FINANCE and Treasury Minister Harry Kuma has refuted a Central Bank of Solomon Islands (CBSI) advisory of the potential debt distress should the country borrow more money from China.
CBSI offered the advisory to Prime Minister Manasseh Sogavare at his request as part of the recent government review of the Taiwan-Solomons relationship and the potential of switching ties.
But Kuma said as a responsible government any financial interests or arrangement with China will have to fall under the Public Finance Management (PFM) Act legal framework as well as along with the country’s Debt Management Strategy.
“The country 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,” Kuma explained.
“SIG debt management framework is one of the best in the Pacific, these lead to the current scenarios where our debt is well managed so the perceived negative implication on country debt and fiscal revenue as claimed over switch to China is incorrect and misleading,” he added.
In its advisory, CBSI highlighted possible implications and risks that the current country debt to GDP of 10% will increase to 30% once work on Tina Hydro starts which is closer to the recommended debt ceiling of 35% of our GDP.
It added a switch to China will see an excess over the ceiling to 45% or more depending on the size of the project.
The advisory said 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 government will go towards servicing its debt.
However, Kuma explained 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 bulk of the Tina financing will be on-lend to the Tina Hydro Company Limited (THCL) with specific financing terms therefore we expect minimum fiscal impact on government finances.”
Kuma stated 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 onward.
“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 to 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 strict condition when the economy has developed the fiscal capacity and strength to absorb higher debt.
“This will be good for the country and the economy.”
Kuma said his ministry is operating a robust and resilience debt management system based on global debt management modules.
“Our debt is well managed,” he added.