IMF Executive Board Concludes 2018 Article IV Consultation with Solomon Islands

IMF News, November 8, 2018

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Published: November 8, 2018

Economic performance and outlook

The Solomon Islands economy grew by 3.5 percent in 2017 driven by the logging sector together with higher cash crop yields, fishing revenues, and construction activity.
Growth is expected to hold up in 2018 buoyed by infrastructure spending and an acceleration in logging.
Inflation is projected at 3.2 percent in 2018 as higher global commodity prices feed through to the CPI.
Risks are on the downside with natural disasters an ever-present risk.

Fiscal position and public debt

The overall fiscal deficit widened to 3.8 percent of GDP in 2017 as revenues fell short of expectations, and spending on tertiary scholarships, shipping grants and CDFs remained high.
Public debt is picking up from a low level.
Directors stressed that securing fiscal sustainability should be a priority, encouraged action to resolve domestic government arrears, and urged gradual rebuilding of fiscal buffers.
Directors underscored the importance of boosting revenues, strengthening tax compliance, and containing spending; spending priorities should be better aligned with the National Development Strategy.
Directors encouraged preparing a Medium‑Term Fiscal Strategy to assess tradeoffs between development spending and building buffers.
Directors called for greater transparency of the Constituency Development Funds.

Monetary policy and financial sector

Monetary conditions are accommodative. Excess liquidity remains high, but credit growth slowed to a 5 percent growth year on year by May 2018.
Directors considered the current monetary policy stance and the basket exchange rate peg regime to be appropriate.
A modest increase in the cash reserve requirement would help absorb structural excess liquidity.
Directors encouraged periodic reassessment of the level of the exchange rate to ensure support for external stability and economic growth.
Directors commended efforts to improve financial inclusion and link it to resilience building.
Clearing the backlog of financial legislation would help strengthen the financial sector supervisory and regulatory framework.
Directors encouraged steps to ensure the effectiveness and enforcement of the AML/CFT framework and emphasized that these reforms, plus addressing governance issues in the logging industry, would help sustain correspondent banking relationships.

External sector and reserves

The current account deficit steadied at 4.2 percent of GDP in 2017.
International reserves levels are comfortable.
Gross official reserves (in US$ millions, end of period): 514.3 (2014), 519.6 (2015), 513.6 (2016), 571.0 (2017), 536.5 (2018), 502.3 (2019), 468.9 (2020).
Net official reserves (in US$ millions, end of period): 496.2 (2014), 505.6 (2015), 503.5 (2016), 561.0 (2017), 530.1 (2018), 497.9 (2019), 464.8 (2020).

Structural reforms and growth strategy

Directors emphasized the need to generate new sources of growth and that structural reforms aimed at greater private sector involvement are key to supporting growth.
They welcomed the authorities’ interest in strengthened tax administration and reform; a medium‑term revenue strategy would help to guide policy goals and sequencing.
Directors called for continued efforts to enforce and push ahead with the anti‑corruption agenda and highlighted that a strong policy and regulatory environment is important to ensure the maximum benefits from the mining sector are secured.

Key statistics and selected indicators (as presented)

Per capita GDP (2014): US$1,931
Quota: SDR 20.8 million
Population (2014): 562,000
Main products and exports: logs
Poverty rate (2006): 23 percent
Main export markets: Emerging Asia

Growth and Prices (annual percentage change unless otherwise indicated)

Real GDP: 2014: 2.3; 2015: 2.5; 2016: 3.5; 2017: 3.4; 2018 Est.: 2.9; 2019 Proj.: 2.8; 2020: (blank)
CPI (period average): 2014: 5.2; 2015: -0.6; 2016: 0.5; 2017: 2.6
CPI (end of period): 2014: 4.2; 2015: -2.2; 2016: 2.1; 2017: 3.2; 2018 Est.: 3.3; 2019 Proj.: 3.6
Nominal GDP (in SI$ millions): 2014: 8,646; 2015: 9,139; 2016: 9,798; 2017: 10,420; 2018 Est.: 11,228; 2019 Proj.: 11,946; 2020: 12,705

Central Government Operations (in percent of GDP)

Total revenue and grants: 2014: 47.3; 2015: 47.9; 2016: 43.1; 2017: 42.7; 2018 Est.: 43.3; 2019 Proj.: 43.2
Revenue: 2014: 32.8; 2015: 35.1; 2016: 31.7; 2017: 32.5; 2018 Est.: 32.4; 2019 Proj.: 32.2; 2020: 32.0
Grants: 2014: 14.5; 2015: 12.9; 2016: 11.4; 2017: 10.2; 2018 Est.: 10.9; 2019 Proj.: 11.0; 2020: 10.7
Total expenditure: 2014: 45.2; 2015: 48.0; 2016: 47.0; 2017: 46.5; 2018 Est.: 46.9; 2019 Proj.: 46.7
Excluding grant-funded expenditure: 2014: 30.7; 2015: 35.6; 2016: 36.4; 2017: 36.1; 2018 Est.: 35.5; 2019 Proj.: 36.0
Recurrent expenditure: 2014: 32.6; 2015: 33.7; 2016: 31.5; 2017: 31.6
Development expenditure: 2014: 12.6; 2015: 14.3; 2016: 15.0; 2017: 15.1
Unrecorded expenditure 1/: 2014: 0.4; 2015: 0.2; 2016: -1.6; 2017: 0.0
Overall balance: 2014: -3.9; 2015: -3.8; 2016: -3.6; 2017: -3.3; 2018 Est.: -4.0
Foreign financing (net): 2014: -0.5; 2015: -0.2; 2016: 0.3; 2017: 2.0
Domestic financing (net): 2014: -1.2; 2015: 3.0; 2016: 1.7; 2017: 0.7; 2018 Est.: 0.8
Central government debt 1/: 2014: 11.9; 2015: 10.1; 2016: 7.9; 2017: 9.4; 2018 Est.: 12.1; 2019 Proj.: 14.6; 2020: 17.6

