The country’s economy is in a ‘precarious’ position, ‘we must adapt accordingly or risk lagging behind: Dr Forau
BY NED GAGAHE
The Solomon Islands economy is in a ‘precarious’ position, ‘we must adapt accordingly or risk lagging behind.
That’s, according to CBSI Governor Dr Luke Forau when he launched the 2023 annual report yesterday.
The theme for this year’s launch is “The Time is Now: Taking Bold Action to Level Up Growth in Solomon Islands.”
He said despite rebounding from the recession caused by the pandemic, the country’s current economic environment remains precarious.
“Today, the global landscape has changed from what it was in the pre-COVID19 era, and we must adapt accordingly, or risk lagging behind.
“Now is the time to take critical action to realize our growth potential, ‘levelling up’ the quality and inclusiveness of our economic growth in the midst of uncertainties.
“There is no better time than now to seriously address the country’s dire economic situation. This is an opportune time to start anew.
“We can do that by unlocking the power of our people (human resource), laying the foundations for a labour-market expansion that would enable us to look at our demographic boom not as a burden, but as an opportunity.
The CBSI Governor Forau also made a comprehensive overview on economic update on growth in 2023.
“In 2023, global growth slowed to 3.2 percent from 3.5% in 2022, in the wake of considerable monetary tightening by major central banks, the winding down of COVID related fiscal support in many large economies and an overall climate of geopolitical uncertainty.
He said on the domestic front, the Solomon Islands economy returned to normalcy, growing by an estimated 4 percent year-on-year according to CBSI estimates.
This favourable outcome he said was driven by a four-fold expansion in mining activity, greater output of key agricultural commodities such as copra and cocoa, a rebound in logging exports, and higher manufacturing outturns, which collectively outweighed a weak performance in fishing and palm oil production.
“Also, many businesses in Honiara were negatively affected by several months of power supply disruption between May and August.
17th Pacific Games
On hosting the hosting the 17th Pacific Games in November 2023, Governor Forau said, that was the source of important revenue windfalls for the services sector, benefitting primarily the hospitality industry, transport, telecommunications, and wholesale and retail industries, thanks to a surge in visitor arrivals in the final quarter of the year.
“It must be noted though, that the benefits brought by the Pacific Games came at high opportunity costs, as the funneling of funds towards the event led to substantial resource diversion away from other productive sectors.
Labour condition
“On labour conditions, Governor Forau said in terms of employment, labour market conditions improved last year, in line with the increased economic growth recorded.
He said job vacancy advertisements surged, and the number of ‘active’ and ‘slow-active’ contributors to the Solomon Islands National Provident Fund rose by 3 percent to more than 57,000 members.
He said public service employment also increased, from 19,800 to slightly above 20,000, and this is mainly due to recruitment in the education sector.
Inflation
“On inflation, the Governor said following high inflation in the beginning of the year, the Central Bank was able to bring down inflation to a level that is within the Bank’s desirable range.
“By December 2023, the headline inflation was recorded at 3.5%. This reflected the CBSI’s prudent management of the monetary and exchange rate policy, combined with easing global oil prices.
External conditions
“External conditions improved as well during the year: both the trade-balance and current-account deficits narrowed, due to a rise in exports, inward remittances and donor inflows. This, combined with a buoyant capital and financial account, led to a surplus in the overall balance of payments position of $218 million. As a result, gross foreign reserves rose by 6 percent to $5.8 billion, sufficient to cover 11.8 months of imports. This is well above our minimum threshold of 6 months of import cover.
Fiscal
“On the fiscal front, the Government’s financial conditions deteriorated markedly last year. The deficit more than doubled to 7 percent of GDP (or $950 million) from the 3 percent of GDP registered in 2022. Some financing of the deficit came largely from borrowing. As a result, the Central Government’s debt stock – domestic and external – reached 21 percent of GDP at the end of the year, compared to 16 percent of GDP one year prior.
“The worsening fiscal balance is attributable to a noticeable rise in spending, geared towards the hosting of the Pacific Games and the preparation for the recent synchronized elections at the same time, as revenue collection declined during the year.
Monetary
“Due to the sizeable fiscal expansion and improved external-sector performance, all monetary aggregates (M0, M1, M3) expanded in 2023. Broad money (M3), in particular, rose by 6 percent to $6.2 billion. Private-sector credit, an important measure of financial development in the country, grew by 5 percent, supported by the narrowing of the interest margin between lending and deposits rates to 8.3 percent.
“This may be an indication of improving efficiency in the banking sector, and will hopefully usher in an era of increasing affordability of financing for our people.
“Meanwhile, the banking sector continued to accumulate liquidity, which once again rose by 6 percent on an annual basis to $2.6 billion in December 2023. While excess liquidity remains high, it is deemed of limited inflationary risk, given the supply-side nature of inflation in the country.” CBSI Governor Forau said.
