The Solomons strengthens its fi­nances

Paradise - - Solomon Islands | Business Guide | Special Report - – DAVID JAMES

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.

The good life … tourism in the Solomon Is­lands is on the in­crease.

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