Growth Up Slightly in Solomon Islands, But Fiscal Space Needed to Facilitate More Inclusive Growth – ADB Report

HONIARA, SOLOMON ISLANDS – Economic growth in Solomon Islands is expected to pick up slightly to 3% in 2014, and remain steady at 3% in 2015 due to a fiscal stimulus from investment projects which will have a spillover effect on the economy, according to the Asian Development Bank’s (ADB’s) 2014 Asian Development Outlook report.

The report shows growth moderated in 2013 with forestry, agriculture, and mining activities all declining. The modest increase in the growth forecast and the equally modest per capita GDP increase are largely due to rapid population growth. The slow growth rate of 2.9% in 2013 which mainly reflected a decline in the gold and agriculture sectors, was only slightly above the population growth rate of 2.5%.

“Delivering inclusive growth still remains a real challenge for Solomon Islands,” said Andrea Iffland, Regional Director of ADB’s Pacific Liaison and Coordination Office. “To meet this challenge, government spending priorities will need to be adjusted and the quality of public expenditure should be improved.”

The Solomon Islands 2014 budget describes the government’s decision to provide scholarships for studying overseas as the most significant risk to fiscal sustainability in Solomon Islands. Another concern about government spending is the growth of the public payroll in recent years. Constituency development funds allocated to Members of Parliament to spend on their electorates is another area that should be monitored.

The ADB report notes that the government is taking action to address these expenditure overflows and help ensure that the quality of spending improves. Already the government has agreed to limit the number of scholarships, and there will be a review of public sector remuneration later in 2014. Regulations for the operationalization of the Constituency Development Fund Act are also being introduced.

ADB’s flagship economic publication, Asian Development Outlook (ADO) 2014, provides a comprehensive analysis of macroeconomic issues in developing Asia and the Pacific. The ADO analyzes more than 40 economies in developing Asia and the Pacific. It examines the medium-term prospects by country and by sub region – East Asia, Southeast Asia, South Asia, Central and West Asia, and the Pacific.