The caretaker minister for finance and treasury, Rick Hou, has over the past weeks, provided an unprecedented level of information relating to public finances to the public, as part of the release of the first ever Mid-Year Budget Review.
“This is a dawning of a new era in public financial management, and I am delighted to summarize the information provided over the past week” Minister Hou said.
In providing the Review to the Parliament fortnight ago, Minister Hou was keen to point out that the implications on the economy and government finances caused by the April floods and the suspension of production at the Gold Ridge Mine are significant.
“To put the extent of the shock into some perspective, the expected impact on Solomon Islands Gross Domestic Product could be similar to that caused by the Global Financial Crisis when growth also fell to zero”. Minister Hou said.
The Review outlines that since the original estimates were released in the 2014 Budget, domestic revenues are now forecast to be around $150 million lower in 2014. In addition, there are a number of new expenditure pressures related to the floods and 2014 elections that are calling on the budget.
Overall the Review highlights the current budget position for 2014 is a forecast deficit of around $164 million.
However, Minister Hou said that he is confident that this will be fully financed by a mixture of careful management of payments and under spends in some expenditure items, additional funding from donor partners and drawing on reserves as required to fund 2014 commitments.
Minister Hou outlined that “We are very keen to ensure the Government’s finances are dealt with in a fiscally responsible manner and left in a robust position as we move into 2015.”
Minister Hou also revealed that the 2014 Supplementary Budget, which was passed during the recent sitting of Parliament, would also put some further pressure on the Government’s bottom line.
“We are clear that the 2014 National Election is a priority, which we have budgeted for. However further pressures; including polling costs need to be funded this year” Minister Hou said.
He also noted that fully financing the election and related police operations was a very high priority for the Government to help, as far as possible, to ensure that we conduct a successful election.
The Mid-Year Budget review also reveals that donor partners have made some significant additional contributions this year, with both Australia and PNG providing $36 million and $48 million respectively to support the flood recovery efforts. In addition, the Government is also expecting a further $20 million in 2014 revenue due to the Parties to the Nauru agreement fishing licence price increase.
Minister Hou also acknowledged the generous support of other donors, including ROC and New Zealand, in supporting the flood recovery efforts and responses, as well as the many other important partners in the country.
Minister Hou noted that the “Government has secured funds from the Asian Development Bank and is in discussions with the World Bank about other financing, including access to grants and loans that we might be able to use in 2014 and 2015 for the rehabilitation of public infrastructure caused by the flood damage”.
The publication of the 2014 Mid-Year Budget Review is the second significant document to be released by the Solomon Islands Government in 2014 as part of a range of reforms designed to increase transparency of Government through the Public Financial Management Act 2013.
This document provides an update to the National Parliament on the 2014 Budget. It provides advice to citizens, parliamentarians and donor partners on actual revenue collected and expenditure in the first half of 2014 and an update for the remainder of 2014.
Minister Hou said that the 2014 overall domestic revenue had been revised down by 5 per cent compared with the 2014 budget estimate as a result of the combined impact of flooding and the suspension of production at the Gold Ridge Mine.
As of the end of June 2014, actual revenue collections from domestic sources were around $74 million under budget, however this was expected to recover slightly towards the end of 2014.
The overall recurrent expenditure was overspent by 11 per cent against the pro rata budget estimate to the end of June 2014, with donor budget support under spent by 55 per cent and domestic and donor funded development projects being under spent by around 20 per cent.
Minister Hou noted that the significant under spending in the first half of the year on development projects was largely due to delays in the commencement of projects, in part due to the floods, but this is anticipated to decline once all procurement and tender processes are completed and expenditures should be on track for the remainder of the year.
Up to the end of June 2014, the Government had received total revenues of $1,434 million and expenditure was at $1,621 million, a deficit of $187 million, which was expected to reduce towards the end of 2014 as revenue collections recovered following the April 2014 floods.
Minister Hou concluded by saying that while the first half of 2014 had been challenging, difficult and sobering, that it is somewhat reassuring that economic and revenue indicators since the mid-year budget review was prepared have shown the tentative emergence of what he hoped would be a slightly more positive trend.