Country Report Solomon Islands April 2009

Outlook for 2009-10

Domestic political stability is likely to remain fragile in 2009-10. However, the government is looking to undertake major political reforms that could dramatically improve political stability. The government's fiscal position is forecast to remain dismal in the short-term as total revenue declines in line with lower logging revenue. The Asian Development Bank (ADB) expects the fiscal deficit to narrow to the equivalent of 3.6% of GDP in 2009, down slightly from an estimated 5.6% in 2008. The economy of the Solomon Islands is overly dependent on logging, and the industry cannot survive for more than five more years at current rates of production. The ADB estimates that real GDP growth reached 6.4% in 2008, but expects growth to weaken in the following two years, to 2.2% in 2009 and 1.7% in 2010.

The political scene

The proposed Political Party Integrity Bill would restrict the ability of members of parliament to switch political allegiances, and would provide an 18-month grace period during which incoming governments could not be ousted by means of no-confidence motions. An enquiry into the 2006 riots in the capital, Honiara, has placed blame on poor policing, weak constitutional arrangements and the failure of government to provide adequate public services.

Economic policy

Negotiations on the Pacific Agreement on Closer Economic Relations-Plus (PACER; a framework designed to gradually liberalise trade flows between members of the Pacific Islands Forum, Australia and New Zealand) are due to begin in August, although concerns remain about the economic impact of the agreement on the Pacific islands.

The domestic economy

Log exports fell by 20% in volume terms in 2008, and by a further 49.4% month on month in January. According to the Central Bank of the Solomon Islands (CBSI), consumer prices were up by 19.3% year on year in December (calculated using a three-month moving average). The government has issued a licence to New Zealand-based Phoenix International for an alluvial mining operation.

Foreign trade and payments

Merchandise exports fell to SI338m (US$44m) in the fourth quarter of 2008, from SI$456m in the third quarter. Although the CBSI does not publish import or trade balance data, it is likely that the dramatic fall in exports in recent months has led to a further deterioration in the merchandise trade balance.

This report covers the following industry codes:
SIC Code: 10;47;70
NAICS Code: 212;48;11;72

• Summary
• Basic data
• Political structure
• Economic structure: Annual indicators
• Economic structure: Quarterly indicators
• Outlook for 2009-10: The political situation will remain volatile
• Outlook for 2009-10: The economy is sustained by donor aid
• The political scene: The government gets serious about political reform
• The political scene: A censored report on the 2006 riots is released
• The political scene: The government settles a grievance of the Kwaio people
• The political scene: Severe weather kills 13 islanders
• Economic policy: Fiscal revenue is set to fall
• Economic policy: The PACER-Plus agreement moves forward
• The domestic economy: The economy will slow as logging exports fall
• The domestic economy: The high price of food is boosting inflation
• The domestic economy: A new gold mine is dogged by controversy before opening
• The domestic economy: Palm oil production falters owing to low prices
• The domestic economy: A major tourism project is unlikely to move forward
• Foreign trade and payments: Exports slow as demand from China falls