By EDDIE OSIFELO
SOLOMON Islands debt stock has risen to $1,450 million after government borrowed money from donors and state-owned enterprises and National Provident Fund to combat covid-19 last year.
The debt is equivalent to 12 percent of the Gross Domestic Product.
Central Bank of Solomon Islands Governor, Dr Luke Forau told the Public Accounts Committee in Parliament on Monday that external debt component has a bigger share of 69 percent ($998 million) underpinned by new loans from the Asian Development Bank and World Bank.
Forau said domestic debt represented 31 percent ($452 million) mainly attributed to borrowing from SOEs and the Solomon Islands National Provident Fund.
Further to that, Forau explained the country’s external trade (exports and imports) deteriorated in line with weak domestic and foreign demand as well as the impact of containment measures on tourism and infrastructure projects.
He said export dropped by 17 percent to $3,113 million driven largely by fall in round logs and canned tuna exports.
Forau said imports fell by 18 percent to $3,232 million reflecting slowdown in capital imports amidst low domestic investments during the year.
He said aided by favourable donor in-flows and the International Monetary Fund credit support, the country’s gross foreign reserves grew by 13 percent to $5.3 billion representing 13 months of import cover.
Further to that, Forau said monetary conditions during the year remained firmly in line with CBSI’s expansionary monetary policy.
He said money supply rose by seven percent to $5,418 million against December 2019, driven by increase in narrow money and other deposits.
Forau said this reflected the build-up in foreign reserves over the period.
Meanwhile, private sector credit at the end of December 2020 declined by one percent to $2,541 million.
Forau said the main sectors driving the fall in lending were personal loans, construction, tourism, transport and manufacturing.
He said conversely, credit to the forestry, distributions and professional and other service sectors grew over the year.
“The interest rate margin narrowed to 9.73 percent in 2020 from 10.23 percent in 2019.
“This mirrored a decline in the average weighted lending rates from 10.67 percent to 10.30 percent,” he said.
Forau said the average lending rates have come down; by comparison they are not far from their neighbours.
“However, I want to stress here that we need to address the issues that affect the financial systems in totality.
“The financial system is but only one component of the economy, and its functioning depends on several factors, one of which is the stability of our governing system and the robust enforcement of the relevant laws,” he said.
In the meantime, inflation remained muted in 2020 falling to minus 1.8 percent by end December 2020 despite spikes in the middle of the year whilst core inflation stood at minus 1.4 percent.
