The Solomon Islands needs to implement fiscal reforms such as alterations to its tax system and more efficient public spending or its debt levels might become unsustainable, the World Bank said in a report yesterday.
With the Solomon Islands implementing a large public investment program and facing declining logging revenue, fiscal reform will be vital to managing debt levels and securing hard-fought development gains, the bank said.
“Without reform, Solomon Islands’ debt may become unsustainable,” the bank said.
Photo: AFP
If changes are not made, public debt would reach the government threshold of 35 percent of GDP as early as 2026, it said.
The government of the Pacific island nation has undertaken several externally financed infrastructure projects including transportation and sporting facilities for next year’s Pacific Games, renewable energy, telecommunications, water and health.
These are aimed at addressing development and growth challenges, but are in part funded by concessionary loans adding to the country’s burden, the bank said.
Solomon Islands Permanent Secretary of the Ministry of Finance McKinnie Dentana said in a statement that the Solomon Islands had worked closely with the World Bank in preparing the report and it provided useful guidance.
“We know we can expect a decline in logging revenues, and identifying ways to diversify our country’s income is a key focus of this government,” Dentana said.
The bank also said that the Solomon Islands needed to be aware of the cost of maintaining its new infrastructure projects and should build this into spending plans.
The report comes amid concern among Western countries about China’s growing influence in the Solomon Islands after its government struck a security pact with China in April that allows Chinese police to restore order and protect Chinese infrastructure projects.
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