Stimulating investment in pearl farming in ... - World Fish Center

payments, but the authorities have not increased the exchange value of the SI currency—which would have increased consumption of imports and undermined local productionand exports. Recently the level of reserves has been heading back to the CBSI’s targetzone of three months import cover. The prospect of declining export receipts from thelogging of natural forest (offset in part by lower logging-related imports of fuel,machinery and skilled personnel) and higher domestic inflation threatening exportcompetitiveness suggest the likelihood of future pressure on the exchange rate.2.2 Financial system and interest ratesThe formal institutions making up the financial system include the Central Bank ofSolomon Islands (CBSI), three commercial banks (ANZ, Bank of South Pacific andWestpac), the PNG-based Credit Corporation and several hundred credit unions. CBSI hasthe normal currency issuance, external reserves management, and financial institution andsystem supervisory responsibilities of a central bank.The commercial banks operate branches in Honiara and provincial centres, and ATMs areavailable at or near most of the ANZ and Westpac branches. ANZ operates mobile bankfacilities along parts of the road systems of North Guadalcanal and North Malaita.Currency in circulation and demand deposits with banks are presently around SBD900m,and savings and time deposits around SBD450m. Domestic lending, almost entirely to theprivate sector, is around SBD1000m and net foreign assets (external reserves) are aboutSBD700m, equivalent to USD90m.The banking system is reasonably liquid, and able to handle expected domestic demandfor financing of commercial development. The banks have access to head office funding ifneeded. Interest rates at commercial banks are in the range of 1-4% for term deposits,depending on term and amount; and 13-18% for loans, depending on term and amount, thesecurity available, and the reputation and business prospects of the borrower.Domestic inflation, estimated by the Central Bank on the basis of Honiara retail prices,has recently been accelerating under the impact of imported fuel and food price rises. Theannual rate of inflation is now in the range of 12-15% and may be going higher. Theannual rate should drop back into single figures after the main ‘drivers’ of the currenttrend stabilise, though it is not likely that the recent fuel price rises will be reversed.2.3 Exchange control and suspicious transactions reportingThe Central Bank operates exchange control regulations under which authority to approveand process routine trade transactions is delegated to commercial banks. Authorisedexporters are allowed to retain funds offshore to pay for imports to minimise inward andoutward transaction costs.Capital movements require Central Bank approval, which is readily given on proof oflegal status and availability of funds, eg repatriation of declared dividends or of capital onsale of an investment. Anti-money-laundering legislation requires banks to reportsuspicious transactions, and customers may be required to provide proof of their identityand nature of transactions.7