In view of the expected recession in 2020, this special analytical snapshot provides an overview of the likely effects of Covid-19 on the Solomon Islands economy, the impact and responses by firms and workers, the role of government to mitigate the impacts, and the possible lessons to be learned for the economy from the pandemic.

 

The surge in global Covid-19 cases and deaths in 2020, and the sudden stop in economic activity due to the public health containment measures around the world will lead to a recession or even depression in the world economy.

Likewise, this pandemic will have a significant effect on the Solomon Islands economy, affecting all sectors. The most affected so far include tourism, air transport and some government services, where activities have come to a standstill or slowed. Even commodity exports are likely to be affected by the fall in global demand, and declining domestic demand might affect wholesale retail, manufacturing and utilities. On the plus side, the plunge in oil prices could mean softer imported inflation.

At the micro-economy level, the impact will lead to a sharp downturn or even to sudden stop in sales, fall in revenue and loss of wages as thousands of workers are laid off (some temporarily). As a severe once in a generation shock,

firms have therefore strategically planned and reacted to the situation. To address the immediate impact, some businesses have closed operations as a form of hibernation from the sudden shock. While, those in operation have had to scale down and only focus on essential activities. Others have had to strategically reoriented their business, such as offering special sales deals, takeaway services for restaurants, suspended capital projects and engage in new ventures.

The disruption to the global supply chain, provides an opportunity for local firms to delve into manufacturing of essential and highly demanded goods.

In such circumstances, the role of government is central in mitigating the severe impact of Covid-19 on the economy and local businesses. Its stimulus package once implemented should focus on targeted areas and sectors, provide

much needed support to small and medium-sized firms and ensure that essential services continue. Importantly, the aim of the Government’s support should be to maintain the current level of economic activities from further deteriorating.

Once the pandemic has been contained and activities return to normal, further Government assistance would be required for key sectors that were in hibernation to resume activity. This could include grants, soft or concessional loans, export facilities, and if possible, wages support for 1 or 2 pay periods for badly affected and selected sectors.

Such measures, in addition to the large stimulus measures such as on infrastructure, would help kick start activities, drive domestic demand and boost the economic recovery.

Looking ahead, the experience from the pandemic, should reorient development planning and business disruption preparation for government, firms and even individuals. This means: 1) having diversification strategies; 2) building up of buffers, savings or a rainy-day fund; 3) the need to have in place strategic industries; and 4) encouraging more domestic manufacturing in the case of Solomon Islands.

Optimistically, economic growth is expected to pick up over the medium term, and as such, firms and households should plan and utilise the opportunities once the economy recovers.

Source: CBSI 2019 Annual Report