Solomon Islands: Economy

Heavy rain in April caused damage and severe flooding across Guadalcanal, including Honiara, and parts of Isabel and Malaita provinces, in Solomon Islands. The economic outlook for 2014 now sees the gross domestic product (GDP) contracting by 1.0%, rather than growing by 3.0% as forecast in the Asian Development Outlook (ADO) 2014 in April. The storm severely damaged roads, bridges, and water and sewerage systems, and destroyed agriculture output. As flooding from the storm hit the country’s major economic and population center and left thousands of people displaced, it caused much greater economic upheaval than other natural disasters that have hit the Solomon Islands in recent decades.

Selected economic indicators (%) - Solomon Islands 2014 2015
ADO 2014 Update ADO 2014 Update
GDP Growth 3.0 -1.0 3.0 3.0
Inflation 5.5 6.0 5.0 5.0
Current Account Balance (share of GDP) -6.0 -15.0 -10.0 -15.0

Source: ADB estimates.

Flooding obstructed access to Gold Ridge, the only commercial gold mine in the country, causing the operator to halt production. The mine operator evacuated all personnel, and vandalism and looting were reported. Production at the mine has yet to resume. The mine operator laid off its local personnel and has entered into negotiations for the possible transfer of mine ownership to the government. This raises the risk of prolonged disruption to operations. Prior to the cyclone, gold production had increased by over 50% year on year in the first quarter of 2014.

For other commodities, year-on-year production performance has been mixed. Logging output increased by 2.7% in the first half of 2014, and exports of round logs - largely from provinces unaffected by the cyclone - also increased. Palm oil exports were nearly flat over the first 4 months of the year as exports of crude palm oil fell by 0.3% and of palm kernel oil increased by 1.7%. Fish catch surged by more than 60% by volume in the first 5 months of 2014.

Growth is expected to recover to 3.0% in 2015, despite long-term concerns in the mining sector that pose a risk to the near-term outlook. Supply bottlenecks prompt an upward revision to the 2014 inflation projection. Inflation accelerated from 2.9% year on year in January to 7.2% in June, driven by food price rises from supply disruptions caused by the floods. The restoration of supply links and declining international commodity prices are expected to drive inflation in 2015 back down to the ADO 2014 forecast.

Solomon Islands' current account ran a small deficit equal of 0.3% of GDP in the first quarter of 2014, driven by its trade deficit. This deficit is forecast to widen in 2014 and 2015, exceeding ADO 2014 forecasts, as exports of commodities (particularly gold) decline and capital imports increase for investment projects and flood-damage reconstruction.

Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.