Solomon Islands Economy Profile 2012

The bulk of the population depends on agriculture, fishing, and forestry for at least part of its livelihood. Most manufactured goods and petroleum products must be imported. The islands are rich in undeveloped mineral resources such as lead, zinc, nickel, and gold. Prior to the arrival of RAMSI, severe ethnic violence, the closing of key businesses, and an empty government treasury culminated in economic collapse. RAMSI's efforts to restore law and order and economic stability have led to modest growth as the economy rebuilds.

“Solomon Islands has benefited from the implementation of the government’s economic reform program supported by the current IMF SCF arrangement approved in June 2010. The economy has recovered rapidly from the global financial crisis, thanks to strong political commitment to rebuilding fiscal and financial buffers and sound macroeconomic management that triggered donors’ support.

The growth outlook remains favorable with commodity revenue and exports underpinning near and medium-term growth prospects. At the same time, downside risks to global growth have increased markedly and the country remains vulnerable to commodity price volatility and external demand shocks.

To increase resilience to shocks, the authorities will need to strengthen the macroeconomic framework and continue rebuilding policy buffers. At the same time they need to implement growth-oriented structural reforms which would help boost investors’ confidence and ensure sustainable and inclusive growth. The government remains committed to maintaining a strong cash balance. The authorities’ efforts, going forward in striking a balance between preserving strong fiscal buffers and focusing on critical infrastructure (including water sanitation) and social priority expenditure, such as health and education. This will help the country make meaningful progress toward the targets of the Millennium Development Goals (MDGs) by 2015. However the pace of spending will need to be calibrated taking into account capacity constraints.

The National Development Strategy (NDS) approved by cabinet in June 2011 is an important step toward a comprehensive poverty reduction and growth strategy over the next few years. Going forward, the strategy would benefit from a more detailed implementation plan that includes costing and prioritization of projects, and a further articulation of the linkages between spending, growth and poverty reduction. Measures to boost private sector development and improve access to credit would also ensure a more broad-based growth.

The ministry of finance’s plan to move toward a multi-year budget framework in September 2013. Casting budget decisions in a multi-year perspective will help the authorities design realistic fiscal plans in line with the objectives of the NDS. It will also help build consensus on the appropriate sequencing of development projects.

To strengthen public financial management and better monitor priority spending, the authorities’ should revise the budget presentation from input line items to functional/output items by September 2012, in time for the preparation of the 2013 budget. The authorities will also seek assistance from development partners to strengthen procurement and internal audit processes to reduce leakages that affect public service delivery.

In view of the expected decline in logging revenue and development grants over the medium term,the authorities focus on strengthening the management of natural resources. Implementing a new resource taxation regime will be critical for the country to benefit from its natural resource wealth and ensure that the government receives its fair share of mining revenue. Reforms of the mining legislations should move in parallel to provide a predictable investment regime and a transparent regulatory framework to attract foreign investment.