Volume 01
Issue No. 7
July 2009
Monthly Economic Bulletin Content Data published in this Bulletin are subject to revision and the Bank cannot guarantee the accuracy of
1.0 Monetary Development 2.0 Balance of Payments 3.0 Government Finance 4.0 Domestic Economy
information obtained from outside sources.
I.
MONEY AND BANKING
II.
BALANCE OF PAYMENTS
Solomon Islands’ Balance of Payment position in July soared to a surplus of $72.6 million, continuing on from the surplus of $37.7 million in June. This outcome was attributed to a rise in private sector loan inflows, increases in exports and other receipts, and foreign exchange revaluation gains of $5.8 million.
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Total exports in July increased by 11.6% to $115.1 million. The buoyant outcome was attributed to increases in some major commodities. Logs export, the country’s major foreign exchange earner, was up by 2.3% to $65.7 million, copra receipts jumped 34.5% to $5.3 million, and cocoa exports rose 7.8% to $8.1 million. Meanwhile, fish export receipts also increased to $13.7 million from $5.8 million and ‘other services’ receipts rose 34.6% to $8.7 million. On the other hand, alluvial gold receipts declined by 11.6% to $1.2 million, and ‘other commodities’ dropped to $0.1 million from $0.5 million during the month.
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Net Foreign Assets Credit to Private Sector
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Total domestic credit declined by 6.9% to $1203.9 million, compared to an increase of 2.4% in June. The fall was attributed to private sector credit which fell by 10.7% to $1159.9 million, despite net credit to government improving from minus $19.0 million to $43.9 million.
Graph 1 Monetary Survey
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Domestic Credit
Broad Money supply (M3) recorded an increase of 1.6% to $1527.2 million as of last Wednesday of July 2009, following a 2.1% increase in the previous month. Net foreign assets fell by 3.2% to $959.6 million from the balance in June. This fall was due to a decrease in net foreign assets held by the commercial banks from $194.0 million in June to $115.5 million this month. Meanwhile, Central Bank’s net foreign asset rose by 5.8% to $844.1 million, an increase of $46 million from the preceding month.
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Net credit to Government Money supply
Total transfers rose by 33.9% to $73.6 million during the month. This jump in receipts 1
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Exchange rates
represented increases in transfers to ‘private enterprises and individuals ’, churches, RAMSI, funding agencies, and NGOs. On the other hand, transfers to foreign embassies and the Solomon Islands government declined during the month.
The Solomon Islands dollar (SBD) remained stable against the US Dollar for the fourth consecutive month in July, trading on average at $8.06 per USD. The SBD however, depreciated by 2.3% against the Japanese Yen to $8.54 per 100 JPY, by 1.0% against the New Zealand dollar to $5.19 per NZD, by 0.4% against the Australian dollar to $6.48 per AUD and by 0.1% against the British Pound to $13.20 per GBP. On the other hand, the SBD slightly appreciated against the EURO by 0.2% to $11.36.
Graph 2: Gross International Reserve & Import Cover 1000
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Graph 3: Exchange R ate (SI$ P er F o reign C urrency)
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Meanwhile, investment and loan inflows rose to $98.9 million in July, rising from $2.6 million in the previous month. This significant increase was primarily due to proceeds of an overseas borrowing to finance private sector investment and capital projects.
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The gross external reserves position of Solomon Islands increased by 9.1% to $863.6 million at end July. This positive outcome was attributed to the continued positive export performance, investment/loan inflows and foreign exchange revaluation gains during the month. Consequently the external reserves cover is equivalent to approximately 4.3 months of imports of goods and non-factor services. The rise in import cover is attributed to slow imports growth compared to levels in 2008.
III.
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GOVERNMENT FINANCE
Fiscal performance in July 2009 was characterized by stronger expenditure over revenue, resulting in a net overall deficit of about $12.8 million. This was due mainly to increased development spending and a drop in revenues especially from company and income taxes during the month. 2
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Issue No. 7
July 2009
to $33.1 million. On a monthly basis, July revenue collection was lower than the previous month by 10.0%. This resulted from weak collections from log duties, excise duties and ‘Other’. Import and export duties surpassed the previous month’s collections by 18.5% and 182.1% to $12.2 million and $0.4 million. The below-the-budget collection reflected mixed movements in the revenue collected against budget. During the month, collection from excise duty alone was above budget by 27.2%, while collection from all other CED duties was under budget. On a twelve month basis, total collection was below budget by 10.9%.
Total revenue collected for July slowed down against budget by 19.7% to $111.0 million, in contrast to the significant increase of 23.7% in June. The total revenue collection was almost the revenue collected in July 2008. By category, local revenue accounted for $102.1 million, while external sources contributed $8.9 million.
Graph 4 Revenue and Recurrent Expenditure (July 2009)
Non-tax revenue for the period stood at $4.8 million, 70.5% below the previous month and 70.4% below budget. The drop in receipts from the Ministry of Communication and Civil Aviation by $6.3 million underpinned the weak performance.
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Grants received during the month totaled $8.9 million.
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Expenditures
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Revenue
Total expenditure for July stood at $123.7 million. This was lower than budget by 24.2%, even though it was above the previous month by 20.6%. By months, the trend reflected notable increase in all major expenditure components.
