Solomon Islands WT/TPR/S/215/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. Solomon Islands is a least de veloped country with per capita GDP of some US$880.  The 
economy of Solomon Islands contracted sharply during a period of civil strife at the beginning of this 
decade.  Economic growth resumed from 2003, and was particularly brisk in 2007 and 2008.  This 
reflected both strong domestic demand, particul arly Government expenditure, and a favourable 
international environment for Solomon Islands' main exports.  However, with the imminent decline in 
logging sector activity, due to overexploitation, So lomon Islands faces major economic challenges in 
the medium term, as logging accounts for 18% of GDP and almost 75% of total exports.  Thus, to 
maintain growth and external sustainability, the pa ce of trade and other policy reforms need to be 
accelerated to remove impediments to Solomon Islands making better use of its comparative 
advantage in mining, fisheries, and other activities.   This would require Solomon Islands to address 
issues such as weak governance, ambiguity in land ownership, poor infrastructure, and unreliable and 
costly electricity and telecommunication services (see Chapters II and IV). 
2. Government finances are dependent to a larg e extent on proceeds from logging and foreign 
aid flows, both of which are expect ed to decline in the near future.  In spite of recent progress, further 
measures are needed to strengthen the Government's  fiscal position, including broadening the revenue 
base, improving tax administration, and rationalizin g fiscal spending.  Since 2007, the Central Bank 
has adopted measures to counter rising inflationary  pressures, for example absorbing excess liquidity 
and maintaining the SI dollar pegged to the U.S. dollar. 
3. Trade is of increasing economic importance for Solomon Islands, with merchandise exports 
and imports representing almost 70% of GDP in 2006 (based on national account data).  Trade flows 
increased by about 185% between 2000 and 2007 (WTO est imates).  Virtually all exports consist of 
primary products, particularly logs  and palm oil, while imports are diversified.  During the period 
under review, China became the main export market , accounting for some 55% of total exports in 
2007.  Singapore and Australia are the main import sources, accounting for almost two thirds of the 
total. 
(2) OUTPUT AND EMPLOYMENT  
4. Solomon Islands is a least developed country  with a population of around 510,000, and per 
capita GDP (at current factor cost) of some US$880 in 2007 (Table I.1).  The UNDP has ranked 
Solomon Islands 134th among 177 countries, based on several human development indicators.1  Life 
expectancy, at 63 years, is below the world averag e (68 years), the adult illiteracy rate is 23%, and 
some 30% of the population lacks access to running water.  Moreover, in spite of some progress in 
recent years, poverty levels remain high:  Solomon Islands is ranked 79th among 135 developing 
countries for which the UNDP human poverty index has been calculated. 
5. Since the last Review of Solomon Islands, ec onomic growth has been erratic.  Real GDP 
contracted by around 20% during a period of civil c onflict that lasted from 1999 to 2002, but began to 
recover from 2003, when the Regional Assistance Missi on to Solomon Islands arrived to restore law 
and order (Chapter II(2)).  Growth was particularly strong in 2007, at just over 10% (Table I.1).  
Annual real GDP growth averaged about 7.3% between 2003 and 2007, and was supported by strong 
domestic demand, particularly government sp ending and investment, but also by a positive 
international environment for logs and other export products. 
                                                      
