admin's picture

Country facing large deficit

HONIARA, Solomon Islands (Solomon Star, June 3, 2009) – There are early indications that the country's 2009 revenues will be less than what was forecasted, resulting in an even larger deficit.

The Asian Development Bank's (ADB) Pacific Economic Monitor (PEM) highlighted this in its bulletin released on Monday.

The report revealed that actual revenue for the first quarter of 2009, which is around $316 million [US$45.3 million] was down by about 11 percent compared to a forecast of SI$357 million [US$51.2 million] .

The report also noted that the fiscal deficit is expected to widen as revenues fall.

"The deficit reached 5.6 percent of GDP in 2008, due to high development and recurrent spending.

"A deficit equivalent to 3.6 percent of GDP is expected in 2009 as the wage and salary bill balloons.

"This would exceed available cash reserves," the bank said.

The bank said the country's international reserves are under considerable pressure.

"As of April 2009, reserves had fallen to around 2.5 months of import cover as logging exports declined, which is well below Central Bank's target of at least four months.

"The outlook is for further declines in the level of reserves during 2009 and 2010," the bulletin said.

Inflation should ease, albeit slowly, as economic activity slows.

High excess liquidity in the banking sector and strong growth in domestic credit have contributed to the high inflation and import outcomes in Solomon Islands in recent years.

Recently, however, growth in domestic credit has slowed markedly, falling to around 20 percent in February 2009, the slowest growth in more than two years.

The Central Bank’s governor Denton Rarawa during the launching of the bank's 2008 annual report last month warned that the country must be prepared for the worst if the global financial crisis continues.

And he predicted drops in the levels of exports, foreign reserves, government revenue, employment, and incomes.

Rate this article: 
No votes yet

Add new comment