Solomon Islands: Economy

The Solomon Islands’ growth forecast for 2015 is unchanged as the economy records strong export performance and progress in reconstruction following severe floods in April 2014.

Selected economic indicators (%) 2015 2016
ADO 2015 Update ADO 2015 Update
GDP Growth 3.0 3.0 3.5 3.5
Inflation 5.0 2.0 5.5 2.8
Current Account Balance (share of GDP) -15.5 -8.5 -15.0 -13.0

Source: Asian Development Outlook 2015; Asian Development Outlook 2015 Update

Economic performance

Despite the cessation of gold production in the Solomon Islands, total exports rose by 5.3% in the first half of 2015 over the same period in 2014, largely reflecting higher exports of bauxite and agricultural commodities.

After parliamentary elections in November 2014, passage of the 2015 budget was delayed to April to give the new coalition government time to incorporate its spending priorities. The resulting 2015 budget provides for total expenditures that is 11.8% higher than the revised 2014 budget, mostly because of higher expenditure on flood recovery. Total revenues and grants are also projected to rise, but by only 3.3%. Fishing license revenue is seen to increase but not enough to offset revenue declines from suspended operations at the gold mine. The government expects to incur a deficit, equivalent to 4.9% of Gross Domestic Product (GDP), for a second consecutive year and plans to draw down cash reserves — to finance the deficit.

Consumer prices have been declining in 2015 following large flood-related price rises last year. Softening international food and fuel prices have contributed. Between January and July 2015, consumer prices were 2.4% lower than in the same period in 2014 driven by reductions in prices for food, drinks and tobacco, and housing and utilities declined. However, core inflation remains positive, suggesting that headline inflation will rise in the latter part of the year.

Economic prospects

The forecast for 2016 remains unchanged as growth is expected to benefit from planned fiscal expansion.

The inflation forecast for 2015 is revised sharply down from ADO 2015, but inflation is expected to pick up in 2016 as base effects from the flood dissipate. The current account deficit in 2014 is now estimated to equal 8.1% of GDP as imports of equipment for post-flood reconstruction and rehabilitation were delayed.

With the arrival of the delayed imports, the deficit is projected to widen slightly in 2015 and almost double in 2016. Development assistance flows and foreign direct investment are expected to help maintain foreign reserves above 8 months of import cover through 2015 and 2016.

Excerpted from the Asian Development Outlook 2015 Update.