1 UNDP (2008a and b). WT/TPR/S/215/Rev.1 Trade Policy Review 
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6. Based on available information for the 2003-06 pe riod, the contribution of domestic demand 
to GDP has been significant, particularly since 200 4 (Table I.1).  Government spending has been 
growing rapidly, its share of GDP almost doubling between 2003 and 2006;  the GDP share of  
consumer spending remained relatively stable dur ing the period at around 70%.  Gross fixed capital 
formation gathered strength in 2004, supported mainly by foreign aid inflows and rapid credit growth.  
As a result, the share of gross fixed capital fo rmation in GDP rose to 13% in 2006, from around 9% 
three years earlier.  The contribution of net e xports of goods and services to growth was negative 
between 2003 and 2006. 
Table I.1 
Basic economic indicators, 2000-08 
 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Nominal GDP (current market prices, 
SI$ million)  1,523.3 1,447.2 1,537.3 1,737.5 1,961.1 2,207.5 2,542.3 2,971.3 .. 
Real GDP (1985 factor cost, 
SI$ million) 291.1 267.9 260.5 277.4 299.7 314.7 333.9 368.2 395.1a 
Real GDP growth rate (%)  -14.2 -8.0 -2.8 6.5 8.0 5.0 6.1 10.3 7.3a 
Per capita GDP (current factor cost, 
US$) 679 629 509 522 588 641 707 880 .. 
 GDP by sector (% of total)  
Agriculture, forestry and fishing 44.2 46.4 49.9 55.3 56.8 56.9 56.6 57.0 .. 
Mining 3.2 -0.2 -0.2 0 0 0 0.0 0.0 .. 
Manufacturing 4.8 4.2 4.1 3.4 3.2 3.1 3.0 2.8 .. 
Electricity, gas and water 1.7 1.7 1.8 1.7 1.5 1.7 1.6 1.7 .. 
Construction 0.8 0.7 0.4 0.8 0.9 1.0 1.3 1.5 .. 
Services 45.3 47.2 44.0 38.9 37.6 37.3 37.5 37.0 .. 
Trade 9.5 9.3 10.4 10.2 9.7 9.4 8.9 8.6 .. 
Transport and communications 4.2 3.8 4.3 4.3 4.1 4.0 4.8 5.2 .. 
Finance 5.4 5.7 5.8 5.4 5.1 4.9 4.7 4.7 .. 
Others services 26.2 28.4 23.5 19.0 18.7 19.0 19.1 18.5 .. 
 GDP by expenditure (% of GDP)  
Final consumption .. .. .. 96.1 100.5 110.1 113.6 .. .. 
   Household final consump tion .. .. .. 69.7 67.1 69.1 69.2 .. .. 
   Private non-profit institutions serving 
   households .. .. .. 5.4 4.8 5.0 5.2 .. .. 
   Government consumption .. .. .. 21.0 28.5 36.0 39.2 .. .. 
Gross fixed capital formation .. .. .. 9.1 10.0 12.5 13.4 .. .. 
   Durable equipment .. .. .. 3.8 2.4 6.8 7.4 .. .. 
   Construction .. .. .. 5.3 7.7 5.7 6.0 .. .. 
   Change in inventories .. .. .. 0.3 1.4 1.3 1.2 .. .. 
Exports of goods and services .. .. .. 26.4 30.9 34.1 36.1 .. .. 
   Merchandise, f.o.b. .. .. .. 20.0 22.8 25.3 24.5 .. .. 
   Services .. .. .. 6.4 8.1 8.8 11.6 .. .. 
Imports of goods and services .. .. .. 31.7 42.4 54.6 57.2 .. .. 
   Merchandise, f.o.b. .. .. .. 27.1 36.3 41.5 45.1 .. .. 
   Services .. .. .. 4.6 6.1 13.1 12.1 .. .. 
Statistical discrepancy .. .. .. -0.2 -0.5 -3.3 -7.1 .. .. 
 
