An International Monetary Fund (IMF) team led by Ms. Alison Stuart visited
the Solomon Islands during September 19–28 to hold discussions on the 2017
Article IV Consultation. At the conclusion of the visit, Ms. Stuart issued
the following statement:
“Solomon Islands has made considerable gains in terms of macroeconomic
stability and strengthening institutions over the past six years. Policy
buffers were built up and important institutional reforms have been
completed. The Regional Assistance Mission to Solomon Islands withdrew on
June 30 2017 having succeeded—together with the authorities—in restoring
law and order and re-establishing public institutions.
“Growth remains solid at 3.5 percent in 2016 and is projected at 3.2
percent in 2017 and 3.0 percent in 2018 buoyed by infrastructure spending,
fisheries and agriculture, although logging production is slowing down.
Inflation is contained at an annual rate of just 1.5 percent in August
2017.
“The fiscal setting is challenging. The deficit widened to 3.3 percent of
GDP in 2016 as lower revenues and grants were not matched by expenditure
restraint. Fiscal buffers have substantially eroded with the cash balance
down from 3.6 months of recurrent spending at end-2015 to just 0.8 months
projected for 2017. Fiscal strains have led to delays in government
payments.
“Against this backdrop, the staff team and the authorities discussed
policies to restore fiscal buffers and strengthen public financial
management. Staff also emphasized the need to clear the backlog of
financial sector regulatory reform.
“The weakening fiscal position heightens the vulnerability of the economy
to shocks. Though some steps have been taken recently, fiscal adjustment
will be needed in 2018—including revenue raising measures, expenditure
control and a plan to eliminate arrears.
“The 2018 Budget also provides an opportunity to align spending more
closely to the goals of the National Development Strategy and to restrain
spending, including through tertiary scholarships, Constituency Development
Funds (CDFs) and shipping grants. Greater transparency of CDFs is also
needed to improve accountability and to help identify remaining gaps in the
provision of services to the rural population. This would also be in line
with the welcome focus of the government on tackling corruption.”
“We support the tax review. It should aim at broadening the tax base and
reducing revenue volatility. Pressing ahead with public financial
management reforms will improve spending efficiency, and boost the gains
from investing in climate-proof infrastructure.
“Exchange rate and monetary policies are broadly appropriate. The basket
peg is working effectively. The monetary stance is accommodative given low
inflation, an uncertain growth outlook, and moderate credit growth.”
“The authorities’ strategy to enhance financial inclusion is commendable.
The mission urges the authorities to clear the backlog of financial sector
reform: the new Financial Institutions Act, the Credit Unions Act, and
National Provident Fund Act. These acts fill important gaps in prudential
standards and would provide the basis for the CBSI to strengthen its
supervisory framework. The risk posed by the withdrawal of correspondent
banking, though less of a problem than elsewhere, is non-negligible and
places greater emphasis on ensuring effectiveness and enforcement of the
AML/CFT Framework.
“The IMF stands ready to support the government’s reform efforts through
policy advice and capacity building, including on monetary and fiscal
policies, financial sector supervision and regulation, and macroeconomic
statistics.
“The mission expresses its deep appreciation to the authorities and other
stakeholders for the frank and constructive discussions. The IMF Executive
Board is expected to discuss the 2017 Article IV Consultation in December
2017.”
