Bleak outlook ahead for country: CBSI

Honiara is the beating heart of the country's economy.
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SOLOMON Islands economic outlook for 2022 points to an even weaker prospect, with myriad of challenges in front of us, both from the external and domestic fronts.

This came about following the COVID 19 pandemic and November riots last year.

Central Bank of Solomon Islands (CBSI) Governor, Dr Luke Forau projected this when he presented the 2021 Annual Report of CBSI in this medium last week.

The theme for my statement is “Navigating the way to recovery and strengthening resilience to mitigate future shocks”.

He said the adverse impacts will continue to linger and take its toll on our economy.

In terms of growth, Dr Luke said the Solomon Islands economy was initially projected to decline by 7.3% in 2022, on the back of sluggish economic activity and on-going COVID-19 containment measures with declines expected across all sectors of the economy.

“This economic fallout was expected to bottom out over the medium term with some moderate rebound expected to start in 2024.

“However, with containment measures now fully eased as of 1st July this year and international border restrictions lifted, the economy is now expected to recover earlier than anticipated,” he said.

Dr Luke said under these conditions, Gross Domestic Product (GDP) growth has been revised upwards and is expected to contract by 4.3% in 2022 (i.e., a 3-percentage points upward revision) and to rebound by 1.9% in 2023.

He said this is better than expected six months ago.

“All sectors, except for logging, are expected to recover in 2023,” he said.

Further to that, Dr Luke said risks to these forecasts however remain, and these include:

  1. resurgence in COVID19 cases that would lead to reinstatement of restrictions in economic activities;
  2. natural and man-made disasters, and the prolong Russian-Ukraine war.

He said all these would reduce GDP.

In terms of inflation, Dr Luke said following the surge in imported inflation in April 2022, inflation is expected to rise to around 3-4% by end of 2022, driven by surging global fuel prices due to the Russian-Ukraine war.

He said core Inflation is expected to rise to 4.7% on account of the passthrough effect of high fuel prices.

On the external front, Dr Luke said the current account deficit is estimated to increase to 10% of GDP in 2022 and 13% of GDP over the medium term.

“This stems mainly from the reopening of the economy and expected higher imports from construction activities of key national projects.

“This is expected to lead to a slight fall in reserves, however, expected strong donor support will keep reserves at comfortable levels over the near-term,” he said.

Furthermore, Dr Luke said fiscal pressures are expected to remain elevated in the near and over the medium term owing to weak revenue from declining logging activities while pressure on spending remains high.

“Consequently, the fiscal deficit is estimated to widen to 9% of GDP in 2022, leading to eroding of fiscal buffers and rapid increase in government borrowing,” he said.

Moreover, Dr Luke said partial employment indicators (Solomon Islands National Provident Fund (SINPF) contributions and Pay As You Earn (PAYE) showed partial signs of recovery from the pandemic in March 2022.

“While employment outlook is unavailable, it is expected that the labour market would move in line with economic activity over the near term,” he said.