.. Not available 
 
a IMF projection.  
Source : WTO Secretariat, based on Solomon Is lands National Statistics Office (2008);  IMF (2008b, 2007b, and 2006) ;  
 Asian Development Bank Statistical Database System Online [https://sdbs.adb.org/sdbs/index.jsp];  and data 
 provided by the authorities. 
7. The sectoral composition of the economy shows an increasing dependence on the primary 
sector, particularly logging, which expanded rapi dly during the period under review.  However, 
logging production at the current pace is unsustainab le (see Chapter IV(4)).  The agriculture, forestry, 
and fishery sectors represented 57% of GDP in 2007, compared with 44% in 2000 (Table I.1).  Solomon Islands WT/TPR/S/215/Rev.1 
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Services is the second largest sector in terms of GD P share, accounting for 37%.  The manufacturing 
sector is small, with slightly less than 3% of GDP in 2007. 
8. There are no complete data on unemployment,  but Central Bank estimates suggest that 
formal-sector employment totaled just 44,350 at  the end of 2007, compared with a population of 
around 510,000.  The Central Bank reports that the shortage of adequately skilled workers is a 
constraint on employment creation.2 
9. According to the IMF, Solomon Islands must in tensify structural reform efforts to develop 
alternative sources of growth, given the im minent decline in logging-sector activity.3  Among the 
major impediments to broad-based growth are ambigui ty in land ownership, poor infrastructure, and 
unreliable and costly electricity, water, and telecommunications services (Chapter II(4) and 
Chapter IV(6) and (8)).  In addition, w eak governance remains a serious concern. 
(3) FISCAL POLICY  
10. Solomon Islands' principal fiscal objective is to maintain balanced budgets in line with its 
commitment under the Honiara Club initiative, a mu ltilateral forum convened by Solomon Islands in 
October 2005 to seek debt relief from its official creditors.4 
11. Data on central Government accounts differ depe nding on the source.  According to data 
provided by the Central Bank in the context of this  Review, the overall fiscal balance was in deficit 
every year between 2000 and 2007 except in 2004 (Tab le I.2).  However, IMF data show a positive 
overall balance between 2003 and 2006 (negative for 2000-02, and 2007).5 
Table I.2 
Central Government accounts, 2000-08 
(Millions of SI$ unless otherwise specified) 
 2000 2001 2002 2003 2004 2005 2006 2007 2008a 
Total revenue and grants 449.9 272.8 365.0 578.9 710.9 784.6 948.7 1,181.3 647.6 
Current revenue 314.0 219.9 256.3 373.4 509.9 621.1 849.9 1,093.2 635.4 
Taxes 277.0 206.4 243.5 340.4 472.1 564.9 692.9 938.8 551.8 
Nontaxes 37.0 13.5 12.8 33.0 37.8 56.1 157.0 154.4 83.6 
Grants 135.9 52.9 108.7 205.5 201.0 163.5 98.8 88.1 12.2 
Total expenditure 458.8 378.5 674.1 682.8 608.8 806.5 1,054.7 1,198.3 .. 
Current expenditure 428.8 358.1 547.3 564.2 506.2 665.3 954.4 1,032.4 653.0 
Capital expenditure 30.0 20.4 126.8 118.6 102.6 141.2 100.3 165.9 .. 
Current surplus/deficit -114.8 -138.2 -291.0 -190.8 3.7 -44.3 -104.5 60.8 17.6 
Overall budgetary surplus/deficit -8.9 -105. 7 -309.1 -103.9 102.1 -22.0 - 105.9 -17.0 .. 
As % of GDP  
Overall balance -0.6 -7.3 -20.1 -6.0 5.2 -1.0 -4.2 -0.6 .. 
a First half. 
 
Source : WTO Secretariat, based on data provided by the Central Bank of Solomon Islands. 
12. Both fiscal spending and revenue have been expanding rapidly since 2003.  Spending has 
risen due to increasing purchases of goods and services,  and wage increases.  The authorities expected 
total expenditure to rise by some 40% in 2008.6  The expansion in revenue was driven mainly by 
higher revenue in all major tax cate gories;  and it is expected to grow strongly again in 2008 as a 
                                                      
2 CBSI (2008a). 
3 IMF (2008a). 
4 Government of Solomon Islands (undated). 
5 IMF (2008b, 2007b, and 2006). 
6 CBSI (2008a). WT/TPR/S/215/Rev.1 Trade Policy Review 
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result of continuing economic gr owth, high log-export volumes, business profitabilit y, and improved 
administration of revenue collection.7 
13. Since the last Review of Solomon Islands, the authorities have made efforts to strengthen and 
clarify the fiscal regime.  For example, tariff rates have been lowered significantly, in part to reduce 
evasion (Chapter III(2)(iv)).  The Customs and Excise Division recently increased automation and 
adopted risk profiling measures as part of efforts to enhance revenue collection (Chapter III(2)(i)).  In 
June 2006, the Minister of Finance and Treasury  issued guidelines that seek to rationalize tax 
exemptions by calling for their approval to be based on benefit-cost considerations (Chapter III(2)(iv), 
(3)(iii), and (4)(iii)).  New legislation adopted in August 2007 seeks to enhance the finances of state-
owned enterprises, which have traditionally b een heavily dependant on government support 
(Chapter III(4)(iv)). 
14. However, as noted by the IMF, the expected decline in revenue from export taxes on logs, 
which accounted for some 17% of total government  revenue in 2008, necessitates additional efforts 
to:  restructure the budget;  reduce the wage bill;  fully implement the State Owned Enterprises Act;  
enhance public-sector spending transparency and accountability;  and strengthen tax administration, 
including by further reducing exemptions and enforcing tax collection.8 
15. In this context, the Central Bank indicates that  "the issue of determined prices of logs" 
requires particular attention, as the government-de termined values, on which log export duties are 
calculated, remain well below international market prices.9  The resulting fiscal revenue loss for 2007 
was estimated at about 3.8% of GDP.10  Substantial revenue leakage also results from fraud 
(Chapter IV(4)). 
16. The stock of government debt totaled SI$1,5 57 million (US$203.5 million, or 52% of GDP) 
at end 2007.11  Of this, SI$1,129 million correspond to public  sector external debt.  Although the debt 
situation has improved recently, it remains highly se nsitive to a decline in GDP growth.  Total debt 
servicing for 2007 reached SI$138.4 million, around 4.7%  of GDP.  External debt arrears at the end of 
2007 totaled SI$79.2 million. 
(4) MONETARY AND EXCHANGE RATE POLICY  
17. The Central Bank of Solomon Islands (CBSI) is r esponsible for regulating "the issue, supply, 
availability and international exchange of money".12  However, in determining the exchange rate, it 
must act in accordance with "written instructions given from time to time by the Minister of Finance and Treasury".
13  The 2008 Policy Translation and Implemen tation Framework seeks to strengthen the 
autonomy of the Central Bank.14 
18. The CBSI's stated main monetary policy goals are to:  maintain price stability;  achieve 
sustained and stable economic growth, and a high le vel of employment;  and ensure a viable balance-
of-payments position.15  To achieve these goals, the moneta ry policy stance has focused on:  
                                                      
