New Act Will Enable Government to Borrow More Prudently
The Minister of Finance and Treasury, Hon Rick Hou, announced that the new Public Financial Management Act will
facilitate better decisions on Government Borrowing, On-lending and Guarantees.
Minister Hou said that the Act contains key elements of the Government’s Debt Management Strategy (DMS) and meets
undertakings made to Honiara Club members to include the main aspects of the DMS in this legislation. The Honiara Club
is the group of donor countries and agencies that helped restructure Government debt in 2005.
He clarified that the new Act formalizes the establishment of a Debt Management Advisory Committee (DMAC), which will
advice the Minister on all new debt-related proposals. The Committee will comprise executives from the Ministry of
Finance, the Central Bank of Solomon Islands, the Ministry of Development Planning and Aid Coordination and other
Government Agencies.
The Act provides that any borrowing must take into account the Government’s borrowing capacity as will be spelled out in
its fiscal strategy, DMS and annual borrowing limit. It will also ensure that fees and charges will be imposed on
guarantees and on-lending arrangements to cover the cost and risk of administering them.
Furthermore, Minister Hou also said that the new Act also requires that Government should set aside a portion of its
domestically sourced revenue in a debt servicing accountfor servicing its loans. New borrowing will be for high priority
infrastructure and development projects that will have long lasting benefits for the Solomon Islands people, but the Act
does not allow Government to borrow for planned budget deficits in recurrent expenditures.
The Act will now require that all Provincial Governments, State Owned Enterprises and the Honiara City Council obtain
the consent of the Minister before undertaking borrowings. The Act sets out that they will have to provide audited
financial statements and show that their NPF and tax payments are up to date before being allowed to borrow. This is
intended to assess whether they are in a good enough position to borrow and repay, and not be a financial risk on
Government.
Minister Hou reiterated that the Act provides rules and guidelines for borrowing decisions so that the reason for
borrowings are for a fit purpose, will help to strengthen the economy, is affordable and sustainable and will not pose
unacceptable risk to the Government.
ENDS