IMF Staff Concludes Visit to Solomon Islands

IMF News, March 5, 2021

Source details

Virtual staff visit to Honiara: February 23-March 5.
Statement issued by Mr. Jarkko Turunen at conclusion of the virtual staff visit.
Press Release date: March 5, 2021.
Note: End-of-Mission press releases convey preliminary findings of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

Solomon Islands has enacted strong and timely containment measures and "has thus far remained one of the few countries with no record of local transmission of COVID-19."
Government planned additional spending towards health and containment measures in 2020.

GDP growth estimated to have declined to -4.3 percent in 2020.
Growth is expected to pick up to 1.5 percent in 2021, with the initial recovery phase hampered by ongoing pandemic-related disruption.
Inflation has remained muted owing to weak demand and decline in energy prices.

Favorable donor inflows, including IMF emergency financing, have bolstered foreign exchange reserves.
At the end of 2020, foreign reserves stood at about 10.2 months of prospective imports.
The current account is estimated to have recorded a deficit of 1.7 percent of GDP in 2020, driven by a large drop in exports, offset by softening imports, and higher primary income and official transfers.

The government directed resources to essential services and the COVID-19 response.
Planned additional spending towards health and containment measures and fiscal stimulus amounted to about 3.6 percent of GDP in 2020, with stimulus spending targeted at providing social assistance, protecting jobs and incomes, and stabilizing the domestic economy.
The fiscal deficit is estimated to have widened to 2.4 percent of GDP in 2020.
The cash balance remained below staff’s recommended minimum of two months of spending.
The 2021 budget is expected to focus on COVID-19 containment, support for the domestic economy and accelerating the economic recovery, including through additional resources to the productive and resource sectors and infrastructure investment.

Monetary policy has remained appropriately expansionary.
The Central Bank of Solomon Islands (CBSI) has ensured adequate financial system liquidity, including by lowering the Cash Reserve Ratio.
The central bank purchased government bonds in the secondary market to support the recovery.
The banking system was profitable in 2020, despite the challenges of COVID-19.
The pandemic’s full impact on financial sector balance sheets remains uncertain.

The economic impact of COVID-19 has been severe, with contraction explained by a slowdown in commodity exports, tourism, and domestic activity.
Progress in revenue administration is welcomed by staff.
Policies to strengthen fiscal governance, advance further fiscal reforms and address structural bottlenecks have become more urgent following the COVID-19 crisis.

Near-term fiscal policies should:
- Prioritize measures to safeguard health security.
- Secure additional financing to protect the vulnerable, underpin the economic recovery, and help reboot private sector activity.
- Stand ready to extend more support to the economy should conditions deteriorate and reprioritize spending as needed.
Once an economic recovery is firmly underway, pursue a gradual fiscal consolidation to restore fiscal buffers.
Develop a medium-term fiscal strategy, with a medium-term revenue strategy (MTRS) and a realistic spending envelope, to guide policy goals, nurture the recovery and help rebuild fiscal buffers.
Continue to pursue monetary accommodation to support liquidity while monitoring financial-sector vulnerabilities.
The IMF stands ready to support the government’s reform efforts through policy advice and technical assistance, especially on fiscal management and reform, supporting the environment for sustainable and inclusive growth, and maintaining macroeconomic and financial stability.

The IMF team expressed "deep appreciation to the authorities and other stakeholders for frank and constructive discussions."

Press Release No. 21/62