7 CBSI (2008a). 
8 IMF (2008a). 
9 CBSI (2008a). 
10 IMF (2008a). 
11 CBSI Annual Report 2007. 
12 Section 4, Central Bank of Solomon Islands Act. 
13 Section 22, Central Bank of Solomon Islands Act. 
14 Coalition for National Unity and Rural Advancement Government (2008b). 
15 CBSI online information.  Viewed at:  http://www.cbsi.com.sb/index.php?id=13. Solomon Islands WT/TPR/S/215/Rev.1 
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maintaining a level of inflation lower than 10%;  keep ing official foreign reserves at a level equivalent 
to at least three months of imports of goods a nd services;  and improving interest rates on deposits.16  
In practice, the CBSI's objective has been to mainta in the exchange rate pegged to the U.S. dollar. 
19. Annual average inflation, as measured by the Honiara retail price index, did not exceed 10% 
during 2000-07, except in 2006 (Table I.3).  However, it accelerated to almost 20% during the twelve-
month period ending September 2008, reflecting in large part increases in international oil prices.17  
Other contributory factors were the rapid growth of  private-sector credit since 2004, an expansionary 
fiscal stance, and the gradual depreciation of the Solomon Islands dollar in nominal effective terms.18  
The authorities expect inflation to fall by the e nd of 2008 as a result of declining fuel prices. 
Table I.3 
Main monetary indicators, 2000-08 
 2000 2001 2002 2003 2004 2005 2006 2007 2008a 
Money and credit (12-month rate of 
change)           
M1 -6.2 -0.8 0.3 32.7 13.4 44.7 30.8 29.3 20.4 
M3 0.4 -8.0 -2.0 25.9 19.0 38.9 26.4 23.9 11.8 
Interest rates          
Weighted average rate on loans and 
overdrafts 15.09 15.65 15.59 14.68 14.69 14.37 13.73 14.22 14.20 
Weighted average rate on deposits  2.95 1.55 0.64 0.94 0.72 0.91 0.94 0.65 0.94 
Inflation          
Consumer price index (% change, period 
average) 7.0 7.7 9.3 10.0 6.9 7.3 11.2 7.7 16.4 
Exchange rate          
Exchange rate (SI$ per US$, period 
average) 5.09 5.30 6.78 7.51 7.49 7.53 7.61 7.65 7.66 
Real effective exchange rate (IMF index, 
2000=100)c 100.0 108.7 90.1 78.5 77.1 79.5 85.5 84.6 82.8b 
 
a First half. b First quarter. 
c A decrease in the index corresponds to a depreciation. 
 
