## IMF Executive Board Staff Concludes 2021 Article IV Consultation with Solomon Islands

_IMF News, January 21, 2022_

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## Bibliographic details
- Published: January 21, 2022

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### Pandemic response and public health measures
- Authorities enacted strong and timely measures to contain COVID-19, including:
  - temporary suspension of all commercial international flights;
  - ban on entry of non-citizens;
  - strict mandatory quarantine for all returning passengers.
- No record of local transmission thus far (as of the consultations).
- Progress in advancing vaccinations has been relatively slow and should be accelerated to meet the authorities target to allow timely and safe border reopening.

### Economic impact and near-term outlook
- Real GDP performance:
  - Real GDP contracted in 2020.
  - Growth is estimated to have remained subdued at 0.4 percent in 2021.
  - Economic activity is projected to recover gradually as containment measures are relaxed and borders re-opened.
- Labor market and social outcomes:
  - Labor market conditions have deteriorated.
  - The pandemic is likely to have disrupted progress in poverty reduction and human development.
- Recent events and risks to outlook:
  - The unrest in late November 2021 increases downside risks.
- Inflation and reserves:
  - Inflation remains low (at 2 percent in November 2021) but is expected to increase, reflecting, in part, the impact of higher commodity prices.
  - Foreign reserves at end-December 2021 remained robust at about 11.1 months of prospective imports, reflecting inflows from development partners, subdued imports in 2020, and the new allocation of IMF Special Drawing Rights.

### Fiscal position, debt, and public finances
- Fiscal balances and debt:
  - The fiscal balance is estimated to have increased to 2.9 percent of GDP in 2021, reflecting revenue loss and additional spending in response to COVID-19.
  - Central government debt remained low, but is estimated to have increased to 16.2 percent of GDP in 2021.
- Executive Directors’ fiscal guidance:
  - Provide targeted and transparent support to vulnerable households and businesses in the near-term.
  - Once the pandemic abates, rebuild fiscal buffers through gradual fiscal consolidation while retaining the debt-based fiscal anchor.
  - Encourage comprehensive tax reform, spearheaded by modernizing tax administration and introducing a value added tax.
  - Establish a medium-term revenue strategy and prioritize public financial management reforms to maintain fiscal sustainability and improve governance.
  - Complete and publish the audit of pandemic-related expenditures.
  - Identify additional sources of financing, including for achieving the Sustainable Development Goals and climate resilience.

### Monetary, financial sector, and structural policy recommendations
- Monetary and exchange rate policy:
  - Directors considered the accommodative monetary policy stance and the current exchange rate regime remain appropriate.
  - Encouraged maintaining a strong reserves buffer to support macroeconomic stability.
- Financial sector resilience:
  - Address potential financial sector vulnerabilities proactively and continue to closely monitor non-performing loans.
  - Continue the financial sector reforms agenda to increase private sector credit growth and advance financial development and inclusion.
  - Strengthen the AML/CFT framework to mitigate pressures on correspondent banking relationships.
- Structural reforms to support diversification and private sector development:
  - Strengthen human capital.
  - Develop quality infrastructure.
  - Improve the business environment.
  - Advance governance and anti-corruption agendas.
  - Continue to benefit from capacity development by the Fund and development partners.

### Executive Board assessment
- Directors commended the authorities for their strong and timely response that prevented a local outbreak, while noting containment measures weighed on economic activity and pre-existing socioeconomic tensions were aggravated during the pandemic.
- Emphasis on accelerating vaccination efforts, providing targeted near-term support, rebuilding fiscal buffers, and accelerating structural reforms to diversify the economy as the crisis dissipates.

### Selected economic indicators and key statistics (2017–2026, as presented)
- 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: 5.3
  - 2018: 3.9
  - 2019: 1.2
  - 2020: -4.3
  - 2021: 0.4
  - 2022 (Proj.): 2.3
  - 2023 (Proj.): 3.4
  - 2024 (Proj.): 2.9
  - 2025 (Proj.): 3.1

- CPI (period average) and CPI (end of period) (selected values):
  - CPI (period average) 2017–2021: 0.5, 3.5, 1.6, 3.0, -0.2
  - CPI (end of period) 2017–2020: 2.1, 2.7, -2.5, 3.2

- Nominal GDP (in SI$ millions):
  - 2017: 11,703
  - 2018: 12,522
  - 2019: 12,833
  - 2020: 12,697
  - 2021: 13,290
  - 2022 (Proj.): 14,211
  - 2023 (Proj.): 15,299
  - 2024 (Proj.): 16,442
  - 2025 (Proj.): 17,657
  - 2026 (Proj.): 18,950

