Economy growth drops slightly


CBSI staff from left, David Ereai, Evance Neusia, Angeline Bataánasia, Uriel Matanani,Sandy Iro, Lain Aquillah and Paula Dofai proudly display the copy of the report.

CENTRAL Bank of Solomon Islands (CBSI) has projected that the Solomon Islands economy to grow by 3.7 percent in 2019. This is a slight drop from 3.9 percent witnessed in 2018.

Speaking during the launching of the CBSI 2018 Annual Report, Governor Denton Rarawa said this moderation in growth reflects the key assumption that forestry will finally decelerate as part of the government’s new policy to achieve sustainability in the forestry sector.

Nevertheless, Rarawa said the growth is expected to be driven by the transportation and construction sectors, related to major infrastructure projects, the onset of mineral production, wholesale retail, manufacturing and fisheries.

“Over the medium term, the economy is expected to grow by an average 4.5 percent.

“This is expected to come from positive spill over from projects such as the submarine cable, Tina Hydro, the Pacific Games and projected robust outcomes in mining,” he said.

In the meantime, Solomon Islands economy witnessed another successful year in 2018.

Rarawa said this result was driven mainly by favourable performance in the services sector, particularly from wholesale retail, transport and financial services.

He said the positive outcomes in the primary and secondary sectors (mainly forestry and fisheries) and (construction and manufacturing) also contributed to this growth.

“Performance in all key export commodities, with the exception of copra, were positive.

“Round logs grew by three percent to 2.7 million cubic metres last year, the highest level of production on record,” he said.

Rarawa said labour conditions expanded during the year.

“Based on Solomon Islands National Provident Fund (SINPF) data as a proxy employment indicator show an increase of seven percent to more than 58,000 active contributors.

“Staffing levels in the public sector rose by two percent to over 17,000 employees,” he said.

Rarawa said there was also a pickup in both the locally based work force and seasonal workers in Australia and New Zealand.

Further to that, consumer prize pressures rose in 2018.

Rarawa said headline inflation reached 4.2 percent in December against 1.8 percent at the end of 2017.

“This rate was within the Bank’s forecasted range and was driven by stronger supply side domestic inflation, along with the rise in imported prices.

“Categories responsible for the spike in consumer prices during the year were education, transportation, food, and alcohol and tobacco,” he added.

Rarawa said external conditions remained firm during the year.

He said despite a reduction in the trade surplus, improved investment income and tourism receipts narrowed the current account deficit.

“As a result, the country’s gross foreign reserves increased by 10 percent to $5 billion.

“This level of reserves was sufficient to cover nearly 13 months of imports and is well above the CBSI’s precautionary import cover threshold of six months,” he said.

Rarawa said developments in the monetary sector also point to sustained growth.

He said broad money rose by seven percent to $5.2 billion due to increase in both net foreign assets and private sector credit.

“Lending by banks to the private sector grew by 4 percent to $2.4 billion during the year.

“Major borrowing industries were construction, distribution, transportation and manufacturing,” he said.

Rarawa said nonetheless, interest rate margins remained high at around 10.5 percent.

Meanwhile, liquidity levels in the banking system continued to accumulate, rising by 14 percent to $2.2 billion and was largely driven by the growth in net exports.

He said excess liquidity remained high, although they believe it is not inflationary, particularly in view of the much lower credit growth and the supply side nature of inflation in the country.

“With respect to government’s finances, 2018 was a positive year.

“The fiscal position returned to an estimated surplus of $191 million after two successive years of deficits, reflecting considerable fiscal consolidation.

“Revenue in particular rose on strong collection from tax and trade related duties, while total expenditures only grew marginally, amidst a reduction in development spending,” he said.

Meanwhile, government debt increased moderately and remained at around 11 percent of Gross Domestic Product.

The theme for the event is ‘Setting the foundation for robust, broad based and inclusive growth’.

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