To'abaita Authority for Research & Development (TARD)

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Friday, April 04, 2008

ADB 2008 Outlook predicts urban youth unemployment as a major challenge for Solomon Islands

The Asian Development Bank (ADB) in its Asian Development Outlook 2008 report released on Wednesday (April 2) warns that urban unemployment of youth is a major challenge for Solomon Islands.

The report also predicts that the cost of basic goods and services will remain high in 2008 due to inflation despite easing in 2007 to an average 7 percent as a result of higher fuel prices and a depreciation of the domestic currency against the Australian dollar.

Economic growth is expected to moderate to 6.0 percent in 2008 as the government curbs the upward trend in its spending in an effort to prepare for future declines in logging revenues. Further expansion of palm oil production will contribute to growth, and development of infrastructure for the Gold Ridge gold mine will continue. The current account deficit is expected to narrow to around 28 percent of GDP compared to 37 percent of GDP in 2007, as growth in gold mine-related imports slows.

Strong official and private inflows in the capital account raised foreign exchange reserves by about US$12 million to US$115.8 million in the 12 months to January 2008,although reserves remained moderate at 4 months of imports of goods and nonfactor services.

The report adds that despite a continued decline in public sector debt, external debt remains at uncomfortably high levels, equivalent to approximately 55 percent of GDP at the end of 2007. This is of particular concern in view of expected medium-term budget pressures from lower logging revenues, an eventual decline in donor support, and the need to fund infrastructure spending and tsunami rehabilitation work.

The report further warns that failure to implement economic reforms could result in per capita GDP decline after 2010 because annual population growth of 2.8 percent may outpace that of GDP. The GDP growth in Solomon Islands is expected to fall to less than 3 percent in 2009 due to anticipated decline in logging rates from 2009 as a result of unsustainable logging and expected depletion of natural
forests by 2013.

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