Economy of Solomon Islands

A per capita GDP of $3,200 ranks Solomon Islands as a lesser developed nation. Over 75% of its labour force is engaged in subsistence farming and fishing.

Top Sectors in Solomon Islands

Fishing in Solomon Islands

Exploitation of Solomon Islands' rich fisheries offers the best prospect for further export and domestic economic expansion. A Japanese joint venture, Solomon Taiyo Ltd., which operated the only fish cannery in the country, closed in mid-2000 as a result of the ethnic disturbances. Though the plant has reopened under local management, the export of tuna has resume now but under Soltuna and NFD.

Tourism in Solomon Islands

In 2017, Solomon Islands was one of the least frequently visited countries in the world, with only 26,000 tourists. Tourism income in 2016 and 2017 was about Int'l$ 1.6 million (international dollars). Tourism is a potentially significant service industry but growth is hampered by the lack of infrastructure, transportation limitations and security concerns. Scuba diving and World War II history are two major tourist attractions. Archived 2020-06-10 at the Wayback Machine.

Foreign aid in Solomon Islands

Since 2000 the Solomon Islands government has become increasingly insolvent. It has exhausted its borrowing capacity; in 2001 the deficit reached 8% of GDP. It is unable to meet bi-weekly payrolls and has become extraordinarily dependent on funds from foreign aid accounts, which provided an estimated 50% of government expenditure in 2001. Principal aid donors are Australia $247 Million per year (2006), New Zealand $14 Million per year (2004), the European Union, Japan $40 Million per year (2005), and the Republic of China (Taiwan) at least $20 Million per year .

Since 2000 the Solomon Islands government has become increasingly insolvent. It has exhausted its borrowing capacity; in 2001 the deficit reached 8% of GDP. It is unable to meet bi-weekly payrolls and has become extraordinarily dependent on funds from foreign aid accounts, which provided an estimated 50% of government expenditure in 2001. Principal aid donors are Australia $247 Million per year (2006), New Zealand $14 Million per year (2004), the European Union, Japan $40 Million per year (2005), and the Republic of China (Taiwan) at least $20 Million per year . in Solomon Islands

Solomon Islands - Key Economic Indicators

Exports & Imports

Solomon Islands primarily exports raw materials like rough wood (logs), processed fish, palm oil, and minerals like gold. Their main export partners are China, India, Italy, and Australia. They import a wider variety of goods, mainly consumer items like food and machinery, with Australia, Singapore, and China being their top import sources.

Balance of Trade

Despite a recent decline in exports, Solomon Islands still imports more than it exports, resulting in a negative trade balance. This highlights their dependence on foreign goods and the need to diversify exports.

Infrastructure Development

The Solomon Islands faces challenges in infrastructure development, with a limited road network concentrated around the capital. However, efforts are underway to improve roads and bridges, along with other projects like ports and airports, to boost trade and economic activity. The total road length is estimated to be around 2,000 kilometers, but a significant portion remains unsealed.

Fiscal Policy

The Solomon Islands government spends on social programs, infrastructure development, and maintaining public services. They rely on taxes, customs duties, and foreign aid to finance these expenditures. The International Monetary Fund (IMF) reports a net lending/borrowing ratio of -3.59% of GDP for 2024, indicating the government is currently running a deficit. Balancing spending with revenue generation remains a focus for sustainable economic growth.

Monetary Policy

The Central Bank of Solomon Islands is responsible for maintaining price stability and managing foreign exchange reserves. They use tools like setting interest rates and managing money supply to influence inflation and economic activity. Recent forecasts from the Asian Development Bank (ADB) predict inflation rates of around 3.2% for 2024.

Trade Agreements

Solomon Islands participates in regional trade agreements like the Pacific Island Countries Trade Agreement (PICTA) to facilitate duty-free trade with other Pacific nations. This helps expand their export markets and access a wider range of goods.

Environmental Regulations

The Solomon Islands faces environmental challenges like deforestation and pollution. The government has implemented regulations to protect natural resources and promote sustainable practices in logging, mining, and waste management. However, enforcing these regulations effectively remains an ongoing effort.

Tax System in Solomon Islands

Corporate tax rate: Resident companies: 30% on profits Non-resident companies: 35% on profits.
Payroll tax: the form of a compulsory social security contribution. The rate is 12.5%, split between employer (7.5%) and employee (5%)..
Sales tax:A Value Added Tax (VAT) of 12% is applied to most goods and services. .
Property tax:Property tax is levied by provincial governments, and rates vary depending on location and property type. .
Tax deductions and credits:Information on specific deductions and credits is limited, but some exemptions exist for expenses incurred while generating income. .
Tax compliance: The Solomon Islands Inland Revenue Division (IRD) is working on improving tax compliance through initiatives like taxpayer education and stricter enforcement measures. .
Tax burden: Compared to some Pacific Island countries, the Solomon Islands' tax burden is considered moderate

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Energy Economist

Solomon Islands

15 Jan 2025

21 Jan 2025