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Research Announcement:

Moody's - Solomon Islands’ credit profile reflects strong donor support and debt affordability

20 October 2020

Singapore, October 20, 2020 --

  • Adherence to budget legislation provides buffer against rising debt from coronavirus shock
  • Donor support from development partners is rising, limiting fiscal risks

Moody's Investors Service says in a new report that the credit profile of the Solomon Islands (B3 stable) is underpinned by significant technical and financial support from its development partners, which helps anchor its debt affordability and, to some extent, institutional capacity.

"We expect the government's debt burden will rise over the next few years as the coronavirus recession takes its toll, yet it should still remain low, anchored by an adherence to strict budget legislation," says Michael Higgins, a Moody's Analyst.

"Additionally, strengthening donor support, which includes grants made available to the government from partners including Australia and international financial institutions, will limit fiscal risks, while adequate foreign-exchange reserve levels support low external vulnerability risk," adds Higgins.

Solomon Islands faces challenges in the form of a narrowly diversified economy that depends on timber exports, a depleting natural resource; vulnerability to natural disasters; and very low institutional strength. Its small economy, very low per capita incomes and institutional constraints hurt economic competitiveness and diversification prospects, particularly as the economy faces a sharp contraction in activity this year. Cash reserves are low, giving rise to liquidity risk, although the government continues to implement policy measures to improve cash management.

Meanwhile, a highly fragmented parliament can threaten longer-term policymaking goals and potentially deter foreign investment.

The stable outlook indicates that risks to Solomon Islands' rating are balanced. Upward pressure could arise if economic competitiveness or prospects for diversification increase materially beyond expectations, or if institutional capacity and government effectiveness were strengthened.

However, downward pressure could emerge if renewed fiscal slippage or administrative lapses increase its fiscal deficit and debt or liquidity strains beyond expectations, or if political volatility jeopardizes the implementation of fiscal reforms, sound macroeconomic policies or engagement with development partners.

Subscribers can access the report "Government of Solomon Islands – B3 stable: Annual credit analysis" at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1245972

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Michael S. Higgins
Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Gene Fang
Associate Managing Director
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

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