Updated: Oct 25, 2021
Dr. Luke Forau giving his presentation to ISIA members.
(ISIA): The Governor of Solomon Islands’ Central Bank (CBSI) has stated that the country’s ability to achieve sustainable growth in a post COVID-19 economy will depend on government priorities.
Dr. Luke Forau made the statement during his presentation to members of the Institute of Solomon Islands’ Accountants (ISIA).
Governor Forau was a guest speaker at the institute’s recently held annual general meeting. His presentation focused on the national economy and its outlook beyond the experiences of COVID-19.
This year, the government imposed a number of COVID-19 restrictions including a ban on all international travel following the declaration of a national state of emergency in March.
Eight months on, the unprecedented restrictions have had a negative impact on almost all sectors of the economy, driving down aggregate demand and amplifying existential economic risks.
The country’s economy went into recession in the second quarter of this year, driven mainly by the COVID-19 impacts.
According to the Central Bank, real economy outturns for this year showed significant falls in productive commodities, manufacturing and most services apart from the health and communications sectors.
Similarly, the monetary sector contracted with falls in private sector credit and a buildup in non-performing loans. Commercial banks, however, remained well capitalized with more available liquidity.
Dr. Forau told ISIA members that the depressed outturns led to a twin deficit brought on by a shortfall in government revenue collections and a drop in the total number of exports.
There were a number of positives with headline inflation rising to 3.4% as of July, reflecting a slight increase in consumer demand while the country’s gross foreign reserves grew by 12% to represent a comfortable 13 months import cover.
Moreover, the country’s debt to GDP levels also remained below the mandated thresholds.
But the Governor said overall, a fallout in economic activities has led to the forecast for real GDP for this year to fall to -4.2%.
Although the Governor’s updated prediction falls within the Central Bank’s growth forecast range for this year, it is a slight downgrade from a previous estimate of around -3.9%.
Dr. Forau stressed that given such an outlook, the conditions for more stable long term growth will depend on how government priorities will be geared towards addressing the fallout.
He said in light of these conditions, all signs were pointing to a ‘new normal’ for a post COVID-19 Solomon Islands economy.
Dr. Forau said that government priorities also needed to change to provide a conducive environment for private sector development and to allow for necessary reforms using macroeconomic policies.
In the short to medium term, Dr. Forau said that government priorities should focus on improving revenue collection, government human resources efficiency and the simplifying of processes through digitization.
He said in addition to these measures, the government should also look at tax and legislative reforms in order to create conditions that are better for businesses.
In the longer term, the Central Bank Governor said the government should look at structural reforms aimed at broadening the country’s economic base and public sector reforms.
Meanwhile, the outlook for 2021 is more optimistic with the country’s GDP growth forecasted to recover to 2% for the year.
The rosier outlook is expected to be driven by the anticipated recovery in the agriculture, fisheries, wholesale, retail and tourism sectors and the construction of key national projects.