CBSI Governor Forau expresses concern about the state of the national economy, warning that as long as the recovery in the labour market recovery is weak, economic resurgence will remain incomplete and fragile
The state of the country’s economy is adversely affected by a confluence of external and domestic shocks that led to a 3.6 percent contraction in the Growth Domestic Product (GDP), Governor of the Central Bank of Solomon Islands, Dr Luke Forau says.
He said this came at the back of a broad-based reduction seen across all sectors of the economy, except for some mining activities.
“Similarly, the services sector fell by 0.4 percentage points, which stemmed from the decline in overall business services in the economy.
“The secondary sector, on the other hand, grew marginally by 0.2 percentage points, underpinned by construction of public infrastructures and increase in mining output,” Dr Forau said.
He said the weak economic activity resulted in the worsening of the country’s external position which deteriorated to an overall balance of payments deficit of $192 million, owing mainly to a widening trade deficit of 14 percent of GDP. This was due largely to a 19 percent surge in imports in contrast to a 7 percent fall in exports receipts
“As a result, gross foreign reserves plunged by 3 percent to $5,458 million, although this is still sufficient to cover 13.8 months of imports of goods and services,” Dr Forau said
He said the Government finances resultantly deteriorated to a fiscal deficit of 3 percent of GDP as high expenditure outpaced low revenue.
He said the total revenue fell by 4 percent, while expenditure remained high, reflecting the pandemic related expenses in the first half of the year, as well as the Pacific Games and National General Elections preparation related expenses.
He said the government debt level rose to 16 percent of the GDP as a result of increased borrowing by government to finance its priority commitments in 2022.
He said with low revenue and increased spending pressures envisaged ahead, fiscal consolidation is necessary to avoid risks of slippages and allow room for absorption of future shocks
Despite of these subdued conditions, Dr Forau said the monetary aggregates were sustained and these were driven mainly by ongoing monetary and fiscal support throughout 2022.
“Money supply grew by 5 percent to $5,814 million, owing to the surge in net domestic assets of the banking system from improved lending activities to the private sector in 2022.
“Similarly, total liquidity increased by 5 percent to $2,755 million which led to corresponding rise in excess liquidity over this period.
“Interest rate margins declined from 9.6 percent to 9.1 percent in 2022, induced by the falls in both lending and deposit rates.
“However, interest rates in the country are still high by regional standards.”
Dr Forau said CBSI is concerned and will continue to liaise with relevant Government ministries and the financial institutions to address risk concerns to help drive lending rates down further.
He said recovery in the labour market remained weak last year with employment still lower than pre-pandemic levels.
“And we all know that, as long as recovery in the labour market is weak, recovery in the economy will remain incomplete and fragile,” he said.
BY CHARLES KADAMANA
