SOLOMON Islands will continue to face difficulties despite a 3.5% economic growth projection for this year.
Tobias Haque, the Economics and Governance Specialist for the World Bank in the country, said this yesterday in Honiara following the release of the East Asia Pacific Update on Wednesday.
The East Asia and Pacific Update outlined that after a period of strong growth from 2003-2008, Solomon Islands had moved into negative growth in 2009 and over the medium term, will face significantly slower growth as a result of a decline in logging prices and exports for this year.
The report stated that the decline in logging will this year impact on government revenues and foreign exchange receipts, calling for careful fiscal management from the Solomon Islands government.
However, growth is expected to recover to only around 3.5% in 2010, World Bank report said.
This growth will come from expected mining operations at Gold Ridge.
Log price however, will remain weak, dampening overall growth and medium term growth remains uncertain, the Update report said.
"This slight recovery will be driven by a number of factors including the wider recovery of the entire region following the global financial crisis and a strengthening of commodity prices," the Update said.
Mr Haque said the impact of last year’s financial and economic downturn will continue to affect the country and its people later this year.
This year inflation will reach 7 per cent from 6.8% last year.
The government's serious fiscal challenge from last year will have an impact on the economy.
The country's 2010 budget assumes revenues spending will increase by about 20% each from last year's outcome.
The Update recommends an increasing level of trade integration of the entire region to assist in the region's transition into a new, slower-growing world.
Lead economists and the principle author of the east Asia and Pacific Update Ivailo Izvoroski said that "deeper integration will boost intra-industry trade within global and regional production networks, encourage agglomeration economies, reduce costs and increase international competitiveness."
Mr Haque said the relevance of these findings to Solomon Islands, where overcoming barriers to movements of labour, goods and capital within the country is vital for achieving international competiveness.
Mr Haque pointed out that the "Solomon Islands government continues to operate under a number of economic constraints and should be commended for steps taken to support reform while working donors, such as the World Bank, to address barriers to growth."
He said the development of infrastructure is important to boost the economy of the country.
Mr Haque also noted the diversification of economic activities and look into other sectors in light of the declining logging industry.
World Bank in its close connection with the government had been working hard in various areas to improve the economic performance of the country through infrastructure development, economic reform and social services.
By MOFFAT MAMU
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