WELLINGTON (Reuters) – The Solomon Islands might want to implement fiscal reforms akin to alterations to its tax system and more efficient public spending or its debt levels may turn out to be unsustainable, the World Bank said in a report on Wednesday.
With the Solomon Islands implementing a big public investment programme and facing declining logging revenue, fiscal reform will probably be vital to managing debt levels and securing hard-fought development gains, the bank said.
“Without reform, Solomon Islands’ debt may turn out to be unsustainable,” the bank said.
If changes aren’t made, public debt will reach the federal government threshold of 35% of gross domestic product (GDP) as early as 2026, it said.
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The federal government of the Pacific island nation has undertaken several externally financed infrastructure projects including transport and sporting facilities for the 2023 Pacific Games, renewable energy, telecommunications, water, and health.
These are aimed toward addressing development and growth challenges but are partially funded by concessionary loans adding to the country’s burden, the bank said.
McKinnie Dentana, everlasting secretary on the Ministry of Finance, said in a press release the Solomon Islands had worked closely with the World Bank in preparing the report and it provided useful guidance.
“We all know we will 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 noted that the Solomon Islands needed to concentrate on the price of maintaining its latest infrastructure projects and may construct this into spending plans.
The report comes amid concern amongst Western countries about China’s growing influence within the Solomon Islands after its government struck a security pact with China in April that permits Chinese police to revive order and protect Chinese infrastructure projects.
(Reporting by Lucy Craymer; Editing by Robert Birsel)
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