations Sustainable Development Report, 2020; Notre Dame Global Adaptation Initiative.* ### Balance of payments and external sector - Current account and trade dynamics (Table 3 selected exact values, 2017–2026): - Current account balance (In US$ millions): -62.8 -47.8 -154.0 -25.1 -85.2 -219.3 -233.6 -202.1 -200.3 -225.6 - Trade balance for goods (In US$ millions): 7.2 6.5 -36.4 -25.3 -76.5 -163.0 -193.1 -161.9 -169.9 -192.5 - Exports (US$ millions): 469.3 536.0 460.9 378.7 358.4 393.7 403.3 417.0 422.1 431.4 - Logs: 312.4 372.9 318.6 245.5 215.9 224.1 218.8 217.8 216.6 215.3 - Fish: 48.7 56.2 49.6 43.5 51.2 57.4 63.2 68.6 73.6 76.8 - Minerals: 16.8 19.0 19.8 18.1 14.7 21.5 25.1 27.2 27.6 28.1 - Imports (US$ millions): 462.1 529.4 497.3 404.0 435.0 556.7 596.4 579.0 592.1 623.9 - Gross official foreign reserves (US$ millions): 577 613 574 661 700 641 589 566 547 514 - In months of next year's imports of GNFS: 9.3 9.8 12.4 13.5 10.9 9.0 8.5 8.1 7.5 6.7 - Financial account (excludes reserve assets) (US$ millions): -39.6 -17.6 -20.4 -7.2 -59.5 -79.4 -94.0 -85.3 -86.7 -95.1 - Direct investment balance (US$ millions): -35.9 -15.9 -28.7 -5.7 -24.1 -50.1 -58.2 -56.5 -57.3 -61.3 *Sources: Data provided by the Solomon Islands authorities; and IMF staff estimates and projections.* ### Banking system summary accounts (selected figures) - Central Bank of Solomon Islands (CBSI) key lines (in SI$ millions, end of period): - Net foreign assets (NFA): 4,366 4,834 4,580 4,949 5,045 4,567 4,148 3,962 3,813 3,543 - Reserve money: 2,783 3,077 2,859 3,515 3,590 3,661 3,737 3,815 3,886 3,957 - Depository corporations survey (system aggregates): - NFA of the banking system: 4,583 5,053 4,781 5,313 5,212 4,742 4,331 4,152 4,011 3,750 - NDA of the banking system: 326 192 301 106 389 1,060 1,722 2,142 2,525 3,055 - Broad money (M3): 4,909 5,244 5,082 5,418 5,601 5,802 6,053 6,294 6,536 6,805 *Sources: Central Bank of Solomon Islands; IMF staff estimates and projections.* ### Indicators of capacity to repay the Fund - Fund obligations based on existing credit (in SDR millions) projected 2021–2031: - Principal: 0.00 0.2 3.6 7.1 4.2 1.4 1.4 1.4 1.4 0.7 0.0 - Charges and interest: 0.00 0.2 0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Total obligations based on existing and prospective credit: - In millions of SDRs: 0.00 0.2 3.6 7.1 4.2 1.4 1.4 1.4 1.4 0.7 0.0 - In millions of US$: 0.00 0.35 5.09 9.85 5.92 2.01 1.91 1.91 1.91 1.00 0.0 - In percent of gross international reserves: 0.00 0.00 0.91 1.71 1.10 0.40 0.40 0.50 0.60 0.40 0.0 - Outstanding Fund credit (in millions of SDRs): 21.4 21.2 17.6 10.5 6.3 4.9 3.5 2.1 0.7 0.0 0.0 - Outstanding Fund credit (in millions of US$): 29.7 29.4 24.4 14.6 8.7 6.7 4.8 2.9 1.0 0.0 0.0 - Memorandum items (selected): - Nominal GDP (in US$ millions): 1,651.9 1,766.4 1,901.6 2,043.8 2,194.8 2,355.5 2,525.9 2,701.3 2,896.8 3,108.1 3,332.2 - Gross international reserves (in US$ millions): 700.3 640.9 588.9 565.7 547.2 513.7 467.5 403.7 340.4 272.6 187.1 - Government revenue (in US$ millions): 510.7 525.1 572.9 627.8 666.2 712.0 755.4 799.5 848.3 902.7 960.2 *Source: IMF staff estimates and projections.* ### Likelihood, impact, and policy response (scenario: Upside) - Likelihood: Medium - Impact / Time Horizon: Medium-High / ST, MT - Policy response (exact recommendations verbatim): - Take advantage of upside surprises to lock in an improvement in fiscal buffers. - Consider ways to use some of the gains to invest in resilient infrastructure and progress towards SDGs. *Source: IMF staff estimates and projections; data and charts from the provided IMF chapter.* ### 1. Faster containment of the Covid-19 pandemic ### 1. Faster containment of the Covid-19 pandemic ### Key scenario and near-term outlook - Pandemic is contained faster than expected due to the rapid production and distribution of vaccines, boosting confidence and economic activity. - Likelihood: Medium - Overall level of concern: High / ST, MT ### Policy recommendations linked to faster containment - Increase public expenditure in health infrastructure, education, and social safety nets to mitigate the immediate impact of the pandemic and boost potential growth. - Cushion the impact. Seek additional concessional financing to ensure that critical capital expenditure projects can continue. - Review and realign the basket exchange rate peg with underlying fundamentals and competitiveness. - Undertake