IMF stands ready to support government

IMF team leader Mrs Alison Stuart
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IMF team leader Mrs Alison Stuart

“SOLOMON Islands has made significant gains over the past fourteen years, in restoring law and order, re-establishing public institutions, and improving human development indicators. Macroeconomic and financial stability has been achieved and important structural reforms have been implemented.

This was said by Alison Stuart from International Monetary Fund (IMF) who had led a team to Solomon Islands towards the end of July.

In a report issued by IMF, Stuart said nevertheless, Solomon Islands still confronts large economic and governance challenges.

“Challenges stem from weak management of the logging and mining sectors, a lack of transparency in the Constituency Development Funds (CDFs), and the need to strengthen public financial management.

“Growth held up well in 2017, estimated at 3.5 percent, and is projected to remain at 3.4 percent in 2018 buoyed by strong performance in logging, infrastructure spending, fisheries, agriculture, and manufacturing. Growth is expected to moderate to 2.9 percent in 2019, due to a slowdown in logging. Inflation has picked up somewhat to 2.4 percent in June 2018, following increases in domestic and global prices.

“The government budget position deteriorated further in 2017 and IMF staff project a sizeable deficit in 2018. The overall deficit widened to 3.8 percent of GDP in 2017 as revenues fell short of expectations, and spending on tertiary scholarships, shipping grants and CDFs remained high. Fiscal buffers are low with the cash balance at merely 1.5 months of spending, below the two-month target. Payment arrears have reemerged”.

Stuart said that against this backdrop, IMF staff team and the authorities had discussed policies to restore fiscal buffers as well as to strengthen financial management, improve governance and invest in new sources of growth. She said IMF staff also emphasised the need to clear the backlog of financial sector regulatory reform.

“Actions are needed to rebuild the cash balance as well as to clear domestic expenditure arrears. Strengthening revenue administration and compliance, and efforts to reduce tax arrears should continue. Reducing the scope for transfer pricing by the logging and mining sectors is also important”.

She said new sources of growth are also needed to replace logging and to sustain incomes for a growing population.

“Mining is likely to be an important growth sector but other countries’ experience shows that transparency, a strong regulatory and policy environment, and a robust tax regime are needed to fully reap the benefits”.

The government’s focus on anti-corruption and the passage of the Anti-Corruption bill is a positive step, Stuart said.

The IMF staff strongly supported the authorities’ intent to move forward with resolute and effective implementation of the bill and the whistleblower bill.

IMF say they stand ready to support the government’s reform efforts through policy advice and the development of better capacity for economic analysis and policy formulation, including on monetary and fiscal policies, tax reform and revenue administration, financial sector supervision and regulation, and macroeconomic statistics.