Solomon Islands Budget 2022: remarks in a nutshell

By Drik Heinz and William Kadi

Amidst challenges posed by Covid-19 and the pressures surrounding the Solomon Islands / China security deal, the 2022 budget was passed finally in the last week of April 2022.

In reference to the Minister of Finance’s budget speech, the underlying focus is on short and medium term economic recovery and how to best address the constraints posed by the impacts of covid-19.

With such objectives, the government has in place specific targets in promoting growth of the domestic productive sector as paramount. One proposed approach is to attempt to create trade leverage using the new diplomatic relationship with China and other South-east Asian countries to expand international market access for local exporters.

The budget also highlights resumption and progress needs for major projects including the Pacific Games 2023, the Tina river hydro project and other major infrastructure projects in Western Province, Malaita, and Guadalcanal.

The Minister of Finance clearly stressed several budget risks including the risks posed by covid-19, limited cash flows and non-adherence to policy priorities and operational rules. In terms of mitigation measures, the Minister placed emphasis on vaccination roll out, prioritising projects that would contribute to economic growth, and calls for regular and timely monitoring of projects as measures to addressing these risks.

From the budget discussions, it is important to highlight that the November 2021 riots have had severe negative impacts on the domestic economy and that has been coupled with covid-19 community transmission. However, there were strategies that could be noted from the budget that aims to boost the domestic business environment in the short term, whilst encouraging economic growth through the production and resource sectors.

The budget was also assented to by the Governor General which means it is on the pathway to being gazetted. Further review of the budget should be conducted during the mid-year budget review.

Summary of 2022 Budget

Only in Solomon Islands we see value added products (agriculture, forestry, fisheries, and minerals)

Budget theme: Building our resilience: Laying strong foundations for growth.

Budget passed: $4.4B (April/May 2022).

Budget focus: Short and medium term economic recovery & addressing constraints on the impacts of covid-19. In summary, economic recovery and growth are crucial and seen as paramount objectives that the government look forward to achieve in the short to medium term.

Overarching policy objectives of the government as reflected in the budget and accommodating fiscal & economic policies:

1. Living with and overcoming covid-19 by controlling and managing community transmission to protect the vulnerable

a. Ensuring essential services are operational even during lock downs b. Service & health grants to provinces

2. Ensure domestic economy remains afloat while taking measures to accelerate economic recovery in short & medium term

a. Promote domestic & international trade in cash crops

b. Provide capital injections to SOEs that are critical to economy

c. Support domestic agriculture sector through

i. Leveraging on new diplomatic relationship with China and other South-east Asian countries to expand international market access for local exporters ii. Gain accreditation to ISO standard for local commodity exports to promote international competitiveness

iii. Promote investments in biosecurity technologies to comply with standards applied in potential export markets

iv. Facilitate access to finance through DBSI and CBSI lending guarantee and export facilities to assist domestic producers and exporters v. Invest in rehabilitation in coconut and cocoa plantation

With the above budget focus, action taken in budget allocation prioritizes the following:

1. Productive sector 229M (agriculture, trade & investments, infrastructure etc…)

2. Resource sector 41M (Forestry, Environment, Mines)

3. Rural development 341M (CDF) – focus on rural community projects

4. Social sector 281M (Health & Education)

Major Projects Resumption & Progress

1. Tina river hydro project

2. Munda airport upgrade under world bank project

3. Seghe and Taro Airport upgrade project under funding partnership between Australia, New Zealand, and Solomon Islands

4. Honiara road upgrade project (town to airport) funded by Japan

5. Honiara airport upgrade funded by Japan

6. Malaita infrastructure projects include road and bridge rehabilitation under World Bank project

7. Honiara (Central Market to White river) road project under ADB

8. Honiara airport to Barande (East Guadalcanal) road rehabilitation project under ADB

9. 2023 Pacific Games Infrastructure project

Budget Risks & Mitigation

1. Covid-19 variants – must strengthen vaccination roll out

2. Limited cash flow – must focus on projects that would contribute to economic growth

3. Non-adherence to policy priorities and operational rules – calls for regular monitoring of projects until successful completion

4. Request for additional finance will pose additional pressure on budget if revenue is not anticipated – such requests through budget supplementation would only be made on grounds that is very urgent and unforeseen

5. 2023 pose huge undertaking for Solomon Islands – government must also contribute to completion

6. Monitoring of development project implementation – can be enhanced through regular & timely reporting. Same goes for projects in productive & resource sectors.

Closing remarks.

Recovery is crucial particularly from covid-19 and loss from impact of riots in November 2021 – hence, the government has special measures in place (recovery funding & tax exemptions) for identified businesses affected by riot, looting and burning.

Ministry of Finance & Policy Implementation, Monitoring and Evaluation Unit (PIMEU) from the Office of Prime Minister and Cabinet will continue to monitor the implementation of 2022 budget and ensure budget is executed as planned. Further review to be conducted during mid-year budget review.