structural reforms to improve the business environment and help support diversification of the sources of growth. - Sustain the fiscal buffer. - Make efforts to contain spending on CDFs. - Contain spending on the Pacific Games and ensure financing is grants or on concessional terms. ### Risks identified in the Risk Assessment Matrix (RAM) - 1. Covid-19 local outbreaks - Given weaknesses in health infrastructure, any domestic community transmission of the virus could lead to a significant increase in human and economic costs. - Likelihood: Downside; Probability assessment: Medium; Overall level of concern: High / ST - 2. Global resurgence of the Covid-19 pandemic - Local outbreaks lead to a global resurgence of the pandemic (possibly due to vaccine-resistant variants), requiring costly containment efforts and prompting persistent behavioral changes rendering many activities unviable. - Likelihood: High; Overall level of concern: High / ST, MT - 3. Fiscal policy slippages, including spending on the Pacific Games - Expansionary fiscal policy and weak public financial management increase domestic arrears, resulting in a rise in non-performing loans in the banking sector. - Likelihood: High; Probability assessment: Medium / ST - Policy guidance: Additional spending on vulnerable households, social protection, health, and education are warranted to mitigate the impact of the pandemic and minimize adverse longer-term growth implications. Address governance vulnerabilities, including through strengthening anti-corruption efforts. - 4. Social discontent and political instability - Social discontent could increase as the pandemic and lockdowns exacerbate pre-existing inequalities, causing socio-economic hardship (unemployment, poverty, and shortages and higher prices of essentials). - Likelihood: Medium; Probability assessment: Medium / ST - Policy guidance: Finalize and complete the Tina Hydro project which will reduce dependence on oil imports and could help reduce electricity prices. - 5. Rising commodity prices amid bouts of volatility - Commodity prices increase by more than expected against a weaker U.S. dollar, post-pandemic pent-up demand and supply disruptions, and for some materials, accelerated plans for renewable energy adoption. Uncertainty surrounding each of these factors leads to bouts of volatility, especially in oil prices. - Likelihood: Medium; Overall level of concern: High / ST - Policy guidance: Reduce environmental concerns in the logging sector. Continue to strengthen prudential standards for governance, fit and proper. Strengthen the effectiveness of the AML/CFT framework. Contribute to regional efforts to mitigate CBR pressures, including establishment of a regional Know Your Customer Utility. - 6. Reduced financial services by correspondent banks - AML/CFT and governance vulnerabilities increase the cost and/or reduce access to correspondent banking services. - Likelihood: Medium/ High; Overall level of concern: High / ST, MT - Policy guidance: Build fiscal buffers against a natural disaster shock. Use space available in the aftermath of a shock to ease the fiscal policy stance and provide a social safety net for those affected. Plan how to adjust back to target once the impact of the shock has diminished. Invest in resilient infrastructure to strengthen climate change mitigation and adaptation. - 7. Higher frequency and severity of natural disasters related to climate change - Solomon Islands faces many natural disasters, including tropical cyclone, drought, earthquake, tsunami, and flood in the past. Disasters could occur with higher frequency and severity due to climate change. The country also faces the risk of adverse effects of volatile weather conditions caused primarily by global warming. - Note: Annex ### External sector and macro-financial context (selected findings relevant to pandemic containment and recovery) - Overall Assessment: The external position of Solomon Islands in 2020 was moderately weaker than the level implied by medium term fundamentals and desirable policies. The current account (CA) deficit is expected to widen as the economy recovers from the pandemic and infrastructure projects accelerate. The real exchange rate was assessed as overvalued. Reserve coverage remains strong but is expected to decline over time. - Potential Policy Responses: Structural policies remain the cornerstone to improve competitiveness