BY JOHN HOUANIHAU
Rising global oil prices due to the ongoing middle east crises are expected to slow the country’s economic growth and increase the cost of living.
Dr Luke Forau, governor of the Central Bank of Solomon Islands (CBSI) said this in his presentation at the Public Symposium themed “From the Middle East to the Pacific: Understanding the Global Oil Shock and Its Economic Implications” held at SINU last week.
He said that the domestic economy is directly affected through reduced purchasing power when fuel prices rise.
He adds that while incomes tend to remain unchanged in the short term, the increase in prices means people can afford less, leading to lower spending and reduced investment.
“This, in turn, slows overall economic growth and could even push it into negative growth if conditions worsen. In the immediate short term, estimated at one to two months, the country is likely to see a decline in nominal Gross Domestic Products (GDP) as import payments rise due to higher fuel costs. The effects are expected to become noticeable between May and July,” he said.
Mr Forau said that sectors that rely heavily on fuel, such as transport and logistics, will be the first to feel the pressure.
“Increased transportation costs are also expected to drive up food prices. As a result, consumers will face higher market prices. Other key sectors, including fishing, manufacturing and construction, are also expected to be affected.
He said that in the medium term, over the next 12 months, continued crises instability could deepen the impact, with effects spreading further into the provinces.
“Past trends, such as the 2022 spike in electricity tariffs during the Russia-Ukraine conflict, suggest similar patterns could re-emerge. On the government side, fuel taxes, which account for about 4 percent of total revenue, may increase in the short term due to higher prices. However, declining foreign reserves and tighter lending conditions could place additional strain on the financial system, affecting both businesses and households,” he said.
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