Solomon Islands: Selected Issues
IMF Staff Country Reports, March 8, 2018
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- Solomon Islands: Selected Issues
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Bibliographic details
- Published: March 8, 2018
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781484346174.002
Summary
- This Selected Issues paper sets out options for how the authorities could supplement their cash balance target and public debt limit with an anchor to help discipline annual budget decisions.
- The paper introduces the current fiscal framework and effective fiscal rules based on international experiences, including the characteristics of each rule.
- It discusses the need for a new fiscal anchor given high revenue volatility, high infrastructure needs, and the country’s exposure and vulnerability to natural disasters.
- Contingency warrants for unforeseen expenditures, including from natural disasters, should be included in the budget in line with international best practices.
- If a disaster does not occur, the allocation could be saved in a contingency fund for natural disasters, enabling swift disbursement in the aftermath of a disaster.
- The fund would be set up once fiscal buffers have been rebuilt.
- IMF Staff suggests a target for the overall fiscal deficit of 1.5 percent of gross domestic product as a possible fiscal anchor, balancing debt sustainability and addressing the severe infrastructure gap.
Fiscal framework, rules, and motivations for a new anchor
- Current policy tools described: cash balance target and public debt limit.
- Identified weaknesses motivating a new anchor:
- High revenue volatility.
- High infrastructure needs.
- Exposure and vulnerability to natural disasters.
- Discussion includes international experiences with effective fiscal rules and the characteristics of each rule.
Contingency warrants and natural disaster financing
- Recommendation: include contingency warrants for unforeseen expenditures (including natural disasters) in the budget in line with international best practices.
- If disasters do not occur, recommend saving the allocation in a contingency fund for natural disasters to allow swift post-disaster disbursement.
- Operational sequencing: the contingency fund would be established once fiscal buffers have been rebuilt.
Suggested fiscal anchor and policy balance
- IMF Staff suggested target: overall fiscal deficit of 1.5 percent of gross domestic product.
- Policy rationale: strike a balance between safeguarding debt sustainability and addressing the severe infrastructure gap.
Content in this bundle
- Country Report