and encourage export diversification, while sound fiscal policies can help reduce the CA gap. Continuing to pursue grant financing and highly concessional loans will reduce the pressure on debt accumulation and limit financing costs. The regular revision of the basket of currencies in the exchange rate regime and the intervention currency can help prevent persistent exchange rate misalignments. Key external balance sheet and CA figures (2020, % GDP): - NIIP: 0.7 - Gross Assets: 54.0 - Debt Assets: 7.3 - Gross Liabilities.: 53.3 - Debt Liabilities.: 21.0 - Current Account: - Background: The CA deficit was 1.6 percent of GDP in 2020, reflecting the effect of the COVID-19 pandemic with imports falling by more than exports and strong income transfers. In 2021 the CA is expected to worsen, mostly driven by the faster recovery of imports across all categories. - Assessment: The revised EBA-lite CA model indicates a negative gap of 1.2 percent of GDP, consistent with an adjusted CA balance of -3.1 percent and an adjusted CA norm of -2 percent. The policy gap has offset the overall CA gap by 6.6 percentage points. Domestic drivers of the policy gap were fiscal policy and reserves accumulation. - Real Exchange Rate: - Background: The average real exchange rate appreciated by 4.3 percent in 2020. - Assessment: The revised EBA-lite methodology suggests the real exchange rate is overvalued by 3.9 percent, while the REER approach suggests the real exchange rate is overvalued by 14.2 percent compared to the REER norm in 2020. The policy gap accounts for 1 percent of the gap using the REER model. - Capital and Financial Accounts: - Background: Until 2018, financing from the capital and financial accounts had been enough to finance the CA deficit and build up foreign exchange reserves, mostly supported by donor grants. Net FDI flows represent the majority of the financial account. In 2020 FDI inflows hit their lowest level since 2006, but donor support and the RCF/RFI emergency financing provided additional financing. - Assessment: FDI into Solomon Islands is expected to remain strong in the near term. However, the large financing needs, driven by the widening CA deficit, will require an increase in external debt. Pursuing grant financing and highly concessional loans can lessen the debt burden. - FX Intervention and Reserves Level: - Gross official reserves increased to US$661 million in 2020, covering 13.4 months of prospective imports. - By end-October 2021, gross official reserves were US$717 million, equivalent to 11.6 months of prospective imports. - Authorities plan to keep the new SDR allocation of SDR19.94 million (about US$25 million or 1.5 percent of GDP) as reserves. - As of end-October 2021, the nominal trade weighted currency basket has depreciated by 1.9 percent, mostly due to the nominal depreciation against the US dollar. - Assessment: The current level of reserves remains above the adequate level for a resource-rich, fragile, and small economy, assessed to be between 3 and 7.5 months of imports. The reserve coverage is projected to decline over the medium term, to about seven months of prospective imports by 2026. ### Selected policy implications tied to pandemic containment - Continue to pursue grant financing and highly concessional loans to reduce pressure on debt accumulation and limit financing costs as the economy recovers. - Periodically revise the weights in the currency basket and consider updating the intervention currency to prevent exchange rate misalignments and manage imported food price inflation. - Foster sustainability in the forestry sector and export diversification to reduce the CA deficit over the medium term and slow the projected decline in reserves. - Prioritize health infrastructure and social safety nets to mitigate human and economic costs from potential outbreaks. *Source: IMF staff analysis in 1slbea2022001 - 1. Faster containment of the Covid-19 pandemic (Annex I–III excerpts).