IMF advises govt to control spending on Pacific Games and national general elections
BY NED GAGAHE
The International Monetary Fund (IMF) has advised the Solomons government to watch its spending on the Pacific Games and National general elections.
“Expenditure related to the Pacific Games and general elections need to be well controlled to minimize the crowding out of other essential spending.”
This was highlighted by International Monetary Fund’s (IMF) team leader Mr Masafumi Yabara in their preliminary findings following the completion of the 2023 IV Consultation held with stakeholders in the country.
Yabara and his team held discussions with various stakeholders in the country from February 8-23, 2023.
Preliminary findings of their mission were compiled and announced in a media conference yesterday.
Based on their finding on public investment projects for the country, Yabara said that it should be phased in line with the economy’s absorptive capacity and on accompanying financing arrangements, ‘it need to be prudently negotiated’.
“The economy remains subject to downside risks, in particular the risks of a resurgence of the pandemic and natural disasters. Lower-than-expected support from development partners or unsuccessful bond issuance in the shallow domestic market could hinder budget implementation.
“Further increase in global commodity prices, as well as mismanagement of infrastructure projects and their financing, would disturb the recovery. Other downside risks include political instability in the runup to the general elections and rises in geopolitical tensions.
“The fiscal deficit is projected to widen to 6.3 percent of GDP in 2023, mainly driven by exceptional expenditure for the hosting of the Pacific Games and preparation for the general elections (summing up to 5.3 percent of GDP).
“Expenditure related to these two events needs to be well controlled to minimize the crowding out of other essential spending, including targeted support for the vulnerable and investment for future growth. Once the recovery is secured, rebuilding the government’s broad cash balance to at least two months of spending should be prioritized.
“Fiscal deficit are expected to persist over the medium term, driven by large spending needs for improving physical and human capital, costs to maintain newly built infrastructure, and continued weak revenue trends including from declining log exports. Public debt is projected to significantly increase to 22.8 percent of GDP in 2023, from 7.9 percent of GDP pre-pandemic.
“The public -debt-to GDP ratio could reach the authorities’ threshold of 35 percent before 2023, driven by increasing concessional external borrowing. Public investment projects need to be phased in line with the economy’s absorptive capacity and accompanying financing arrangements should be prudently negotiated to mitigate fiscal risks and ensure external balance and debt sustainability.”
