‘One step forward and two steps backward economy’
Governor of Central Bank of Solomon Islands Dr. Luke Forau describes the state of the country’s economy as a person walking one step forward two steps backward.
Launching the 2021 CBSI Annual Report this week, Forau said the current health of “our economy is in a precarious situation.”
He adds: “The state of our economy is likened to a person walking one step forward and two steps backward. From a bird’s eye view, you will note that that person is in fact going backwards instead of going forward.”
Forau said the Solomon Islands economy was initially projected to decline by 7.3% in 2022, on the back of sluggish economic activity and on-going COVID-19 containment measures with declines expected across all sectors of the economy.
He adds the economic fallout was expected to bottom out over the medium term with some moderate rebound expected to start in 2024.
However, he said, with containment measures now fully eased as of 1st July this year and international border restrictions lifted, the economy is now expected to recover earlier than anticipated.
Forau states that under these conditions, GDP growth has been revised upwards and is expected to contract by 4.3% in 2022 (i.e. a 3-percentage points upward revision) and to rebound by 1.9% in 2023. This is better than expected six months ago. All sectors, except for logging, are expected to recover in 2023.
He however says that risks to these forecasts however remain, and these include: (i) resurgence in COVID-19 cases that would lead to reinstatement of restrictions in economic activities; (ii) natural and man-made disasters, and the prolong Russian-Ukraine war. All these would reduce GDP.
Meanwhile Forau said the Solomon Islands economy was on its way for recovery in 2021, although at a slower pace, following the depressed condition in 2020.
“The onset of the riot in November however, quickly reversed the fragile recovery and pushed the economy back into recession, with a negative 0.6% growth at the end of 2021. The decline stemmed from declines across all sectors of the economy, with the exception of fish and copra,” he said.
Forau further states that the current account position worsened further, driven by the increase in imports relative to the slowdown in exports.
He adds the fall in primary income surplus during the year also contributed— despite the worsening external position, gross foreign reserves for the country grew, reaching 14.2 months of import cover which is well above the minimum target of six months. Forau said the increase in foreign reserves came mainly from donor funds and SIG revenue from fishing license.