Economic Review: Solomon Islands 2022

Monetary Policy and Economic Recovery

The Central Bank of Solomon Islands (CBSI) maintained an accommodative monetary policy stance in 2022 to support economic recovery. Key measures included:

• Maintaining Cash Reserve Requirement: The CBSI kept the cash reserve requirement unchanged, allowing commercial banks to maintain sufficient liquidity.
• Stock of central bank bills: The stock of central bank bills was also maintained at a level that supported economic activity.

As a result, the economy showed signs of recovery from the COVID-19 pandemic and riot-related disruptions. Notable improvements included:

• Increased production of round logs: The sector saw an uptick in production, indicating a return to pre-pandemic levels.
• Improved sales of electricity: Sales of electricity also improved, reflecting increased economic activity.

External Balance and Budget Performance

Despite these positive developments, the external balance faced significant challenges. A decline in exports led to:

• Deterioration in external balance: The external balance worsened due to reduced export earnings.
• Foreign reserves remained at prudent levels: However, foreign reserves continued to cover around 9.5 months of prospective imports.

The government’s budget performance was also affected by weak planning and delayed approval, resulting in:

• Under-execution of the 2022 budget: Public expenditure was restricted due to revenue shortfalls and a shallow domestic bond market.
• Supplementary budget authorizing additional expenditure: A supplementary budget was approved, allowing for additional expenditure of SI$284 million (2.1 percent of GDP).

Fiscal Deficit

The fiscal deficit was estimated to have decreased to 4.1 percent of GDP in 2022, despite the challenges faced by the economy.

Overall, the report highlights the complexities of managing Solomon Islands’ economy and the need for effective policies to address external shocks and domestic constraints.