IMF Staff Completes 2024 Article IV Mission to Solomon Islands

IMF News, November 21, 2024

Source details

Canonical URL: IMF Staff Completes 2024 Article IV Mission to Solomon Islands

Staff expects growth at 2.5 percent in 2024 and 2.8 percent in 2025.
Medium-term growth prospects appear moderate, with anticipated growth of around 3 percent.
Sector drivers in the near term: fishing, mining, manufacturing, and construction.
Inflation:
- Expected to return to 3.4 percent at end-2024.
- Expected to reach 3.9 percent at end-2025.
Current account:
- Expected to narrow to 4.2 percent of GDP in 2024.
- Expected to widen to 7.7 percent of GDP in 2025 as economic activity gains momentum.
Fiscal deficit:
- Projected at 3.1 percent of GDP in 2024.
- Projected at 3.3 percent of GDP in 2025.
Government cash reserves: have been significantly depleted, posing immediate liquidity risk to the government.

Downside risks noted:
- Under-execution of the budget due to a shortage of funding.
- Vulnerability to extreme climate events.
- Commodity price volatility.
- Intensification of regional conflicts.

Strengthening the resilience and effectiveness of fiscal policy is an urgent priority.
Immediate fiscal priorities and gaps:
- Rebuild cash buffers.
- Improve the quality of public spending.
- Impose fiscal discipline on domestic borrowing.
- Fill fundamental gaps in fiscal data and public financial management, including reviewing the budget process to eliminate a financing gap in the budget proposal.
Policy recommendations:
- Staff recommends a tighter fiscal stance in 2025 to start gradual accumulation of cash buffers.
- Domestic revenue mobilization is essential to accelerate investment in development priorities.
- Government should prioritize passing the Value Added Tax Bill and prepare for its implementation from early 2026.
- Continue efforts to modernize the Inland Revenue Division.

Staff supports the decision by the Central Bank of Solomon Islands (CBSI) to ease monetary policy in September 2024.
Recommendation: monetary policy should remain data dependent.
CBSI should avoid further purchases of government bonds in the secondary market under current economic circumstances.
Notes the recent update of the currency basket.
Financial sector:
- Remains stable.
- Growth of bank lending has not kept up with economic trends.
- Priorities include promoting financial inclusion (especially in rural areas and among women) and strengthening capacity for anti-money laundering and combating the financing of terrorism (AML/CFT).

Comprehensive and sustained reforms are needed to bolster long-term growth prospects.
Priority reform areas:
- Upgrading transport connectivity in rural areas to augment potential growth in the agriculture and fisheries sectors.
- Legislation to address governance weaknesses in the minerals and forestry sectors is an urgent priority.
- Concrete and prompt action to strengthen the resource and capacity of the Independent Commission Against Corruption.
- Implement the Constituency Development Funds (CDFs) framework and audit report recommendations.
- Enhance capacity and resources of government officials involved in procurement and auditing, including through training and strengthening the legal framework for auditing.

IMF team visit: November 11 to 22, 2024, led by Mr. Masafumi Yabara for the 2024 Article IV Consultation.
Staff commends the Pacific Games successes and peaceful general elections and supports the government’s priorities of economic transformation, good governance, national unity, and human capital development.
IMF team expressed deep appreciation to the authorities and other stakeholders for frank and constructive discussions.

IMF Communications Department — Press Release No. 24/430, November 21, 2024