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- GDP (PPP):
- $1.1 billion
- 1.5% growth
- 5.8% 5-year compound annual growth
- $1,895 per capita
- Inflation (CPI):
- FDI Inflow:
The economy of the Solomon Islands continues to be heavily dependent on forestry and suffers from a lack of dynamism. Poor infrastructure and an underdeveloped regulatory environment impede expansion and diversification of the productive base. The financial system remains rudimentary and lacks the capacity to provide sufficient credit for entrepreneurial activity.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 47 (no change)
- Economic Freedom Status: Repressed
- Global Ranking: 161st
- Regional Ranking: 37th in the Asia–Pacific Region
- Notable Successes: Trade Freedom and Monetary Freedom
- Concerns: Rule of Law, Investment Freedom, and Management of Public Finance
- Overall Score Change Since 2012: +0.8
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. Despite reform efforts, systemic corruption increases the cost of business and deters much-needed long-term investment.
The Solomon Islands is a parliamentary democracy and one of Asia’s poorest nations. Danny Philip’s election as prime minister in 2010 seemingly stabilized a chaotic political environment, but allegations of corruption forced Philip to resign in 2011. Prime Minister Manasseh Sogavare has been in office since 2014. In recent years, Australia has had to intervene several times to defuse ethnic conflict. Australia, the European Union, Japan, New Zealand, and Taiwan 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.
Public offices are widely viewed as opportunities for personal enrichment. Many public officials have faced charges of official abuse and corruption, and even former prime ministers have been convicted. Threats against judges and prosecutors have weakened the judicial system’s independence and rigor. Judges and prosecutors also have been implicated in corruption scandals. Land ownership is reserved for Solomon Islanders.
The top personal 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 36.9 percent of total domestic income. Government spending has risen and now equals 49.9 percent of GDP. Budget surpluses have kept public debt below 15 percent of total domestic output.
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. The labor market is underdeveloped, and informal labor activity remains substantial. About one-third of total public spending subsidizes infrastructure development projects, many of them funded by international donors.
The Solomon Islands’ average tariff rate is 8.5 percent. State-owned enterprises operate in the electricity and broadcasting sectors. Foreign investment in some sectors of the economy is restricted. 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.