Member of Parliament (MP) for East Are’Are and Minister for Lands, Housing & Survey (MLHS) Andrew Manepora’a in his speech before the floor of the parliament, assures the house the country’s economy has a positive outlook despite the global economy being gloomy.
Manepora’a stated that most of the bigger economies are running into recession, therefore Solomon Islands must also assess the economic situation and try to look ahead to prepare in order to avoid spill over effects.
“This is a very hard task for a small economy like ours where we depend much on the outside world,” he said. “But we have to try our best so that the repercussions on what is happening in the outside world do not hit hard on us,” he added.
“Our economy at this time is experiencing very slow growth, high inflation and high unemployment, which are symptoms of sluggish period and if we are not careful then our economy will be heading towards recession.”
He further stated the country only have two economic policies at its disposal to address this situation, which are monetary policy (which uses the interest and the money supply) and Fiscal policy (which uses the government spending and tax regimes).
“Either we implement monetary or Fiscal policy or both to stimulate our economy back to recovery will depend entirely on what situation we are in,” Maneporaa stated.
Furthermore he said, that monetary policy is inappropriate to use in this current situation, seeing that the country’s financial system is such that there is lot of liquidity.
“It means that there is a lot of money available but people or business houses are not borrowing,” he said.
“All Central Bank is doing now is trying to mob up the excess liquidity from the financial system maybe through application of discount rate offered to banks,” he said. “This is mainly to control the money supply so that it does not create unnecessary inflation, thus since there is less borrowing and plenty of liquidity in the financial system, it would inappropriate to use expansionary monetary policy to address our current situation,” he added.
He added that the only option is to use expansionary Fiscal policy as government spending is the only available tool that government can use.
“And this year’s budget of $4.18 billion is not a wrong decision for government to take, it is a right choice because it is mainly to spin off the economy back to the road of recovery,” MP for East Are’Are said.
The Lands Minister also noted the private sector is weak that is why there is lot of liquidity within our financial system, and maybe the economic environment is not conducive or maybe the necessary infrastructure is not available, therefore the costs of doing business maybe too high.
So private sectors are holding back on their investment plans, so the only way out is for the government to step in with its expansionary fiscal policy to create a better environment to attract them to go ahead with their investment plans to assist the economy towards recovery.
“Economics is all about making the right choice given the situation we are in, hence DCCG with its choice to use expansionary fiscal policy to stimulate our economy back to recovery is the right decision,” Maneporaa stated. “I must thank the Minister for Finance, the PM, the Cabinet and not forgetting the Caucus for taking the decision to do so,” he added.
Manepora’a said that the use of budget deficit to stimulate the economy back to recovery is not a wrong decision as budget deficit is a common tool used by most countries around the globe especially when their economies are experiencing recession.
“When the economy is buoyant probably the use of budget deficit to further stimulates the economy maybe not a right decision,” he said. “But in the current situation that our economy is faced with now Sir, we desperately need it,” he further added.
The Minister listed four ways that budget deficit could be financed as follows:
1) Selling of government bonds & treasury bills
2) Borrowing from abroad (high interest rate, can also lower the value of our currency)
3) Monetization (Printing money, USA)
4) Selling of state assets
“But for 2015 budget deficit, the Finance Minister has assured us and has clearly stated that the $241 million budget deficit will be financed by domestic sources,” he said. “That’s great news for our people, and furthermore it will be sourced from our reserves,” he further added.
He continued by saying that it is a great news for this nation because there will be no further burden on the country, thus the use of reserves to fund the 2015 budget is a very wise decision by the Minister for Finance.
In addition he said, “this is logic, we do not need to borrow or depend on donors to finance our budget deficit in these hard times when our economy is experiencing a lot of problems while our reserves are just sitting idle in the government coffers.
“We need to drive this economy forward and in that sense we need to exhaust all available avenues to address our economic problems. These reserves could be put back once our economy is back to its knees,” he said.
Manepora’a stressed that we need not to be worry about having no reserve for this country because the only reserves we should concerned about is the foreign reserve, which at the moment is about six months cover so why bother? “Everything is okay, if this reserve that we are talking about is merely to protect our country against emergencies,” he assured.
“I already said that our financial system has a lot of liquidity and Central Bank is applying discount rate as a way of soft loan to mob up the excess liquidity within the system,” he said.
“So if such a situation arises and we need to use our reserves but it’s not enough, then we can obtain soft loan from domestic sources to help address this kind of situation,” he added.
He asserted by saying that sometimes we need to take radical moves in order to experience change in our economy as it happens now that the decision by the Finance minister to use reserves to finance our budget deficit is a radical move.
He conclude by saying that third world countries like Taiwan, Singapore and Thailand have radical leaders in power who lead their country out from being a developing to a developed country.
“If it can happen in those countries then why not Solomon Islands?” he challenged the house.
“Now the DCC government has the determination to move in this direction,” he said.
By AATAI JOHN