Recurrent Expenditure
Revenue collection from Inland Revenue Division (IRD) totalled $64.2 million, 1.9% above budget and 25.2% higher than July 2008. The outcome during the month reflected improved compliance as more revenue collecting categories under IRD registered collections that exceeded expectation. These were total withholding tax, up by 125.2%, sales tax by 107.5% and licensing by 17.2%. On the other hand, company tax collection fell below budget by 22.7% while private PAYE was lower by 12.3% and goods tax by 9.5%.
“Other charges” recorded $48.0 million during the month, 32.6% lower than budget but 25.8% above the June spending. Against the corresponding month a year ago, it expanded by 26.7%. The increase was due mainly to a payout of $8.6 million towards government’s commitment to the University of the South Pacific during the month. Most ministries are anticipating lower expenditure outlays in the coming months. Development expenditure grew by 173.8% to $32.1 million, compared to the previous month. This was 5.4% higher than budget and 134.6%
Revenue from Customs and Excise Division (CED) in July was lower than budget by 4.2% 3
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above July 2008. Of the total, SIG funding accounted for $15.1 million, of which, 50% was spent on Rural Livelihood Constituency Fund. This was followed by spending on the Rural rice Project with $1.6 million. The spending from the donor’s consolidated funds accounted for $17.5 million in July, of which, almost $10 million was for the ROC (Republic of China) training award and the rest of the $7.6 million was spent towards ROC Constituency Microproject Fund (RCMF).
July 2009
Debt servicing during July totaled $7.9 million. This was 52.0% less than that of the previous month. The external debt repayment was $5.3 million, $8.4 million lower than the previous month, and 46.4% below budget. Repayment during the period was mainly to the Asian Development Bank and the World Bank. Domestic debt repayment was $2.6 million, where most of the payment was on government securities, accounting for 71.0% of the total domestic debts. Debt arrears dropped during the month as opposed to June from $25.9 million to $25.4 million.
SIG Debt Stock
IV.
Total debt stock at the end of July as depicted in graph 4 was $1,433.1 million. This comprised $1,069.1 million in external debts and $364.0 million in domestic debts. On a month-to-month basis, the overall debt position edged up by 0.2% ($3.1 million), which reflected the upward movement in the external debts and more in particular, the domestic debts. The external debt rose from $1,069.0 million to $1,069.1 million, due to the exchange rate movements, whilst the domestic debt rose from $361.1 million to $364.0 million due to more investors participating in the Auction Treasury Bills during the month.
DOMESTIC ECONOMY
Logs Log exports data, proxy for log production fell 38% to 77,164 cubic meters in July 2009 from 124,204 cubic metres in June. This drop was attributed to relatively higher export shipments in June combined with lower volumes during the month. Year to date production volume reached 618,635 cubic meters compared with 908,587 cubic meters in the first seven months of 2008. The underlying concern for this export commodity is that at the current rate of extraction it is estimated that non-plantation logging could be fully exhausted by 2014. The average international log price rose slightly from US$279 per cubic meter to US$281 per cubic meter at the end of July.
Graph 5 SIG Debt Stock (CBSI) (July 2009) 1600
Palm oil & kernels 1200
Palm oil production declined 1.5% to 2,161 tons in July following a 4.2% drop in the previous month. The drop in production this month was due to the seasonal cycle when palm trees reach their low cropping period. Consequently, palm kernel output fell by 2% to 631 tons whilst palm kernel meal dropped 3% to 330 tons. This was reflective of a drop in the international price for palm oil from US$726 per metric ton to US$639 per metric ton. The drop in the price was mainly due to
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high stock levels as Malaysia and Indonesia (larger producing countries) enter into their peak cropping months.
July 2009
Consequently domestic copra prices fell from $2.15 per kilo to $2.00 per kilo at the end of July. Contracted export prices on the other hand rose from US$318 per metric ton in June to US$365 per metric ton this month. Meanwhile, international prices for copra sourced from the World Bank also fell 7% to US$448 per metric ton from US$480 per metric ton a month ago.
Fish Fish catch in July dropped 22% to 1,486 tons, reversing the rise seen in the previous month. The drop is mainly associated with unfavorable fishing conditions during the month. Year to date catch volume fell by 17% to 9,504 tons compared to 11,389 tons in the same period in 2008. Fish catch, however, is expected to pick up towards the end of the third and fourth quarters of the year. The drop in the catch was a missed opportunity since the average international price of fish increased by 29.2% to US$1,550 per metric ton at the end of the month.
Cocoa Cocoa exports used as proxy for cocoa production dropped markedly by 31% to 493 tons in July despite a seasonal peak cropping period. The drop was mainly attributed to a delay in cocoa export shipments during the month. Export is expected to see a rise in the coming months as exporters stockpile the product for shipment. Contracted export prices for cocoa fell 3% to £1,328 per ton from £1,363 per ton last month. Domestic prices on the other hand improved from $13.50 per kilo to $13.75 per kilo at the end of July. International price for cocoa sourced from the World Bank rose by 3% to US$2,775 per metric ton from US$2,704 per metric ton last month.
Copra Copra exports used as proxy for copra production fell sharply by 58% to 686 tons in July, following a 21% fall in the previous month. The fall mainly reflected depressed world market prices since July 2008.
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