IMF Executive Board Concludes 2019 Article IV Consultation with the Solomon Islands
IMF News, February 18, 2020
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Bibliographic details
- Published: February 18, 2020
Overview
- Executive Board conclusion date: February 5, 2020.
- Press Release No. 20/55.
- Summary judgment: welcomed recent growth performance, improvement in the fiscal position in 2018, low inflation, and comfortable international reserves; noted slowing growth, re-emerging fiscal pressures, and mostly downside risks to the outlook.
- Per capita GDP (2017): US$2,144.
- Population (2017): 613,712.
Growth and Prices
- Real GDP growth:
- 2018: 3.9 percent (driven by logging, infrastructure spending, fisheries, agriculture, and manufacturing).
- 2019: 2.7 percent (expected slowdown from weakening logging exports and temporary pause in activity around the election period).
- Projections: 2020: 2.8 percent; 2021: 2.9 percent; 2022: 2.9 percent (table shows multi‑year series through 2024).
- Inflation:
- Annual rate: 1.7 percent in August 2019 (described as subdued).
- CPI (period average) series in table: 2015: -0.6; 2016: 0.5; 2017: 3.5; 2018: 1.9; 2019: 2.3; 2020: 4.0.
- CPI (end of period) series in table: 2015: -2.2; 2016: 2.1; 2017: 2.2; 2018: 2.4; 2019: 3.3.
Fiscal Position and Public Debt
- Central government operations (in percent of GDP):
- Total revenue and grants: 2018: 45.3; 2019: 39.0; 2020: 36.5; 2021: 36.7; 2022: 37.2; 2023: 38.3; 2024: 37.3.
- Revenue: 2018: 34.3; 2019: 30.1; 2020: 29.8; 2021: 29.6; 2022: 29.5; 2023: 29.2; 2024: 29.1.
- Grants: 2018: 11.0; 2019: 8.8; 2020: 6.7; 2021: 7.2; 2022: 7.7; 2023: 9.1; 2024: 8.2.
- Total expenditure: 2018: 44.6; 2019: 41.6; 2020: 40.2; 2021: 42.2; 2022: 43.9; 2023: 42.1.
- Overall balance: 2018: -2.7 (percent of GDP); projections worsen: 2019: -3.7; 2020: -4.8; 2021: -5.0; 2022: -5.6.
- Cash and balances (in SI$ millions):
- Cash balance: 2018: 337; 2019: 240; 2020: 129; 2021: -26; 2022: -238; 2023: -512; 2024: -846.
- SIG Deposit Account (additional): 2015–2018 series: 140, 141, 142, 143.
- Broader cash balance (=Cash balance + SIG Deposit Account): 2018: 477; 2019: 380; 2020: 269; 2021: 114; 2022: -97; 2023: -370; 2024: -703.
- Broader cash balance in months of total spending: 2018: 1.0; 2019: -0.7; 2020: -1.5.
- Central government debt:
- Central government debt 1/ (percent of GDP) series: 2018: 18.9; 2019: 22.8; 2020: 26.9; 2021: 30.0; 2022: 33.1.
- Public domestic debt, including arrears (in SI$ millions): 2018: 502; 2019: 613; 2020: 768; 2021: 966; 2022: 1,219; 2023: 1,533.
- Narrative:
- Fiscal deficit widened to 2.7 percent of GDP in 2019 and is expected to widen further over the medium term.
- Public debt is currently low but rises over the medium term.
- Risks to fiscal outlook: weak fiscal policy, decline in logging, spending pressures associated with the Pacific Games 2023, and spillovers from global trade tensions.
External Sector and Reserves
- Current account and trade:
- Current account balance (US$ millions): 2018: -62.5; 2019: -121.9; 2020: -120.2; 2021: -168.4; 2022: -219.1; 2023: -264.2; 2024: -233.6.
- Current account balance (percent of GDP) series: 2018: -8.6; 2019: -10.7; 2020: -13.1; 2021: -14.8; 2022: -12.2.
- Trade balance (US$ millions): 2018: -69.4; 2019: -156.0; 2020: -161.6; 2021: -219.9; 2022: -280.4; 2023: -335.8; 2024: -306.3.
- Foreign direct investment (US$ millions): 2018: 48.5; 2019: 53.4; 2020: 61.4; 2021: 65.9; 2022: 68.1; 2023: 72.4.
