The Government’s 2021 Budget with an estimated deficit of $322 million is “an unbalanced budget,” the Central Bank of Solomon Islands (CBSI) said in its latest article.
“The 2021 government budget is an unbalanced budget with an estimated budget deficit of $322 million. This reflects a total estimated expenditure of $4,098 million which is higher than total estimated revenue of $3,776 million,” the article published in today’s paper said.
It said in the budget the total level of spending was set and then divided between the different Ministries such as the Ministry of Health, Ministry of Foreign Affairs and External Trade etc.
“In this way, the budget acts as a spending plan for each Ministry which then directs the money for general expenditures (recurrent spending) and for projects approved by the Ministry (development spending). The budget also helps the public see how the government uses the taxes it collects.
“There are two ways to cover a budget deficit. First, the government may withdraw from its accumulated deposits, if it has enough savings, and second, it can borrow from the public. The government can borrow internally from local firms, banks and the public. Or it can borrow externally from foreign governments and multilateral organisations such as the World Bank and the Asian Development Bank.
“For the 2021 budget, government intends to fund the expected budget deficit of $322 million through borrowing,” the article said.
The article also warned against budget deficit, saying a built-up of debts could lead to poor allocation of resources within the budget and slow down economic growth.
“A budget deficit may lead to build-up in government debts whilst a budget surplus can help to pay down government debt.
“If debt becomes too large for a country’s repayment ability it could lead to poor allocation of resources within the budget and slow down economic growth.
“Generally, the size of the budget and whether it is a balanced or unbalanced budget reflects the government’s fiscal policy,” the article said.