Washington, DC: On February 19, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Solomon Islands.
Solomon Islands has weathered important shocks including civil unrest and the pandemic, successfully hosted the Pacific Games, and conducted peaceful general elections. These achievements have raised the country's profile and strengthened national unity, but with costs—public debt has nearly tripled since before the pandemic, and the government's cash reserves have been significantly depleted.
Modest growth is expected at 2.8 percent in 2025, slightly above the 2.4 percent growth estimated for 2024, while inflation, estimated to have returned to 3.4 percent at end-2024, is envisaged to reach 3.9 percent at end-2025. The fiscal deficit is expected to widen slightly from 3.1 percent of GDP in 2024 to 3.3 percent of GDP in 2025, underpinned by continued spending pressures and externally financed infrastructure projects. The current account deficit is estimated to have narrowed to 4.2 percent of GDP in 2024, but projected to widen to 7.7 percent of GDP in 2025 as economic activity gains momentum. Foreign exchange reserves remain adequate, covering 9 months of imports.
Risks to the outlook are tilted to the downside. They include under execution of the budget, extreme climate events, political instability, and commodity price volatility. Declining logging activity and the undiversified economic base, compounded by weak governance, constrain growth potential. Both the current account and fiscal deficits are expected to persist over the medium term.
Executive Board Assessment [2]
Executive Directors agreed with the thrust of the staff appraisal. They concurred that while the Solomon Islands' economy has weathered multiple shocks well and recently benefited from successfully hosting the Pacific Games and peaceful general elections, public debt is increasing, medium-term growth prospects appear moderate, and per capita income growth remains stagnant. Against this backdrop, Directors emphasized the importance of rebuilding cash buffers and ensuring fiscal sustainability, while boosting growth prospects through economic diversification and governance reforms.
Directors stressed the need to improve the effectiveness of fiscal policy by addressing weaknesses in fiscal data and public financial management, including by ending the practice of unfunded spending. They also called for tightening the 2025 Budget to start a gradual recovery of cash balances. Directors underscored the importance of creating fiscal space to accelerate investment in development priorities. To this end, they recommended advancing domestic revenue mobilization, such as introducing a value added tax. Enhancing the quality, transparency, and accountability of public expenditure, including by undertaking the Public Expenditure and Financial Accountability assessment, would also be important. Directors saw merit in introducing a simple, ex-ante guideline for annual budget formulation as an interim step toward a fiscal rule.
Directors agreed that the current monetary policy stance and exchange rate regime are appropriate. They stressed the importance of preserving the central bank's autonomy, including by limiting purchases of government bonds and implementing the remaining Safeguards Assessment recommendations. Directors also underscored the need to keep the exchange rate fully aligned with the value of the updated currency basket and to enhance transparency and communication with market participants. While the financial sector remains stable, Directors encouraged further reforms to strengthen regulatory and supervisory frameworks and boost financial intermediation and inclusion. They stressed the need to strengthen the AML/CFT framework, including due to the planned introduction of the Citizenship by Investment program.
Directors encouraged the acceleration of structural reforms to support economic diversification and private sector development, with capacity development support from the IMF and other development partners. They agreed that addressing governance weaknesses remains a priority, including by improving the capacity and independence of the anti-corruption institution.
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