Source:  WTO Secretariat, based on CBSI (various issues), Monthly Economic Bulletin  and Quarterly Review  
[http://www.cbsi.com.sb/index.php?id =8];  CBSI (2008a);  IMF (2008b, 2007b, and 2006), and data provided by 
the authorities. 
20. In an effort to reduce inflation, the CBSI has recently taken measures to reduce excess 
liquidity in the banking system.  In 2007, it allo wed the Solomon Islands National Provident Fund to 
invest SI$150 million overseas.  As a result of this policy, commercial bank excess liquidity has 
declined significantly, although it remains rela tively high (some SI$67 million in December 2008).19  
The Central Bank considers that persistent high ex cess liquidity has had a dampening effect on efforts 
to contain pressures on domestic inflation, and th at it is one of the main reasons underlying low 
interest rates on deposits.20 
21. Money supply expanded rapidly during the pe riod under review, partly reflecting a sharp 
increase in credit to the private sector.  Interest ra tes have remained relatively stable since 2000.  The 
indicative average interest rate on commercial bank deposits has remained below 1% since 2002, 
                                                      
16 CBSI (2008a). 
17 CBSI (2008d). 
18 IMF (2008a). 
19 CBSI (2008b). 
20 CBSI (2008a). WT/TPR/S/215/Rev.1 Trade Policy Review 
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while that for loans and advances has come down s lightly, from 15.6% in 2002 to 14.2% in 2007.  
This has resulted in a wide interest-rate spread, of some 13 percentage points. 
22. In determining and implementing exchange ra te policy, the CBSI must act under written 
instructions from the Minister of Finance and Tr easury.  The broad objectives of exchange rate policy 
are to maintain the competitiveness of Solomon Islands exports as well as production for the domestic 
market, and to protect the level of external reserves.21  The CBSI considers exchange rate policy as a 
complement to monetary policy in attempting to ach ieve the aims of economic growth and stability. 
23. The exchange rate regime is a de facto  peg to the U.S. dollar.  In principle, since November 
2000, the exchange rate of the Solomon Islands do llar is determined from a basket of currencies 
comprising the U.S. dollar, Australian dollar, British pound and the Japanese yen;  the weight 
assigned to each currency reflects its importance in So lomon Islands trade, but is not disclosed.  These 
weights are reviewed annually, and any changes mu st be approved by the Minister of Finance and 
Treasury.  Given that 95% of Solomon Islands' trad e is in U.S. dollars, since December 2002, the 
CBSI has kept the exchange rate broadly stable ag ainst the U.S. dollar, although there is no public 
commitment to continue to do so (Table I.3).  The real effective exchange rate (REER) has 
appreciated since 2004.  The IMF considers the REER to be broadly in line with medium-term 
fundamentals.22 
24. The Solomon Islands maintains an exchange syst em that is free of restrictions on payments 
and transfers for current international transactions.  The policy on exchange controls is administered 
by the CBSI and is contained in the Exchange Control (Foreign Exchange) Regulations 1977 under 
Section 3 of the Exchange Control Act 1976.23  No restrictions are currently placed on remittance of 
dividends, profits, and other earnings (net of tax) du e to non-residents.  The operation and settlement 
of inter-company accounts require exchange contro l approval.  All transactions involving capital 
payments (transfer overseas of sale proceeds of Solomon Islands assets, loan repayments, and direct investment overseas) require approval by the CBSI.   Permanent residents are generally permitted to 
purchase foreign currency for all types of pers onal payments, but are not permitted to conduct 
portfolio investment overseas.  The full proceeds of goods exported must be submitted to the CBSI. 
(5) B
ALANCE OF PAYMENTS  
25. The reliability of official balance-of-payment s data is limited:  the IMF has found that 
Solomon Islands' external sector statistics su ffer from "serious misclassification problems"24.  Thus, 
this section is based on data estimated by the IMF (T able I.4).  According to these estimates, Solomon 
Islands posted a deficit in the current account of the balance of payments during the 2000-07 period, 
except in 2003 and 2004, when larg e surpluses were registered.  In spite of strong import growth, the 
current account deficit has been decreasing since 2005,  both in absolute terms and as a share of GDP.  
This reflects expanding exports, and surpluses in ne t services and current transfers.  Since 2005, the 
current account deficit has been financed by a surplus in the capital account, and foreign direct 
investment.  Gross foreign reserves totaled almost  US$120 million in 2007, equi valent to some four 
months of imports. 
                                                      
