2013 Index of Economic Freedom

Solomon Islands

overall score45.0
world rank165
Rule of Law

Property Rights30.0

Freedom From Corruption27.0

Limited Government

Government Spending6.1

Fiscal Freedom66.2

Regulatory Efficiency

Business Freedom66.6

Labor Freedom66.4

Monetary Freedom75.4

Open Markets

Trade Freedom72.6

Investment Freedom10.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 0.5 million
  • GDP (PPP):
    • $1.7 billion
    • 9.3% growth
    • 4.9% 5-year compound annual growth
    • $3,192 per capita
  • Unemployment:
  • Inflation (CPI):
    • 6.7%
  • FDI Inflow:
    • $146.4 million
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The Solomon Islands’ economic freedom score is 45, making its economy the 165th freest in the 2013 Index. Its score is 1.2 points lower than last year due to declines in half of the 10 economic freedoms, including the control of government spending, labor freedom, and freedom from corruption, that outweigh gains in trade and business freedom. The Solomon Islands is ranked 37th out of 41 countries in the Asia–Pacific region, and its overall score is far below the world average.

The foundations of economic freedom in the Solomon Islands remain severely weakened by structural and institutional problems. The rule of law is not effectively enforced across the country, and weak property rights and a lack of transparency in the legal system are a weighty drag on private-sector development.

The economy of the Solomon Islands is heavily dependent on forestry and suffers from a lack of economic dynamism. Poor infrastructure and an onerous regulatory environment impede expansion and diversification of the productive base. The financial system remains rudimentary, lacking the capacity to provide sufficient credit for entrepreneurial activity. Despite reform efforts, systemic corruption increases the cost of business and deters much-needed long-term investment.

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Background

The Solomon Islands is a parliamentary democracy and one of Asia’s poorest nations. Danny Philip’s election as prime minister in 2010 appeared to have stabilized a chaotic political environment. However, following allegations of corruption, Philip resigned in 2011 rather than face a motion of no confidence, and Gordon Darcy Lilo was elected shortly thereafter. Australia has had to intervene several times to defuse ethnic conflict that has held back economic development. Australia, the European Union, Japan, New Zealand, and the Republic of China provide significant financial aid. Most of the population lives in rural communities, and three-fourths of the workforce is engaged in subsistence farming and fishing. Economic growth depends largely on logging and timber exports.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 27.0 Create a Graph using this measurement

An effectively functioning modern legal framework has not been established. Land ownership is reserved for Solomon Islanders. Generally, land is held on a family or village basis and may be handed down from the mother or father according to local custom. Islanders are reluctant to provide land for nontraditional economic undertakings, and ownership is often disputed. Widespread corruption continues to erode the rule of law.

Limited GovernmentView Methodology

The top income tax rate is 40 percent, and the top corporate tax rate is 30 percent. Other taxes include a property tax and a sales tax. The overall tax burden equals 29.6 percent of total domestic income. Government spending has risen to 55.9 percent of GDP. A small budget surplus has allowed the public debt to fall to below 25 percent of total domestic output. Demand for the islands’ timber in Asia has helped finances and growth.

Regulatory EfficiencyView Methodology

Implementation of a simplified registration process has marginally improved the business environment. The regulatory process continues to be undermined by uneven enforcement of existing laws. Completing licensing requirements still costs over twice the level of average annual income. The labor market is underdeveloped, and informal labor activity remains substantial. Monetary stability is weak, and inflation has been volatile.

Open MarketsView Methodology

The trade-weighted average tariff rate has fallen significantly to 8.7 percent, with some remaining non-tariff barriers further constraining trade freedom. Investment laws are outmoded, and bureaucracy is slow and inefficient. Inadequate infrastructure and political uncertainty also discourage investment. Banking dominates the underdeveloped financial sector, and access to credit, particularly long-term credit, remains very limited.

Country's Score Over Time

Bar Graph of Solomon Islands Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Solomon Islands to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong89.3-0.6
2Singapore880.5
3Australia82.6-0.5
4New Zealand81.4-0.7
5Taiwan72.70.8
6Japan71.80.2
7Macau71.7-0.1
8South Korea70.30.4
9Malaysia 66.1-0.3
10Thailand 64.1-0.8
11Kazakhstan63-0.6
12Mongolia61.70.2
13Sri Lanka60.72.4
14Azerbaijan59.70.8
15Kyrgyz Republic 59.6-0.6
16Cambodia58.50.9
17The Philippines58.21.1
18Fiji57.2-0.1
19Samoa57.1-3.4
20Indonesia56.90.5
21Vanuatu56.60.0
22Tonga56-1.0
23India55.20.6
24Pakistan 55.10.4
25Bhutan55-1.6
26Papua New Guinea53.6-0.2
27Tajikistan53.40.0
28Bangladesh 52.6-0.6
29China51.90.7
30Vietnam51-0.3
31Nepal50.40.2
32Micronesia50.1-0.6
33Laos50.10.1
34Maldives49-0.2
35Uzbekistan460.2
36Kiribati45.9-1.0
37Solomon Islands45-1.2
38Timor-Leste43.70.4
39Turkmenistan42.6-1.2
40Burma39.20.5
41North Korea1.50.5
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