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Buoyant growth

Filipe Naigulevu
Thursday, March 08, 2018

GROWTH in the Solomon Islands remains relatively buoyant along with contained inflation complemented with broadly appropriate exchange rate and monetary policies.

This was part of the preliminary findings an International Monetary Fund (IMF) team that visited the capital Honiara from February 27 to March 2.

The IMF team, led by Alison Stuart, recently concluded their staff visit on the island nation to discuss recent economic developments and policies, including the 2018 Budget strategy.

According to the preliminary findings, the weak fiscal position in Solomon Islands heightens the need for fiscal adjustment in 2018 and for public financial management reforms.

"Growth has been relatively buoyant, inflation is contained, and exchange rate and monetary policies are broadly appropriate," Ms Stuart said in a statement.

"However, the fiscal position remains fragile, fiscal buffers have eroded since 2016, and domestic arrears have built up.

"There is a need to strengthen fiscal discipline and improve the quality of public spending."

The findings also noted that the authorities' fiscal consolidation goal in the 2018 Budget was commendable, though it would be important to adopt expenditure restraint in non-priority areas.

"The team therefore welcomes the authorities' commitment to address fiscal vulnerabilities and rebuild fiscal buffers in the context of the 2018 budget," Ms Stuart said.

"Anchoring the budget on realistic revenue projections is a good step forward. Aligning spending with the available resource envelope, taking steps to eliminate arrears, and including a contingency reserve in the budget are all measures which will help to strengthen fiscal discipline.

"Rebuilding a fiscal buffer in 2018 will require a temporary slowdown in government-financed development spending. This will help raise the cash balance to an adequate level and restore the authorities' ability to respond to shocks, including from natural disasters."

Ms Stuart however stressed that n pursuing expenditure restraint, consideration should be given to maintaining expenditures in priority areas and curbing expenditures in areas which have expanded recently.

These areas, she said, were tertiary scholarships, constituency development funds and shipping grants.

"Looking forward, we encourage the government to continue to seek concessional external financing for critical infrastructure in line with debt sustainability and implementation capacity," Ms Stuart added.

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