The Solomons strengthens its finances
According to the Asian Development Bank (ADB), economic growth in the Solomon Islands slowed to 3.2 per cent in 2017, down from 3.4 per cent in 2016.
Log output decreased by almost 2 per cent in 2017 to 2.65 million cubic metres from a high of 2.69 million cubic metres in 2016. But output in copra rose by 35 per cent and fish by 15 per cent. Mining and tourism have also expanded significantly, albeit from low bases.
The current account deficit almost halved in 2017 from the equivalent of 4.9 per cent of GDP in 2016 to 2.5 per cent, reflecting “low international food prices, strong exports, and continued inflows of grants from development partners”.
Merchandise exports grew by an estimated 12.0 per cent in 2017, up from a 0.6 rise in 2016.
The Solomon Islands in 2017 recorded a budget deficit estimated to be equal to 4 per cent of GDP. This is likely to improve in 2018.
According to Donald Kiriau, treasurer of the Economics Association of Solomon Islands, the government is moving from adopting expansionary budgets towards balanced budgets. He said that in the 2018 Budget, revenues were 12.8 per cent higher than in the draft budget, and domestic revenues were up 12.3 per cent “due to new measures by the IRD (internal revenue department).” Expenditures were revised up 4 per cent from the draft budget.
The positive of this fiscal consolidation, according to Kiriau, is that it instigates a “cycle towards fiscal consolidation and a balanced budget.” The downsides are that a tighter budget will reduce capital expenditure and impede long-term growth and productivity.
The rise in taxes would also increase the burden on businesses and there is less likely to be support for key growth businesses.
According to Andrew Harris, a partner at Deloitte PNG, changes to withholding taxes and petroleum tariffs have been “effective”. About a third of the government revenue comes from goods tax and a quarter from personal income tax. He says the Solomon Islands has the highest level of tax collection amongst Pacific countries. It is 33 per cent of GDP, which is about double the level in Papua New Guinea.
Output in copra rose by 35 per cent and fish by 15 per cent. Mining and tourism also expanded significantly.