- Reserves:
- Gross official reserves (US$ millions, end of period): 2018: 613.1; 2019: 601.5; 2020: 600.8; 2021: 595.7; 2022: 563.1; 2023: 525.1; 2024: 497.6.
- Gross reserves in months of next year's imports of GNFS: 2018: 8.1; 2019: 7.6; 2020: 7.0; 2021: 6.2; 2022: 5.4; 2023: 5.2.
- Net official reserves (US$ millions, end of period): 2018: 603.0; 2019: 593.5; 2020: 593.0; 2021: 588.2; 2022: 556.0; 2023: 518.0; 2024: 490.5.
- Narrative:
- The current account deficit has widened with higher infrastructure imports but international reserves remain comfortable.
- Directors noted fiscal consolidation and structural reforms would help bring the external sector position closer to that suggested by medium-term fundamentals.
Monetary and Financial Sector
- Monetary conditions:
- Described as accommodative.
- Excess liquidity overhang has reduced.
- Credit growth slowed to 4.1 percent year-on-year at end‑2018.
- Macrofinancial indicators (annual percentage change, end of year):
- Credit to private sector: 2015: 16.7; 2016: 12.1; 2017: 6.4; 2018: 4.1; 2019: 4.9; 2020: 5.5; 2021: 5.7; 2022: 6.0; 2023: 5.0; 2024: 4.5.
- Broad money: 2015: 13.4; 2016: 6.8; 2017: 5.1; 2018: 2.6.
- Reserve money: 2015: 23.5; 2016: 14.5; 2017: 7.5; 2018: 10.5; 2019: 4.8; 2020: 6.9.
- Financial sector reforms:
- Directors encouraged sustaining progress on financial sector reforms.
- Strengthening of the AML/CFT framework viewed as helpful to alleviate risks to correspondent banking relationships.
Risks, Structural Issues, and Policy Recommendations
- Key risks identified:
- Downside risks predominate: weak fiscal policy, decline in logging, spending pressures from Pacific Games 2023, spillovers from global trade tensions, and natural disasters.
- Fiscal policy recommendations:
- Maintain fiscal discipline and strengthen governance.
- Rebuild the government cash balance by strengthening expenditure control and prioritizing spending in line with the National Development Strategy.
- Boost revenues through increased tax compliance, improving efficiency of the tax system, and strengthening revenue administration.
- Press ahead with expenditure reforms: strengthen procurement planning, enforce commitment controls, and increase transparency of the Constituency Development Funds.
- Prudently manage development partner‑financed infrastructure investments.
- Contain spending for the Pacific Games 2023; ensure financing is transparent, follows procurement and public financial management best practices, and is on grant or highly concessional terms in line with debt sustainability and implementation capacity.
- Continue progress in anti-corruption efforts with stronger enforcement encouraged.
- Structural and growth recommendations:
- Generate new sources of growth; view improved internet connectivity as an opportunity to foster private‑sector development and public sector service provision.
- Harnessing connectivity benefits requires improvements in the regulatory framework and complementary investments in infrastructure and human capital.
- Continue progress in strengthening governance, including legislative framework, regulation and oversight to create a conducive environment for mining and avoid governance problems.
- Exchange rate policy:
- Directors considered the basket exchange rate peg regime remains appropriate for Solomon Islands and welcomed the review on the composition of the basket.
Selected Key Indicators (from Table 1)
- Real GDP (annual percentage change): 2015: 2.5; 2016: 3.2; 2017: 3.7; 2018: 3.9; 2019: 2.7; 2020: 2.8; 2021: 2.9; 2022: 2.9.
- Nominal GDP (in SI$ millions): 2015: 9,139; 2016: 9,780; 2017: 10,330; 2018: 11,099; 2019: 11,553; 2020: 12,130; 2021: 12,839; 2022: 13,643; 2023: 14,544; 2024: 15,556.
- Overall balance (percent of GDP): 2015: -3.9; 2016: -4.5; 2017: 0.7; 2018: -2.7; 2019: -3.7; 2020: -4.8; 2021: -5.0; 2022: -5.6.
- Gross official reserves (US$ millions, end of period): 2015: 519.6; 2016: 513.6; 2017: 576.9; 2018: 613.1; 2019: 601.5.
Summary based on the IMF press release “IMF Executive Board Concludes 2019 Article IV Consultation with the Solomon Islands,” February 18, 2020.