* ### Annex IV. TA Priorities for FY22-FY23 ### Annex IV. TA Priorities for FY22-FY23 ### Public Financial Management - Topic: Asset and liability management; Fiscal reporting; Public financial management laws and institutions. - TA Description: - Improved asset and liability management. - Improved coverage and quality of fiscal reporting. - Stronger PFM laws and institutions. - Comments: - TA will focus on implementing the roadmap for accounting and reporting of non-financial assets. - A database for non-financial assets will be implemented and regular reporting on changes will be included in financial statements. ### Revenue Administration - Topic: Revenue Administration and Governance; Tax administration core functions. - TA Description: - Strengthened revenue administration, management, and governance arrangements. - Strengthened core tax administration functions. - Comments: - PFTAC will be providing TA on effective implementation of a new tax or modernized legislation and successful implementation of VAT in 2022. - Initiatives will focus on improving on-time filing and payment obligations by taxpayers to strengthen voluntary compliance. ### Tax Policy - Topic: Tax and non-tax revenue policy; MTRS. - TA Description: - Improved tax and non-tax revenue policy. - Develop an MTRS. - Comments: - Authorities would benefit from TA on domestic revenue mobilization, including MTRS and non-tax revenue including mineral pricing and associated revenue risks. ### Financial Market Supervision and Regulation - Topic: Regulatory & Prudential Framework; Risk based supervision. - TA Description: - Develop/strengthen banking regulations & prudential norms. - Implement a risk-based supervision system and upgrade other supervisory processes. - Comments: - Under the Supervision Framework Enhancement project, the CBSI with PFTAC’s assistance has developed and implemented risk-based supervisory action planning process, risk rating model (including impact index), onsite examination framework and finalized applicable guidelines and regulations. - The authorities could benefit from support on climate related considerations for financial sector supervision. ### Debt Management - Topic: Medium term debt strategy and DSA workshop. - TA Description: - Formulate and implement a medium-term debt management strategy. - Comments: - TA will focus on debt management strategies such as setting realistic targets or ranges for the evolution of interest rate, refinancing, and foreign currency risk. - Training will be provided to ensure staff are able to use the MTDS Analytical Tool (AT) effectively. ### Central Bank Operations - Topic: FOREX reserve management. - TA Description: - Strengthen the reserve management policy framework and management of FX reserves. - Comments: - The Policy framework and guidelines have been developed and approved by the CBSI board in accordance with CB Law and with clearly defined strategic objectives. - Authorities could benefit from TA on reviewing and drafting of the Exchange Control Act to align with best practices. ### Macroeconomic and Financial Statistics - Topic: Real sector – National accounts, Input-Output tables, government finance, balance of payments, and data transparency. - TA Description: - Strengthen compilation and dissemination of macro & financial statistics; implement the e-GDDS. - Comments: - TA and capacity development will continue in the compilation of GFS statistics, BOP, and GDP. - Existing staff have been adequately trained on GDP rebasing. - Authorities would benefit from TA on implementing the e-GDDS to enhance data transparency. ### Economic Analysis and Modelling; Monetary Policy Framework and Communications (FPAS) - Topic: Monetary Policy, General Macroeconomic Analysis. - TA Description: - Develop tools to improve economic analysis and forecasting capabilities, streamline the decision-making process, and strengthen the monetary policy communication strategy at the Central Bank. - Comments: - Support CBSI to develop analytical and forecasting capacity to improve economic analysis and forecasting capacities, modernize their monetary policy framework, and strengthen the communications. ### Governance and Anti-Corruption - Topic: Anti-Corruption Legal, Regulatory and Institutional Frameworks. - TA Description: - Strengthen the capacity of the Office of the Auditor General (OAG) in audits of emergency spending. - Comments: - Discuss existing legal frameworks and arrangements for auditing emergency spending and acting on findings, and recommendations for short term steps to enhance the ability to undertake compliance and other appropriate audits. - Provide targeted capacity building to the OAG on the production, publishing, and follow-up of audits of emergency spending. *Source: 1slbea2022001 - Annex IV. TA Priorities for FY22-FY23* ### 1. The coverage of public sector debt used in this