Gov’t expects $1.2b budget deficit next year

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Opposition Leader Matthew C Wale.
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By EDDIE OSIFELO

SOLOMON Islands Government is expecting a budget deficit of $1.2 billion next year.

This is one of the highest budget deficits since 2016.

Opposition Leader, Matthew Wale highlighted this during his debate on the 2023 Appropriation Bill 2022 in Parliament on Monday.

Wale said total expenditure estimates are set at $4.9 billion.

He said net of $320 million from donors and government revenues of $3.2 billion, this leaves a budget deficit of $1.2Bn to be funded by borrowing.

“The first question this House must ask is whether borrowing to finance this deficit is responsible.

“Members need to ponder on the question as we review this budget,” he said.

Wale said with the exception of 2018, the government has been running deficits in 2016, 2017, 2019, 2020, 2021, & 2022.

“It is significantly increasing that deficit for 2023.

“That makes it a total of seven years in a row that the government budget would be in deficit,” he said.

Wale said the fundamental reason government budgets have consistently been in deficit is clear – high expenditure in the face of decreasing revenues from a narrow base.

“It ought to be common sense policy that if you want to increase expenditure that you enhance the capacity of the revenue base.

“Without expanding the revenue base and stimulating growth in it, government runs the risk of imposing too heavy a burden on the economy by consistently setting high levels of expenditure,” he added.

Furthermore, Wale said there was a time, not too long ago, when government had cash reserves of almost $1 billion.

“Those reserves were squandered over the two-year period 2015 & 2016.

“Cash reserves are essential to the government in a small open economy such as ours. Cash reserves present government will multiply options to prop up and stimulate the economy in difficult times,” he said.

Wale said without cash reserves, government must either live within its means, or borrow to fund an expansionary fiscal policy.

Further to that, he said since 2015, government has pursued an expansionary fiscal policy, and the data is clear that policy has been on the back of deficit financing.

“And given that most Solomon Islands households struggle on hand to mouth situation, it is clear the expansionary fiscal policy has not benefited the vast majority of our people.

“This is a serious charge on fiscal policy that government would do well to reflect on,” he said.

“It is good to pursue an expansionary policy in difficult economic times to stimulate domestic demand.

“However, coupled with such a policy there must be a clear plan of how to get government back into the black,” he said.

“Consistent budget deficits into the mid to long term is irresponsible, as it means government is reliant on borrowing over too long a timeframe for the running of its normal services.

“Donor support masks the real dire situation in government finances,” he added.

Wale said Government can, and at times must, move to deficit financing.

“But this should be only for the shortest amount of time necessary to spur growth in the economy.

“There is need here for government to review its fiscal stance,” he added.


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