Posted by : Posted on : 12-Nov-2019

Solomon Islands: International Monetary Fund (IMF) advice timely ahead of new China relationship

An International Monetary Fund (IMF) team led by Ms. Alison Stuart visited the Solomon Islands during October 30-November 12 to hold discussions on the 2019 Article IV Consultation. At the conclusion of the visit, Ms. Stuart issued a statement with some appropriate advice that seems timely following the signing of MOU’s in China for development assistance to the Solomon Islands.

“Solomon Islands has benefited from a solid growth performance, strengthened economic institutions, and macroeconomic stability in recent years. However, a concerted effort is needed to place the government’s budget on a sounder footing; provide a buffer to respond to shocks, including natural disasters; and to enable Solomon Islands to realize its development potential in line with the National Development Strategy.

Governance challenges need to be overcome to provide a solid foundation for growth. Key issues include governance of the logging and mining sectors and the need for transparency regarding use of Constituency Development Funds (CDFs). The mining sector should contribute its fair share of fiscal revenues to ensure that Solomon Islands benefits from mining activity. The lack of transparency and reporting of CDF spending means there is little evidence to show how these funds contribute to social or economic development.

( China is expected to fund direct aid projects and not continue the past practice of CDF paid to MP’s to use in development projects in their respective constituencies)

 “Opportunities exist to develop job-rich sectors, such as tourism, agriculture and fisheries. The new undersea cable could be strongly beneficial for private sector development, as well as public sector service delivery, as long as the cost of service provision declines. Success will also depend on appropriate investment in human capacity, as well as physical infrastructure. Closing the infrastructure gap and structural reforms in the areas of trade and access to finance would also foster private sector development.

“A potential for scaling up of development partner-financed investment could help support infrastructure development needs. However, the authorities must be in the driving seat to ensure that projects fit with key development plans and risks are appropriately managed, financing terms should be transparent, and projects should be subject to robust procurement practices. A step up in public financial management practices is critical to ensuring improved outcomes.

Investments ahead of hosting the Pacific Games (PG) in 2023 will need to be carefully managed so they do not substantially add to fiscal risks and debt. Spending should be contained, financing should be transparent, and on grant (or highly concessional) terms so as not to crowd out other urgent priorities.

Ms Stuart said, “The IMF stands ready to support the government’s reform efforts through policy advice and capacity development especially with respect to fiscal management and reform, monetary and e 4 rate policy, financial sector supervision and regulation, and macroeconomic statistics.”

Source: IMF and Solomon Times on Line.

Yours sincerely

Frank Short

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