Cabinet Approves New Borrowing Policy For SOE’s

Cabinet Approves New Borrowing Policy For SOE’s

A new Borrowing Policy for State Owned Enterprises (SOE’s) was endorsed recently by Cabinet.

Announcing the new policy today, Finance Minister Rick Hou explained that the Policy is to provide rules and guidelines for SOEs contemplating borrowing and also to ensure that such borrowing will be for a fit purpose and not pose an unacceptable risk for the Government.

Minister Hou also revealed that in 2012, a new Debt Management Strategy (DMS) was also approved by Cabinet and was endorsed by signatories to the Honiara Club Agreement as a successor to this Agreement.

The new DMS and framework were approved to allow SIG prudent concessional borrowing. The DMS applies to SIG ministries and provincial governments, as well as SOEs.

“Although the DMS allowed concession borrowing only, the cost-risk outcome from domestic commercial borrowing by SOEs may be comparable to borrowing in foreign currency from concessional sources under the terms available to SOEs,” Mr. Hou said.

Minister Hou added that Cabinet agreed to amend the DMS to allow commercial borrowing by SOEs under certain circumstances. The new SOE Borrowing Policy therefore provides this amendment to the DMS.

The Minister clarified that the debts of SOEs are a contingent liability to Government.

“While SIG does not have a legal liability to pay SOE debt, it is sometimes obliged to do so to keep essential services operating. Moreover, debts of SOEs are included in the analysis of total public sector debt sustainability and affordability for SIG,” Mr Hou explained.

Minister Hou further clarified that the SOE Borrowing Policy is intended to provide a balance between allowing SOEs to operate as profitable and efficient businesses with managing total sector debt levels. It will do this by:

1. Providing practical guidance for SOEs proposing borrowing;
2. Describing the factors that the Debt Management Advisory Committee will use to assess SOE borrowing proposals;
3. Requiring SOEs to demonstrate that they are creditworthy and that the project for which they are borrowing is viable;
4. Requiring SOEs to have current audited financial statements of good standing, be up to date with NPF payments, and comply with tax laws;
5. Providing guidelines for the extent to which SOE borrowing should count towards the annual limit on new borrowing;
6. Outlining the nature of the advice to be given to the Finance Minister on SOE borrowing proposals;
7. Encouraging early engagement with SOEs on their borrowing proposal plans and business plans; and
8. Encouraging business-like behavior of SOEs.

Minister Hou revealed that in 2012 Solomon Airlines presented a borrowing proposal to the Debt Management Advisory Committee, which recommended the proposal to the Finance Minister for approval.

In this regard Solomon Airlines was able to demonstrate its creditworthiness and the viability of the project which was to purchase the Dash-8 aircraft, Megapode.

ENDS

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