- Central government operations (percent of GDP, selected series):
  - Total revenue and grants:
    - 2017: 39.2
    - 2018: 40.4
    - 2019: 32.8
    - 2020: 33.2
    - 2021: 30.9
    - 2022 (Proj.): 29.7
    - 2023 (Proj.): 30.1
    - 2024 (Proj.): 30.7
    - 2025 (Proj.): 30.4
    - 2026 (Proj.): 30.2
  - Revenue:
    - 2017: 30.5
    - 2018: 26.4
    - 2019: 24.4
    - 2020: 22.3
    - 2021: 23.0
    - 2022 (Proj.): 24.1
    - 2023 (Proj.): 24.9
    - 2024 (Proj.): 24.6
    - 2025 (Proj.): 24.5
  - Grants:
    - 2017: 9.0
    - 2018: 9.9
    - 2019: 6.4
    - 2020: 8.8
    - 2021: 8.6
    - 2022 (Proj.): 6.7
    - 2023 (Proj.): 6.1
    - 2024 (Proj.): 5.8
    - 2025 (Proj.): 5.7
  - Total expenditure:
    - 2017: 42.1
    - 2018: 39.5
    - 2019: 33.7
    - 2020: 35.6
    - 2021: 33.8
    - 2022 (Proj.): 32.9
    - 2023 (Proj.): 33.9
    - 2024 (Proj.): 34.4
    - 2025 (Proj.): 34.5
    - 2026 (Proj.): 34.6
  - Overall balance:
    - 2017: -2.9
    - 2018: 0.9
    - 2019: -0.9
    - 2020: -2.4
    - 2021: -3.1
    - 2022 (Proj.): -3.8
    - 2023 (Proj.): -3.7
    - 2024 (Proj.): -4.2
    - 2025 (Proj.): -4.4

- Central government debt 1/ (percent of GDP):
  - 2017: 8.4
  - 2018: 8.3
  - 2019: 8.2
  - 2020: 13.1
  - 2021: 16.2
  - 2022 (Proj.): 18.3
  - 2023 (Proj.): 20.7
  - 2024 (Proj.): 23.1
  - 2025 (Proj.): 28.3

- Macrofinancial indicators (selected):
  - Credit to private sector:
    - 2017: 0.3
    - 2018: 4.0
    - 2019: 6.0
    - 2020: 5.5
    - 2021: 5.0
  - Broad money:
    - 2017: 6.8
    - 2018: 6.6
    - 2019: 4.3
  - Reserve money (selected years):
    - 2017: 7.5
    - 2018: 10.6
    - 2019: -7.1
    - 2020: 2.0
    - 2021: 1.8

- Balance of payments (selected, in percent of GDP and levels where shown):
  - Trade balance (goods and services) (levels and percent of GDP where shown):
    - Levels (2017–2026): -81.7, -67.6, -161.6, -127.4, -184.6, -308.7, -317.5, -291.3, -293.9, -322.9
    - Percent of GDP (2017–2025): -5.5, -10.3, -8.2, -11.2, -17.5, -16.7, -14.3, -13.4, -13.7
  - Current account balance (levels 2017–2026): -62.8, -47.8, -154.0, -25.1, -85.2, -219.3, -233.6, -202.1, -200.3, -225.6
  - Foreign direct investment (+ = decrease): -35.9, -15.9, -28.7, -5.7, -24.1, -50.1, -58.2, -56.5, -57.3, -61.3
  - Overall balance (+ = decrease) (2017–2024): -41.2, -57.4, -73.1, -39.6, 59.6, 57.1, 33.0, 35.5

- Gross official reserves (in US$ millions, end of period):
  - 2017: 576.9
  - 2018: 613.1
  - 2019: 574.1
  - 2020: 660.6
  - 2021: 700.3
  - 2022 (Proj.): 640.9
  - 2023 (Proj.): 588.9
  - 2024 (Proj.): 565.7
  - 2025 (Proj.): 547.2
  - 2026 (Proj.): 513.7
  - In months of next year's imports of GNFS:
    - 2017: 9.3
    - 2018: 9.8
    - 2019: 12.4
    - 2020: 13.5
    - 2021: 10.9
    - 2022 (Proj.): 8.5
    - 2023 (Proj.): 8.1

- Exchange rate:
  - EXCHANGE RATE (SI$/US$, end of period): 7.9, 8.05, ...

- Memorandum items (selected):
  - Cash balance (in SI$ millions) (selected years): 343, 311, 206, 104
  - in months of recurrent spending: 0.8
  - SIG Deposit Account (In addition to cash balance, in SI$ millions): 140, 120
  - Broader cash balance (=Cash balance+ SIG Deposit Account; in SI$ millions): 483, 451, 346, 326, 224
  - in months of total spending 3/: 0.6
  - Public domestic debt, including arrears (in SI$ millions) (selected years): 193, 245, 273, 452, 747, 843, 1,010, 1,244, 1,620, 2,054

- Notes:
  - Sources: Data provided by the authorities; and IMF staff estimates and projections.
  - 1/ Includes disbursements under the IMF-supported programs.
  - 2/ Includes SDR allocations made by the IMF to Solomon Islands in 2009 and in 2021, and actual and prospective disbursements under the IMF-supported programs.
  - 3/ Total spending is defined as total expenditure, excluding grant-funded expenditure.

*IMF Executive Board staff press release, January 21, 2022.*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Solomon Islands and the IMF](http://www.imf.org/external/country/SLB/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2022/01/21/pr2209-solomon-islands-imf-executive-board-staff-concludes-2021-article-iv-consultation_