MINISTER of Finance and Treasury, Hon. Harry Kuma, has refuted claims in the recent media report of the potential debt distress when SI enters into a diplomatic relation with the People Republic of China or PRC.
Mr. Kuma clearly highlighted that as a responsible Government any financial interests or arrangement with PRC will have to fall under the PFM Act legal framework as well as along with the Solomon Islands Debt Management Strategy.
Minister Kuma revealed that Solomon Islands has a unique legislative framework and Debt Management Strategy that governs as well as advice the Government on how it deals with its borrowings needs, and other forms of financing like guarantees.
“SIG debt management framework is one of the best in the Pacific, these leads to the current scenarios where our debt is well managed so the perceived negative implication on country debt and fiscal revenue claimed in the media over switch to China is incorrect and misleading”, said Minister Kuma.
Recent media release highlight possible implications and risks that the current country debt to GDP of 10% will increase to 30% once work on Tina Hydro starts which closer to the recommended debt ceiling of 35% of our GDP. Thus, a switch to China will see an excess over the ceiling to 45% or more depending on the size of the project.
This high debt level will affect fiscal revenue and crowd out key fiscal priorities, expecting basic services to be affected with most of the revenue collected by the government will go towards servicing its debt, the report continues.
However, in refuting the potential implication claimed, Hon. Kuma explains that MoFT Debt Management Unit projection is that with Tina Hydro (TRHP) operation started, the country debt may reach 27% of GDP over the construction period, not 30%. This will not negatively affect the fiscal revenue of SIG because this is still within our debt sustainability level.
Furthermore, the Minister also clarifies that bulk of the Tina Financings will be on-lend to the Tina Hydro Company Limited (THCL) with specific financing terms, therefore we expect a minimum fiscal impact on Government finances.
Hon. Kuma further explains that the TRHP is expected to provide massive benefits to the Solomon Islands economy by providing cheaper and more reliable electricity than diesel-generated electricity.
The price of electricity to be produced by the TRHP will effectively be fixed over a thirty-year period, at a rate that will be cheaper than diesel-generated electricity; and then almost cost-free from year 31 onwards. A successful development of the TRHP will showcase and highlight the Solomon Islands as a safe and credible investment destination for foreign investment and private sector partnerships.
As highlighted above, ongoing and future management and administration of SIG debt is or will be in accordance with the PFMA and Debt Management framework, therefore debt cannot easily creep to heights as assumed.
“It can, however, be raised to such a level, at the strict condition when the economy has developed the fiscal capacity and strength to absorb the higher debt. This will be good for the country and the economy,” said the Minister.
The Minister stated that his Ministry is operating a robust and resilience debt management system, which base on global debt management modules-“our debt is well managed”.