IMF reports 2.5% economic growth rate for 2023

The International Monetary Fund’s (IMF) preliminary findings on the country’s economy has reported an economic growth rate of 2.5 percent for this year.

IMF Mission Chief of the Solomon Islands, Masafumi Yabara confirmed this in a media conference yesterday.

He said the country’s economy is recovering but at a fragile state.

“The international border opening and the Pacific Games 2023 infrastructure spending have boosted economic growth, but recovery has been fragile as the Ukraine and Russian war has led to higher inflation and worsening terms of trade for the country.”

The current account deficit is projected to widen to 15 percent of GDP this year, which reflects a decline in the logging sector and high imports for infrastructure projects.

Mr. Yabara says, the economy remains subjected to domestic and international downside risks.

“A resurgence of COVID-19, natural disasters, an increase in global commodity prices, political instability as the country prepares for the national general election, and a rise in geo-political tensions put the country’s economic recovery at risk”.

The IMF has also called for caution on infrastructure projects’ financing and management, as mismanagement could disturb economic recovery.

Meanwhile, the country’s fiscal deficit is expected to widen to 6.3 percent of GDP, which is mainly driven by exceptional expenditures for hosting the Pacific Games and preparation for the national general election.

Mr. Yabara said, spending on the two events needs to be strictly monitored.

“Spending on the Pacific Games and the national general elections needs to be controlled to minimize the crowding out of other essential spending, including targeted support for the vulnerable and investment for future growth.”

The government is also forecasted to borrow, to finance its spending needs for some time.

“Fiscal deficits are expected to persist over the medium term, driven by large spending needs for improving physical and human capital, costs to maintain newly built infrastructure and weak revenue trends,” said Mr. Yabara.

He adds, public investment projects should also be implemented in line with the country’s economic ability to absorb them, and accompanying financing arrangements should be negotiated to reduce fiscal risks and debt sustainability.

The IMF also states that support from government donor partners which are lower than expected could obstruct the government’s budget implementation.

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By Sharon Nanau