report is central government debt, ### 1slbea2022001 - 1. The coverage of public sector debt used in this report is central government debt, ### Coverage of public sector debt - Coverage used in this report: central government debt, central government-guaranteed debt, and central bank debt borrowed on behalf of the government. - As of end-August 2021: - No central government-guaranteed debt recorded. - Outstanding debts to the IMF: SDR21.45 million (US$30.6 million; 1.9 percent of GDP). - Ministry of Finance and Treasury’s SOE Unit suggests no outstanding SOE debt; subnational debt and non-guaranteed SOE debt are not included due to lack of concrete information. - Check box coverage used: Central government (X), Guarantees (X), Central bank borrowed on behalf of government (X); Non-guaranteed SOE debt excluded. ### Background on debt: stock and developments - Public and Publicly Guaranteed (PPG) external debt as of end-2020: US$150.9 million (9.6 percent of GDP), an increase of 3.5 percent of GDP from 2019. - Major external creditors: ADB and IDA account for about 92 percent of total external debt. - IMF Rapid Credit Facility/Rapid Financing Instrument (RCF/RFI) in 2020: US$28.84 million (1.8 percent of GDP) contributed significantly to the external debt increase. - Public debt as of end-2020: 13.1 percent of GDP, an increase of 4.9 percent of GDP from 2019. - Public domestic debt at end-2020: SI$451.6 million (3.5 percent of GDP). - Domestic development bonds issued in 2020: SI$180 million to finance the COVID-19 response, purchased by NPF, Solomon Power, and the Port Authority. - Domestic payment arrears estimated at SI$100 million (0.8 percent of GDP) reportedly re-emerged at end-2020. - Note: Government has issued Development Bonds since 2017 (recently 10-year maturity, three-year grace period, 5 percent coupon). ### Debt projections and government limits (2021 developments) - New domestic and external borrowing projected around SI$625 million in 2021. - Government issued four development bonds in 2021: SI$120 million with NPF, SI$50 million with Pan Oceanic Bank, and SI$120 million with Solomon Power and Port Authority. - Public debt projected to increase to 16.2 percent of GDP in 2021. - Government policy limits: - Public debt-to-GDP ratio limit: 35 percent (nominal terms). - 2021 budget annual borrowing limit: SI$350 million. - Government plans to provide 50 percent guarantee to Solomon Power’s loan for the Tina hydro project (US$10.6 million) in 2022. - The share of domestic financing temporarily elevated at 67 percent in 2021 owing to issuance of domestic development bonds (SI$290 million) and slow donor project implementation. - Government committed to annual T-bill issuance limit of SI$100 million. ### Macro assumptions and realism tools (baseline and medium-term) - Discount rate for NPV of external debt: 5 percent. - Key macro assumptions: - Real GDP: fall in 2020 by 4.3 percent; real GDP growth expected at 0.4 percent in 2021; medium-term average 2.8 percent over 2021–31. - Inflation (GDP deflator): average 4.1 percent during 2021–31. - Non-interest current account deficit: projected average 9.8 percent of GDP over 2021–31. - Official grants: projected to decline and average 1.6 percent of GDP over the medium-term. - FDI inflow: expected around 2.6 percent of GDP. - Fiscal outlook: primary deficit widened from 0.5 percent of GDP in 2019 to 2.2 percent of GDP in 2020; ten-year average primary deficit projected at 3.3 percent of GDP. - New external loan disbursements for large infrastructure: expected to increase to about 3 percent of GDP over the next three years; from 2026 onwards new net external borrowing around 2.2 percent of GDP. - Average grant element of new borrowing: around 45 percent. - MTDS implications: - Redemption profile peaks in 2032 when the 15-year development bond (SI$120 million, issued in 2017) matures. - Realism tools assessment: - External and public PPG debt trajectory in current DSA slightly below previous DSA due to difference in initial debt level. - Projected fiscal adjustment lies towards the bottom of LIC past adjustment episodes distribution. - Staff’s real GDP growth projection during 2021–23 is higher than the realism tool’s growth path based on assumed fiscal multiplier; low elasticity of growth to fiscal impulse for 2021–23 indicates limited fiscal multiplier effect. ### Country classification and stress tests - Debt-carrying capacity: - Composite Indicator (CI) index: 2.651 → assessed as "weak" in the LIC-DSA framework (downgrade from "moderate" in 2019 DSA). - Applicable indicative thresholds for "weak" category: - PV of total public debt-to-GDP ratio: 35 percent. - PV of PPG external debt-to-GDP ratio: 30 percent. - PV of PPG external debt-to-exports ratio: 140 percent. - PPG external debt service-to-exports ratio: 10 percent. - PPG external debt service-to-revenue ratio: 14 percent. - Tailored stress tests applied: - Commodity price shock: one standard deviation decline in fuel and non-fuel prices with gradual recovery over six years. - Natural disaster shock: adjusted to a 14 percent of GDP shock to GDP (based on DAT), associated with reductions in real GDP growth and exports by 2.67 and 8.12 percentage points, respectively. - Combined contingent liability shock: incorporates implicit contingent liabilities amounting to 7 percent of GDP (2 percent of GDP non-guaranteed SOE debt + 5 percent of potential financial market liabilities). - Probability of disaster: staff’s work shows around 13.5 percent probability of a disaster each year of magnitude more than 3 percent of GDP or impacting 5 percent of the population. ### External Debt Sustainability Analysis (findings) - Baseline: - All external PPG debt indicators remain below policy relevant thresholds for the next ten years. - PV of PPG external debt-to-GDP ratio expected to grow from 7 percent in 2020 to 13.8 percent in 2031 due mainly to new disbursements for infrastructure. - Main driver of external debt dynamics: deterioration of the current account balance. - PPG external debt service indicators projected to moderately rise in the near-term when IMF emergency financing repayment is due. - Stress test outcomes: - Export shock has the largest negative impact on external debt trajectory; PV of PPG external debt-to-export ratio expected to breach the indicative threshold under the export shock scenario. - “Other flows” shock (changes in donors’ external loans) also causes significant increase in PV of debt-to-GDP ratio. - Shocks to real GDP growth, primary balance, and one-time 30 percent depreciation do not lead to breach of any external debt thresholds in the scenarios run. - Net debt creating flow is negative under the historical scenario, reflecting smaller current account deficit and larger official grants in the last ten years on average. ### Public Sector Debt Sustainability Analysis (findings) - Baseline: - PV of public debt-to-GDP ratio does not breach the 35 percent benchmark under the baseline. - Nominal public debt-to-GDP ratio projected to reach the authorities’ policy threshold of 35 percent in nominal terms by 2029. - Increase driven mainly by a high primary deficit. - Public debt service-to-revenue ratio projected to moderately rise over the medium term. - Sensitivity analysis: - Commodity price shock leads to the largest increase in debt by 2031; PV of debt-to-GDP ratio would breach the indicative threshold by 2026 under this shock. - Public debt sustainability is sensitive to a slowdown in real GDP growth. - High vulnerability to shocks in commodity prices and real GDP growth underscores the urgency of economic diversification and finding new growth drivers. - Potential growth drivers mentioned: fisheries and mining, but they require additional investment in infrastructure and production facilities. - Like external DSA, net debt creating flow is negative under the historical scenario, reflecting a primary surplus in the last ten years on average. ### Policy-relevant observations and implications (as stated in the text) - Need to expand the export base, as logging activity is expected to substantially decline in the medium term. - Prioritize investment projects that build resilience to natural disasters. - Boost medium-term potential growth to manage increases in public debt from infrastructure investment. - Economic diversification and finding new growth drivers (e.g., adding local value in agriculture, investments in fisheries and mining) are important to reduce vulnerability to commodity price shocks. - Continued donor support and concessional external financing expected to play a major role in financing the infrastructure pipeline. *Source: 1slbea2022001 - 1. The coverage of public sector debt used in this report is central government debt,* ### 17. Tailored natural disaster and combined