21 CBSI online information, "Administration of Excha nge Rate Policy".  Viewed at:  http://www.cbsi. 
com.sb/index.php?id=42. 
22 IMF (2008a) 
23 CBSI (undated). 
24 IMF (2008a). Solomon Islands WT/TPR/S/215/Rev.1 
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Table I.4 
Balance of payments, 2000-08  
(US$ million) 
 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Current account -31.7 -29.8 -23. 2 20.9 61.5 -28. 7 -18.8 -10.8 -32.2a 
(As % of GDP) -10.6 -10.9 -10.2 9.1 23.5 -9.8 -5.6 -2.8 -6.8a 
Balance on goods -32.9 -38.2 -11.3 6.7 11.9 -41.2 -62.1 -71.1 .. 
     Exports 65.1 47.1 57.8 74.3 97.1 102.7 121.4 168.9 .. 
     Imports 98.1 85.3 69.1 -67.5 -85.2 -143.9 -183.5 -240.0 .. 
Services 14.6 -6.4 -0.4 6.0 7.7 6.9 23.0 20.5 .. 
Income -0.8 0.1 -5.9 -0.9 3.7 1.6 4.3 -4.2 .. 
Current transfers -12.6 14.7 -5.5 9.1 38.1 4.1 16.1 44.0 .. 
Capital and financial a ccount         .. 
Capital account  .. .. .. 12.6 1.5 27.6 29.4 36.0 .. 
Financial account .. .. .. -26.1 -39.4 22.7 -16.0 -20.9 .. 
     Direct investment .. .. .. -1.8 5.7 18.2 11.5 33.8 .. 
     Other investments .. .. .. -24.3 -45.1 4.6 -27.4 -54.7 .. 
Errors and omissions .. .. .. 11.4 19.9 -5.7 14.7 12.7 .. 
Overall balance .. .. .. 18.8 43.4 16.0 9.4 17.0 -19.3a 
Memorandum items          
Gross official foreign reserves .. .. .. 36.3 79.5 94.6 103.5 119.8 .. 
In months of projected import cove rage .. .. .. 4.0 5.5 5.3 4.2 4.1 .. 
Gross external debt (% of GDP) .. .. .. 80.5 68.3 57.2 52.8 44.1 .. 
Private sector .. .. .. 11.6 9.9 8.6 7.4 6.2 .. 
Public sector .. .. .. 68.9 58.4 48.6 45.4 37.9 .. 
External debt service (% of GDP) .. .. .. 2.1 1.7 2.5 1.3 3.2 .. 
 
.. Not available. 
 
a IMF projection.  
Source : WTO Secretariat, based on IMF (2008b and 2007b). 
26. The imminent decline in logging exports poses serious challenges for Solomon Islands' 
external sustainability, and calls for additional efforts to stimulate growth in other export-oriented 
sectors, for example mining (see Chapter IV(4) and (5)). 
27. External debt totaled SI$1,313.4 million in 20 07, slightly less than in 2003 (SI$1,380.3 
million).25  However, as a share of GDP, it has fallen significantly, from around 80% in 2003 to 44% 
in 2007. 
(6) DEVELOPMENTS IN TRADE AND INVESTMENT  
(i) Developments in merchandise trade 
28. The composition and direction of Solomon Isla nds' merchandise trade (presented in Appendix 
Tables AI.1 through AI.4), are based on inform ation from the United Nations Comtrade database, 
calculated from data provided by Solomon Islands' tr ading partners (mirror statistics), since Solomon 
Islands has not provided data to Comtrade.  Th e estimates calculated by the Secretariat differ 
substantially from national accounts a nd balance-of-payments data.  In particular, the total value of 
exports in Appendix Tables AI.1 and AI .3 is substantially higher than in Tables I.1 and I.4.  This may 
be explained in part by the fact that exports are va lued on a c.i.f. basis in the Appendix Tables (due to 
the use of mirror statistics), while they would be valued on an f.o.b. basis for national accounts and 
balance-of-payments purposes.   
                                                      
