The Executive Board of the International Monetary Fund (IMF) has completed the first review of Solomon Islands’ economic performance under the Extended Credit Facility (ECF) arrangement. The Executive Board also approved the waiver of nonobservance of the performance criterion on the floor on the central government program cash balance.
Completion of the first review enables Solomon Islands to draw an amount equivalent to SDR 0.149 million (about US$ 0.22 million) immediately, bringing total disbursements under the arrangement to an amount equivalent to SDR 0.297 million (about US$ 0.45 million).
On December 7, 2012, the Executive Board approved the three-year ECF arrangement for Solomon Islands in the amount of SDR 1.04 million (about US$1.59 million), or 10 percent of the country’s quota (see Press Release No. 12/479).
Following the Executive Board’s discussion on Solomon Islands, Mr. Min Zhu, Deputy Managing Director and Acting Chair, stated:
“Solomon Island’s economic developments in 2012 were favorable. Economic growth remained robust at an estimated 4.8 percent. As of end-2012, inflation fell to 5 percent, gross international reserves stood at a record US$500 million, and government debt fell to 17.5 percent of GDP.
“Performance under the ECF-supported program has been satisfactory with sound macroeconomic policies leading to the rebuilding of policy buffers. All assessment criteria for end-2012 were met, except for a small and temporary shortfall in the cash balance of the central government. Structural reforms are advancing, notwithstanding some delays due to capacity constraints.
“Sustaining fiscal discipline and improving the quality of public spending remain critical to meeting program objectives. With tax revenues from logging activities expected to decline, and mining revenue still uncertain, careful control of spending is essential to maintaining sound public finances. In addition, this will require decisive implementation of the authorities’ plans to improve the quality of public spending, including by strengthening the transparency and accountability in the use of constituency funds and upgrading the public finance act.
“Monetary and exchange rate policies have contributed to maintaining price and external stability. While inflation is expected to remain broadly stable, the authorities have indicated their readiness to step up monetary operations, if needed. The new exchange rate peg to a basket of currencies has worked well and could help buffer external shocks in the future.
“Looking ahead, several challenges remain, including bolstering resilience to shocks, strengthening institutional capacity, and deepening broad-based and more inclusive growth. The authorities are commended for their successful implementation of the ECF-supported program and their commitment to preserving macroeconomic stability and maintaining efforts to implement their comprehensive reform agenda.”