contingent liability shocks result in a ### 1slbea2022001 - 17. Tailored natural disaster and combined contingent liability shocks result in a ### Debt sustainability impacts of tailored shocks - Natural disaster shock scenario: - Debt service-to-revenue ratio is expected to significantly increase compared to the baseline one year after the shock. - The PV of public debt-to-GDP ratio would breach the threshold of 35 percent by 2027. - Combined contingent liability shock scenario: - The trajectory of the PV of public debt-to-GDP ratio moves upwards by 4-6 percentage points from the baseline. - Implication: - Results highlight the importance of rebuilding fiscal buffers against external shocks, including natural disasters, and contingent liability shocks. ### Risk rating and vulnerabilities (DSA findings) - Overall DSA conclusion: - The DSA analysis suggests that Solomon Islands’ risk of external debt distress is moderate. - All external debt indicators remain below the relevant indicative thresholds under the baseline scenario. - Key vulnerabilities: - Public debt is projected to increase significantly while growth is expected to remain subdued over the medium-term. - An export shock scenario would result in a significant deterioration in external debt sustainability. - Pandemic-related deterioration in fiscal position and decline in government cash balance, and constraints to absorptive capacity, call for caution in debt accumulation. - Policy implications emphasized by staff: - Debt sustainability needs to be anchored by a prudent fiscal policy to rebuild fiscal buffers. - Create fiscal space for development spending through stronger revenue mobilization measures and expenditure rationalization. - Broaden the export base, boost medium-term potential growth, and prioritize investment projects that build resilience to natural disasters. ### Public debt portfolio, refinancing and interest rate risks - Composition and terms: - About 70 percent of public debt is external loans contracted at highly concessional terms. - T-bills account for about 17 percent of domestic debt (rollover risk associated with T-bills). - Debt market conditions and interest rates: - Given excess market liquidity and high market demand for government securities, rollover risk is limited and yields have remained broadly constant. - Yields for one-year T-bills have amounted to around 1.9 percent. - Average Time To Maturity (ATM) for external (domestic) debt is 13.6 (6.2) years. - The weighted average interest rate is 1 percent for external loans. - Borrowing costs for domestic debt are relatively low and stable at 4.9 percent. - Negotiated coupon rate on the development bonds has remained broadly constant, thereby limiting interest rate risk. ### DSA stress-test highlights and thresholds - Tailored stress test outcomes (selected): - PV of debt-to-GDP ratio: natural disaster and combined contingent liabilities produce significant upward breaches; natural disaster pushes PV of debt-to-GDP above the 35 percent threshold by 2027. - PV of debt-to-exports and debt-service ratios show substantial increases under export shock and commodity price scenarios (figures and series presented in DSA tables and figures). - Benchmarks and thresholds explicitly referenced: - Fiscal anchor / debt target: 35 percent of GDP. - Public DSA total public debt benchmark: 35 percent (as used in sensitivity tables). - Stress test thresholds for external indicators: PV debt/GDP and PV debt/exports thresholds use x = 20 percent and y = 40 percent; debt service/Exports and debt service/revenue thresholds use x = 12 percent and y = 35 percent. ### Authorities’ views and policy intentions - Agreement with staff analysis: - Authorities broadly agreed with staff’s analysis of Solomon Islands’ debt sustainability. - Commitments and intentions: - Firm commitment to the Medium-Term Debt Strategy, including increasing the share of financing from the domestic debt market. - Intention to manage debt within the 35 percent of GDP threshold in the medium-term. - Aim to gradually rebuild fiscal buffers by increasing transfers to the debt service account to meet domestic payment obligations. - While recognizing room for additional near-term spending to accelerate recovery, authorities acknowledge the need for revenue and expenditure measures to lower fiscal deficits going forward. - Fiscal and monetary context noted by authorities: - The