Macrofinancial (annual percentage change, end of year)

Credit to private sector: 2014: 16.4; 2015: 16.7; 2016: 8.0; 2017: 6.0; 2018 Est.: 5.5; 2019 Proj.: 5.0
Broad money: 2014: 5.6; 2015: 13.4; 2016: 6.7; 2017: 4.4
Reserve money: 2014: -10.1; 2015: 23.5; 2016: 7.7; 2017: 8.8; 2018 Est.: 8.3
Deposit accounts with commercial banks per 1,000 adults: 2014: 454.3; 2015: 487.5; 2016: 526.2
Loan accounts with commercial banks per 1,000 adults: 2014: 40.1; 2015: 39.4; 2016: 31.2

Balance of payments (in US$ millions unless otherwise indicated)

Trade balance: 2014: -116.7; 2015: -93.5; 2016: -71.6; 2017: -75.5; 2018 Est.: -114.6; 2019 Proj.: -129.8; 2020: -144.2
(percent of GDP) trade balance: 2014: -9.9; 2015: -8.1; 2016: -5.8; 2017: -8.0; 2018 Est.: -10.4; 2019 Proj.: -10.9
Current account balance (US$ millions): 2014: -50.1; 2015: -35.2; 2016: -48.7; 2017: -54.2; 2018 Est.: -91.7; 2019 Proj.: -125.5; 2020: -141.4
(percent of GDP) current account balance: 2014: -4.3; 2015: -3.0; 2016: -4.2; 2017: -6.4; 2018 Est.: -8.3; 2019 Proj.: -8.8
Foreign direct investment (US$ millions): 2014: 20.3; 2015: 27.6; 2016: 25.8; 2017: 31.1; 2018 Est.: 49.1; 2019 Proj.: 54.1
Gross official reserves (in months of next year's imports of GNFS): 2014: 10.0; 2015: 9.2; 2016: 9.0; 2017: 6.8; 2018 Est.: 6.1; 2019 Proj.: (blank)
Net official reserves (in months): 2014: 9.6; 2015: 9.7; 2016: 9.1; 2017: 8.9; 2018 Est.: 7.6

Memorandum Items

Cash balance (in SI$ millions): 2014: 880; 2015: 694; 2016: 412; 2017: 343; 2018 Est.: 206; 2019 Proj.: 122; 2020: 20
Cash balance in months of recurrent spending: 2014: 5.1; 2015: 1.5; 2016: 0.1
SIG Deposit Account (MEFP Table 2; monitored under the ECF in addition to the cash balance, in SI$ millions): 140
Broader cash balance (=Cash balance+ SIG Deposit Account; in SI$ millions): 2014: 1,020; 2015: 834; 2016: 552; 2017: 483; 2018 Est.: 346; 2019 Proj.: 262; 2020: 160
Broader cash balance in months of total spending 3/: 2014: 4.6; 2015: 1.9; 2016: 1.0
Public domestic debt, including arrears (in SI$ millions): 2014: 173; 2015: 43; 2016: 193; 2017: 318

Final assessment and priorities (Executive Board)

Directors welcomed the recent solid growth performance, contained inflation, and comfortable external reserves.
They noted that the weak fiscal position, a build‑up in domestic arrears, and low fiscal buffers limit policy space and leave little room to respond to shocks.
Directors emphasized a strong commitment to sound policies and structural reforms to maintain macroeconomic stability, address vulnerabilities, and support sustained growth.
Priority actions highlighted by Directors:
- Resolve domestic government arrears.
- Gradually rebuild fiscal buffers.
- Boost revenues and strengthen tax compliance.
- Contain and better align spending with the National Development Strategy.
- Advance public financial management reforms and prepare a Medium‑Term Fiscal Strategy.
- Increase transparency of Constituency Development Funds.
- Strengthen financial sector supervision, enforce AML/CFT, and address logging industry governance.
- Pursue structural reforms to encourage private sector involvement and pursue anti‑corruption measures.

Press Release No. 18/413, November 8, 2018, IMF Communications Department.

Content in this bundle

1. Logging Developments
- 1. Logging Developments (Markdown version)
- 1. Logging Developments (PDF)