Press Release No. 12/464

Press Release: IMF Completes the Second Review Under the Standby Credit Facility Arrangement with Solomon Islands

November 29, 2012

On November 28, 2012, the Executive Board of the International Monetary Fund (IMF) completed the second and final review of Solomon Islands’ economic performance under a program supported by a Standby Credit Facility arrangement (see Press Release No. 11/448).

Following the Executive Board's discussion on Solomon Islands, Mr. Min Zhu, Deputy Managing Director and Acting Chair, stated:

“Firm program implementation under the Standby Credit Facility arrangement as well as some progress in structural reforms have succeeded in restoring macroeconomic and financial stability. However, the economy remains vulnerable because of lack of diversification, a strong dependence on aid, and frequent natural disasters. Bolstering resilience to shocks, strengthening institutional capacity, and pursuing more inclusive growth remain top priorities.

“The authorities have formulated a reform program to be supported by a successor Fund arrangement. The program aims at consolidating recent macroeconomic progress. To this end, the authorities intend to enhance the efficiency of tax collection through a new resource taxation regime, implement public financial management reforms, and promote access to financial services, especially in rural areas.

“The near-term priority for fiscal policy is to safeguard the accumulated cash balances while improving the efficiency, transparency, and composition of public spending. Looking ahead, it will also be important to preserve debt sustainability while tapping resources to finance much needed investment projects. Strengthening the policy framework by targeting the non-commodity budget balance would also increase the effectiveness of fiscal policy.

“Monetary and exchange rate policies have helped moderate inflation. The authorities indicate their readiness to tighten monetary policy if domestic inflation pressures re-emerge. The recent shift to a currency basket regime for exchange rate management should also help buffer external shocks.

“The banking system remains profitable and adequately capitalized. Efforts by the central bank should continue to focus on strengthening the financial supervision and regulation as well as promoting access to financial services.”