A more sustainable revenue base for the Pacific Island nation could better manage changing economic conditions and the impact of shocks such as COVID-19.

While being largely shielded from the health impacts of COVID-19, the economy of the Solomon Islands has felt a severe shock.

Travel restrictions shuttered tourism throughout 2020, major construction activity has been delayed, and the drop in global demand and lower domestic economic activity has had negative impacts on business and is placing a strain on households. Real gross domestic product for 2020 is estimated to have contracted by 6%, according to the ADB. Like most Pacific island countries, reduced activity throughout 2020 led to lower domestic revenue collections, while expenditures increased.

Solomon Islands has gone into 2021 with little fiscal headroom and only a slight rebound to 1% real GDP growth currently forecast for this year. The impacts of the pandemic have highlighted the inherent challenges facing small island developing states.