25 CBSI Annual Report 2007. WT/TPR/S/215/Rev.1 Trade Policy Review 
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29. Total merchandise trade (exports plus imports ) expanded by about 185% during 2000 and 
2007.  This reflected fast export growth and st rong domestic demand for imports, partly linked to 
foreign aid flows and reconstruction efforts. 
(a) Composition of trade 
30. In value terms, exports roughly tripled betw een 2000 and 2007, to a total of US$331 million 
(Table AI.1).  Primary products represented clo se to 99% of total exports in 2007, up from 96% in 
2000.  Exports of timber almost quadrupled during th e period, reflecting in particular strong demand 
from China and other emerging markets, and accounted for almost three quarters of total exports in 
2007.  Exports of fish and fish pr oducts, palm oil, cocoa, and copra accounted for most of the rest. 
31. The value of imports reached US$251 million in 2007, around two-and-a- half times the level 
in 2000 (Table AI.2).  Imports of primary products grew faster than imports of manufactures, mainly 
on account of higher fuel prices.  However, manufactures remained the largest importing sector, accounting for some 47% of total imports in 2007, roughly the same level as in 2000.  Machinery and transport equipment remained the most important si ngle import category, representing close to 30% of 
total imports.  The share of primary products increas ed by slightly more than four percentage points 
during the period, to 40% in 2007;  fuels accounted  for almost 30% of total imports.  The share of 
agricultural imports was around 10% in 2007, down slightly from 2001. 
(b) Direction of trade 
32. Solomon Islands' export pattern by trading pa rtner changed considerably during the period 
under review.  China became the main export market , accounting for some 55% of total exports in 
2007, compared with just 13% in 2000 (Table AI.3).  Exports to Italy also increased considerably.  
The export shares of Korea and the Philippines dec lined substantially, a lthough exports to both 
destinations increased in absolute terms.  Export to Japan represented 6% of total exports in 2007, 
down 15 percentage points with respect to 2000.  Ex ports to Japan also declin ed in absolute terms. 
33. Singapore and Australia are the main import sour ces, accounting for almost two thirds of the 
total, followed by Japan, New Zeal and, China, and Malaysia.  The share of imports from Singapore 
rose significantly during the period;  imports from Australia decreased as a share of the total, but 
increased considerably in va lue terms (Table AI.4). 
(ii) Trade in services 
34. Solomon Islands traditional surplus in services has been increasing rapidly since 2005.  In 
2007, exports of services (receipts) totaled US $73.3 million, while imports (payments) were 
US$52.9 million (Table AI.5).  During the period unde r review, deficits were generally posted in 
transportation, travel, and, since 2004, financial services.
26 
(iii) Foreign direct investment 
35. Foreign direct investment (FDI) inflows into Solomon Islands were pr actically halted during 
2001-03 as a consequence of civil strife.  FDI resume d thereafter, with total inflows estimated at 
US$44 million for the 2004-06 period.  Inflows ta rgetted mainly two large-scale projects:  the 
Guadalcanal Plains Palm Oil Ltd and a gold mine at Gold Ridge.  Other FDI was linked to activities 
                                                      
26 These figures are reported separately by the CBSI and do not coincide with the summary services 
balance in the BOP statistics. Solomon Islands WT/TPR/S/215/Rev.1 
 Page 9 
 
 
related to post-conflict reconstruction.27  FDI applications for a total of US$59.2 million were 
received in 2007, mostly for forestry, transport and communications, manufacturing, fisheries, and 
mining.  The main sources of FDI during 2000-06 were :  Australia;  China;  Chinese Taipei;  Fiji;  
Hong Kong, China;  Malaysia;  New Zealand;  Papua New Guinea;  the United Kingdom;  and the 
United States.  A concern is that investment flows may fall in the next few years, after the completion 
of the palm oil and gold mine projects.  In this r espect, enhancing the predictability of the investment 
regime would help attract new investment flows in other areas. 
(7) OUTLOOK  
36. The IMF is projecting GDP growth of 4% in 2009, down from an estimated 7.3% in 2008.  
However, if policies are not changed, the IMF for ecasts that growth could decline to 1.5% by 2010 
and average 3% in 2007-12, roughly the same rate as for population growth.  Logging is expected to decline sharply after 2010, and aid inflows to fall fro m 2009, so growth will rely to a large extent on 
increased palm oil production and the start of gold expor ts.  The current account deficit is expected to 
narrow in the medium term, after reaching some 9. 6% of GDP in 2009.  This would result mainly 
from a decline in project-related imports once the reha bilitation of the gold mine is complete, even as 
logging exports and aid flows diminish.  Inflation is  expected to decline to some 6.5% in 2009, after 
topping 15% in 2008.
28 
                                                      
27 UNCTAD (2007). 
28 IMF (2008a).