Front Matter Page
IMF Country Report No. 15/102
SOLOMON ISLANDS
FOURTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT AND REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA—STAFF REPORT; PRESS RELEASE; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR SOLOMON ISLANDS
April 2015
In the context of the Fourth Review Under the Extended Credit Facility Arrangement and Request For Modification of Performance Criteria, the following documents have been released and are included in this package:
The Staff Report for the Fourth Review Under the Extended Credit Facility Arrangement and Request For Modification of Performance Criteria prepared by a staff team of the IMF for the Executive Board’s consideration on April 10, 2015, following discussions that ended on January 29, 2015, with the officials of Solomon Islands on economic developments and policies underpinning the IMF arrangement under the Extended Credit Facility. Based on information available at the time of these discussions, the staff report was completed on March 20, 2015
A Press Release including a statement by the Chair of the Executive Board.
A Statement by the Executive Director for Solomon Islands.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Solomon Islands*
Memorandum of Economic and Financial Policies by the authorities of Solomon Islands*
Technical Memorandum of Understanding*
*Also included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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© 2015 International Monetary Fund
Front Matter Page
SOLOMON ISLANDS
FOURTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT
March 20, 2015
Key Issues
Recent Developments and Outlook. Solomon Islands held its parliamentary elections on November 19, 2014 and elected a new government led by Prime Minister Manasseh Sogavare, representing the Democratic Coalition for Change. The country’s Gold Ridge mine, its only gold mine, remains closed and the chances of it re-opening are limited given current gold prices. At the same time, the logging industry is being adversely affected by the depletion of forestry resources. As a result, the near-term outlook has worsened. While lower oil prices constitute a windfall to consumers and producers, diversifying sources of growth and boosting the competitiveness of the economy are key to strengthening medium-term growth prospects. The risks to the outlook are to the downside.
Program Performance. Performance under the Extended Credit Facility (ECF) arrangement has been broadly satisfactory. Performance criteria for end-June 2014 were met by large margins. Indicative targets (ITs) for end September 2014 were also met, except for those on health and education spending, which were both narrowly missed in June and September 2014. Despite delays, the authorities have made progress in implementing the structural reform agenda.
Policy Recommendations
In the medium term, recalibrate ambitious spending plans in line with implementation capacity, revenue envelope, financing availability, and the need to preserve fiscal buffers for resilience against shocks given the serious setback in mining prospects linked to the closure of the only gold mine.
Strengthen the quality of public spending and fiscal management by advancing Public Financial Management (PFM) reform, including improving the transparency and accountability in the use of constituency funds.
Maintain the current monetary stance but stand ready to tighten policy if credit growth and inflationary pressures surge.
Strengthen financial regulation and supervision, including supervision of the National Provident Fund, and improve private sector access to credit.
Approved By
David Cowen and Masato Miyazaki
Discussions took place in Honiara during January 20–29, 2015. The team comprised Ms. Tumbarello (Head), Ms. Hunter, Messrs. Jamaludin, and Wu (all APD). Mr. Perks (SPR) supported the mission from headquarters. Messrs. Flinner and Zeinullayev (all APD) assisted in the preparation of this report. Ms. Plater (Alternate Executive Director) joined the policy discussions. The team met with Prime Minister Sogavare, Minister of Finance Rini, Central Bank Governor Rarawa, and other senior officials, donors, and the financial sector.
Contents
THE SETTING: CONTEXT AND OUTLOOK
PROGRAM PERFORMANCE
POLICY DISCUSSIONS
A. Preserving Fiscal Space and Improving the Quality of Public Spending
B. Strengthening the Monetary and Exchange Rate Policy Frameworks
C. Preserving Financial Stability
D. Program Discussion and Other Issues
STAFF APPRAISAL
BOX
1. The Impact of Lower Oil Prices
FIGURES
1. Economic Indicators Relative to Other Small States
2. Macroeconomic Developments and Outlook
TABLES
1. Selected Economic Indicators, 2012–16
2. Medium-Term Baseline Scenario, 2012–20
3. Summary of Fiscal Accounts, 2012–16
4. Summary Accounts of the Banking System, 2012–15
5. Balance of Payments, 2013–19
6. Reviews and Disbursements Under the Extended Credit Facility
7. Indicators of Capacity to Repay the Fund, 2014–25
APPENDIX
1. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
Front Matter Page
Press Release No. 13/168
FOR IMMEDIATE RELEASE
April 13, 2015
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