The Executive Board of the International Monetary Fund (IMF) today approved an 18-month SDR 12.48 million (about USD 18.3 million) arrangement under the Standby Credit Facility for the Solomon Islands in support of the authorities' economic reform program.An amount equivalent to SDR 3.12 million (about USD 4.6 million) is immediately available to the Solomon Islands.
The total amount of IMF resources made available under the arrangement equals 120 percent of the country's quota of SDR10.4 million.
In view of the adverse impact of the global economic downturn, the key objective of the authorities' economic reform program is to establish a basis for resuming solid growth and reducing external vulnerability in a low-inflation environment, while advancing poverty alleviation efforts. To this end, the program seeks to strengthen the fiscal position, enhance monetary policy operations, and safeguard the domestic financial sector. By laying a strong macroeconomic foundation, the program is also expected to help catalyze additional donor support for the country.
Following the Executive Board's discussion on the Solomon Islands, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, stated:
"Following the global recession and the continued decline in logging output, the Solomon Islands has experienced an economic downturn, pressures on the government's cash reserves, and increased macroeconomic vulnerabilities. The authorities' program, supported by a Standby Credit Facility arrangement, aims to restore macroeconomic stability, reduce destabilizing imbalances, and close the financing gaps, including by catalyzing donor support. Strong ownership and steadfast implementation of the program will be important.
"Key macroeconomic reforms and stabilization measures under the program would allow solid growth to resume in a low inflation environment, thereby advancing poverty alleviation efforts. The core elements of the program are to strengthen government finances, improve monetary operations, safeguard international reserves, and contain financial sector risks.
"Fiscal discipline will continue to serve as the main anchor for macroeconomic stability. Efforts will focus on rebuilding cash reserves mainly by strengthening revenue collection and prioritizing expenditure. Adopting a fiscal responsibility law and devising a proper resource tax regime would help enhance budget discipline, improve revenue transparency, and ensure a sustainable fiscal path.
"The current monetary stance is broadly appropriate, and sufficiently accommodative to support economic recovery. The program seeks to strengthen the operational framework of monetary policy and introduce new policy instruments to help banks manage liquidity, ensuring long-term price stability.
"New prudential regulations have been introduced recently to mitigate risks facing the banking sector resulting from the economic downturn. Timely and consistent enforcement of these new regulations will be critical to financial stability. The authorities are committed to strengthening the oversight and independence of the National Provident Fund to safeguard its long-term financial viability."