By EDDIE OSIFELO
MINISTER of Finance and Treasury, Harry Kuma has outlined the economic outlook of the country in Parliament.
Delivering his speech on the $4 billion budget on Tuesday, Kuma said the 2021 budget was developed based on a projected Real Gross Domestic Product (GOP) growth of one percent (1.0%).
He said based on recent economic trend observations, both the services and industry sectors are expected to contribute 0.5 per cent and 0.6 per cent, respectively in 2021.
Kuma said Primary sector production, on the other hand, is projected to remain relatively weak in 2021, attributable to the expected fall in log output in the near term.
He said real GOP growth is forecast to rebound to around 1.0 per cent in 2021, from minus 3.6 per cent in 2020, consistent with expected recovery in overall economic activities.
“However, revenue growth is not expected to keep pace with nominal growth over the medium term.
“This is primarily the result of the expected slowdown in collections of export duties from round logs,” he said.
Furthermore, Kuma said in terms of price pressures, annualized headline inflation surged in early 2020 due to a temporary surge in the betel nut index and supply-side shocks for selected commodities.
“For 2021, annualized headline inflation is estimated to decline to around 3 per cent.
“As said earlier, the global slowdown has markedly affected the Solomon Islands economy, resulting in a sharp decline in major commodities exports (particularly fish) and tourism, which is also expected to negatively impact the economy and produce a weaker external position,” he said.
Kuma said the current account deficit was around 4 percent of GOP in 2020 and will continue to widen in 2021.
Moreover, Kuma said in response to the threats of COVID-19 on tourism, exports, and domestic demand, the IMF had disbursed funds to the Central Bank of Solomon Islands in June 2020 to help cover the urgent balance of payment needs.
“Despite the lingering external vulnerabilities, logging and other key exports have been relatively strong throughout 2020, while further falls in import oil prices are expected to provide support in 2021.
“The impact of continued decline of logging activity and the expected importation of heavy infrastructure projects in the pipeline will place significant pressures on external foreign reserves over the medium term,” he said.
Kuma said in 2021, total exports are forecasted to slowly pickup in line with projected recovery in the global economy and domestic activity.
He said external demand for all categories of exports, except for round logs are forecast to rebound.
Further to that, Kuma said looking ahead; total exports are projected to expand by 6.5 per cent in 2022, due to positive contributions from increased agricultural exports, minerals and fish exports.
He said total imports, on the other hand, are also forecast to rise because of increased importation of machinery and transportations equipment.
Debate of the budget continues today.