government has spent around 3.6 percent of GDP on COVID-19 prevention and containment measures and a stimulus package. - Main source of financing remains concessional external loans while developing a domestic bond market. - Central Bank of Solomon Islands (CBSI) has maintained an expansionary monetary policy stance (reduced cash reserve requirement, reduced holdings of central bank bills, bought government bonds in the secondary market) and is committed to a carefully planned exit strategy from quantitative easing. - Authorities monitor non-performing loans and correspondent banking relationship risks, and are strengthening AML/CFT and regional KYC solutions. ### Key projections and headline numeric indicators (selected from DSA tables) - Public sector debt (historical and projections, in percent of GDP): - 2018: 8.3; 2019: 8.2; 2020: 13.1; 2021: 16.2; 2022: 18.3; 2023: 20.7; 2024: 23.1; 2025: 25.6; 2026: 28.3; 2027: 39.0; 2031: 64.3; 2041: 11.1; projection 27.9 (table header format preserved). - PV of public debt-to-GDP ratio (selected projection series): - Series shown in public DSA: ......10.5 13.3 14.1 15.5 17.0 18.8 21.1 30.7 55.5 (table values preserved as presented). - External debt composition and indicators: - External debt (nominal): 2018: 7.1; 2019: 7.0; 2020: 10.6; 2021: 11.7; 2022: 13.6; 2023: 15.4; 2024: 16.8; 2025: 17.8; 2026: 18.8; 2031: 23.6; 2041: 27.2; 211.6; 18.5 (table values preserved in sequence as presented). - PV of PPG external debt-to-GDP ratio series: ......7.1 7.7 8.2 9.0 9.4 9.7 10.2 13.8 16.6 (values preserved). - Financing and aid flows: - Aid flows (in Million of US dollars) series excerpt: 254.0 194.9 286.7 150.1 153.2 153.4 156.9 162.5 170.2 230.2 456.5 (table values preserved). - Grant element of new public sector borrowing (in percent) series excerpt: .........33.7 59.3 48.6 48.6 51.2 47.0 41.2 43.6 ...45.4 (as presented). - Macroeconomic assumptions (selected): - Real GDP growth (in percent) series: 3.9 1.2 -4.3 0.4 2.3 3.4 2.9 3.1 3.1 3.1 3.3 2.9 2.8 (values preserved). - GDP deflator in US dollar terms (change in percent) series: 2.1 -1.5 2.9 6.4 4.5 4.1 4.4 4.2 4.1 4.0 4.2 3.4 4.3 (values preserved). - Effective interest rate (percent) series: 1.2 1.5 1.6 1.9 2.0 1.9 1.8 1.8 1.6 1.5 1.5 1.9 1.7 (values preserved). ### Policy recommendations and priorities (from analysis) - Rebuild fiscal buffers to strengthen resilience to natural disasters and contingent liabilities. - Maximize concessional financing to keep the debt burden contained. - Strengthen revenue mobilization measures and revenue administration, reduce tax arrears, and improve revenue compliance. - Rationalize expenditure and prioritize investment projects that build resilience to natural disasters and climate change. - Broaden the export base and boost medium-term potential growth. - Continue development of the domestic debt market while managing rollover risk and maintaining monetary policy credibility. *Source: 1slbea2022001 - 17. Tailored natural disaster and combined contingent liability shocks result in a deterioration in debt sustainability; IMF country DSA material (canonical source: https://www.imf.org/-/media/files/publications/cr/2022/english/1slbea2022001.pdf).* ### Conclusion ### Conclusion ### Acknowledgement and thanks - On behalf of our Solomon Island authorities, we thank staff, management and the Executive Board for their continued support to the Solomon Islands, especially during these challenging times. - The authorities are thankful to the Fund for their advice and ongoing technical assistance and look forward to further constructive engagement in the future. ### Financial support and relief - The Solomon Islands have benefited from debt service relief through the Catastrophe Containment and Relief Trust. - The Solomon Islands received emergency financing under the RCF/RFI in June 2020, which helped them to close financing gaps. ### Capacity development and technical assistance - The authorities continue to highly value the capacity development and technical assistance provided by the Fund and especially welcome continuing assistance on public financial management. - Well targeted CD that will assist the authorities meet their governance commitments, such as TA that is planned regarding the audit of COVID expenditures, is most helpful. *Source: 1slbea2022001 - Conclusion.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1slbea2022001.pdf_