Country Report Solomon Islands January 2010

Outlook for 2010-11

Domestic political stability is likely to remain fragile in 2010-11, as political allegiances will continue to be fluid. The prime minister, Derek Sikua, is likely to remain in office until at least the next parliamentary election, which is due by August 2010, but which could take place as early as June. Progress has stalled on the government's political reform agenda, and it now appears unlikely that any of the most important reforms will be implemented before the next election. The economy is dependent on logging, but experts claim that the industry cannot survive for more than four years at current rates of production. The Asian Development Bank expects the economy to grow by just 2.6% in 2010, after stagnating in 2009. Stronger demand for commodity exports, such as palm oil and copra, and a moderate acceleration in foreign investment in the mining and telecommunications sectors will provide a boost to economic activity in 2010-11. The country will continue to run a current-account deficit, and is likely to also post a fiscal deficit in 2010.

The political scene

A former prime minister, Allan Kemakeza, has sparked controversy by winning a by-election, as critics have argued that he was ineligible to run for office. In December 2009 an Australian court threw out charges of child sex abuse against a former Solomon Islands attorney-general, Julian Moti. A parliamentary report released in November indicated continued support for the Regional Assistance Mission to Solomon Islands (RAMSI).

Economic policy

The government currently forecasts a balanced budget for 2010. The budget contains provisions for EU budget support to the tune of €15.2m (US$21.7m). In December the government awarded a licence to operate mobile services to a company based in Papua New Guinea, bemobile.

The domestic economy

Loggers are felling stands that were previously thought to be too immature to cut down or not economically viable, which has generated concerns about the sustainability of the industry. Fisheries output suffered in 2009, with output falling by 25% year on year to 17,081 tonnes in the first 11 months of the year.

Foreign trade and payments

According to the Central Bank of Solomon Islands (CBSI), the country's balance-of-payments position improved in November on the back of strong inflows of financial aid and a fall in import receipts. However, the value of exports, at SI$68.2m (US$8.5m), was also down sharply, recording a contraction of 26.5% month on month. The overall trade balance recorded a deficit of SI$103.8m.

This report covers the following industry codes:
SIC Code: 1;10
NAICS Code: 11;212

• Summary
• Basic data
• Political structure
• Economic structure: Annual indicators
• Economic structure: Quarterly indicators
• Outlook for 2010-11: The run-up to the election could be volatile
• Outlook for 2010-11: The economy will be hurt by the decline in logging
• The political scene: A parliamentary election could take place in June
• The political scene: Convicted felons cause political controversy
• The political scene: Charges against a former attorney-general are dismissed
• The political scene: Relations with RAMSI remain strong under Mr Sikua
• Economic policy: The EU offers significant budget support in 2010
• Economic policy: A new entrant to the telecoms market provides competition
• The domestic economy: Economic growth estimates are lacklustre
• The domestic economy: The logging and fishing sectors continue to struggle
• The domestic economy: Activity in the mining and telecoms sectors is set to rise
• Foreign trade and payments: The trade balance posts a major deficit in November