Country Report Solomon Islands January 2009

Outlook for 2009-10

The political situation is likely to remain volatile during 2009-10, and further changes in leadership cannot be ruled out. The prime minister, Derek Sikua, easily survived his first no-confidence motion in August 2008, but will have to work hard to retain legislators' traditionally fluid loyalties. As long as he remains in office, ties with donors (notably Australia) will remain strong. The economy rests on two pillars that are not sustainable in the medium to long term: logging and international aid. The IMF forecasts that real GDP will slow to 4% in 2009, with logging output being hit by forest depletion and weaker global demand. The local impact of the global financial crisis will be limited by low export-dependence and the dominance of donor financing, but some big industrial projects, especially in mining, may be delayed by the problems affecting the world economy.

The political scene

The government has announced a plan to abolish education fees up to Form 3 (when students are around 15 years old), with extra funding coming from New Zealand and Taiwan. The Foreign Relations Committee has conducted enquiries around the country on attitudes towards the Australian-led Regional Assistance Mission to Solomon Islands, finding generally strong backing for the mission's continued role.

Economic policy

The 2009 budget was passed in December. The government expects to avoid the need to run a fiscal deficit, thanks to a planned 27% increase in revenue, and claims to be on track to reduce the debt-to-GDP ratio to 30% by 2010.

The domestic economy

Inflation accelerated to 23.5% in the three months to September. The IMF estimates real GDP growth at 7.25% in 2008. Output of palm oil fell in the third quarter of 2008, owing to declining global prices and poor weather. Copra fared better, and fishing output rose by 17% year on year in January-October. The local flag carrier, Solomon Airlines, has raised ticket prices by 19% on domestic routes. Competition on international routes increased in December, with the launch of a new route by Virgin's Pacific Blue.

Foreign trade and payments

The trade deficit continues to grow steadily. In January-October 2008 the capital account surplus was insufficient to offset the current-account deficit, and foreign-exchange reserves thus fell to SI$646.9m (US$63m), or 2.6 months'-worth of imports.

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

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