RAMSI's former Economic Governance Program

In 2003, the economy and public finances of Solomon Islands were in a dire state. Many basic government services such as health and education were not being delivered. Due to these massive economic problems facing Solomon Islands, it was agreed that it would be part of RAMSI’s mandate to:

  • stabilise government finances and balance the budget; and
  • promote longer-term economic recovery and revive business confidence.

The Economic Governance Program was established in response. The Program supported the efforts of Solomon Islands Government to improve public financial management and reduce public debt.

Implementing disciplined fiscal policy measures and economic reforms has resulted in increased revenue collections, balanced or surplus budgets and significant reductions in government debt since 2003.  RAMSI has worked closely with the Ministry of Finance and Treasury to ensure financial stability for Solomon Islands Government.

As part of ‘transition’ the Economic Governance Program was concluded on 1 July 2013. The development support that was delivered under this program was shifted to Australia, New Zealand and other development partners.

Between 1998 and 2003, the economy and public finances of Solomon Islands experienced a massive collapse.  Real Gross Domestic Product (GDP) – the value of all goods and services produced in Solomon Islands in a year – fell by around 62 per cent, and the decline in real GDP per capita was even greater as the population continued to grow.  Government expenditure fell, reducing essential community services, and large budget deficits were the norm.

The Government could not meet the repayments on its domestic or international debt obligations and public debt ballooned.  The build-up of debt in arrears saw international financial institutions, including the World Bank and the Asian Development Bank, stop lending to Solomon Islands, and local suppliers would not deal readily with Government.

Government operations had reached a state of near-collapse and many public servants had fled Honiara due to the law and order situation.  Telephones in Government Ministries were disconnected due to the non-payment of accounts and the Government’s payroll payments had slipped a few months behind.  The stability of the currency and the sovereignty of Government finances were threatened.

Since RAMSI’s arrival in 2003, the economic situation in Solomon Islands has turned around and the Solomon Islands’ government finances have markedly improved.  The stable security environment has led to steady economic growth and improved confidence by investors to re-engage with Solomon Islands, particularly in the mining, agriculture, tourism and fisheries sectors.  On the whole, the economy grew over the decade since 2003, with a slight interruption caused by the Global Financial Crisis in 2009. The GFC highlighted the vulnerability of the Solomon Islands economy to external shocks.

Real GDP in Solomon Islands grew by over 80 per cent in real terms in the decade since 2003.  The largest contribution to growth came from the service sector, with other major contributions from the agriculture, forestry and mining sectors (about 30 per cent in total). Other industries such as the fishing and small manufacturing sector also made small contributions.

The government’s debt rating was reduced from high to moderate risk through debt management support.  The government’s debt to GDP ratio was substantially reduced, to 11 per cent of GDP in 2013, putting Solomon Islands in a position where it can undertake prudent new borrowing.

The stability and reforms over the past decade have provided a more conducive investment environment, from donor, government and private sector sources. The reduction in sovereign risk combined with reduced complexity and cost of doing business has helped to attract new investment spending. In 1996, total investment was around 4.5 per cent of GDP. Since 2005, investment has averaged around 20 per cent of GDP per year.

RAMSI supported Solomon Islands Government to progress major economic reforms under the Economic Governance Program that have helped strengthen the economy and resulted in a gradual improvement of living standards. Key economic and public finance reforms have included:

  • Improvements to the environment in which the private sector operates including through reducing business costs. This has resulted in the average time it takes to start a business reducing from 56 to 9 days.
  • Business law reforms that have modernised the legal environment for business and streamlined its administrative processes, including a new Companies Act, a new Companies Registry and the Secured Transactions Act.
  • Streamlining processes for work and residency permits to enable business to engage skilled labour more quickly.
  • The Foreign Investment Act, which has reduced processing times for foreign investment applications, and reduced restrictions on areas in which foreigners could invest.
  • A reduction in tariff rates, which has reduced the cost of imported business inputs.
  • Introduction of competition reforms for key sectors such as aviation and telecommunications, leading to more competition and reduced prices.
  • Reforms to both tax policy and administration to improve the fairness and efficiency of the tax system.
  • Reforms to state-owned enterprises, to improve their financial management and governance and improve their service standards

As part of the RAMSI Economic Governance program, RAMSI advisers worked alongside their Solomon Islands Ministry of Finance and Treasury colleagues to implement disciplined fiscal policy and public financial management measures that have resulted in increased revenue collections, balanced or surplus budgets and significant reductions in government debt over the decade since 2003. A number of achievements over the life of the Economic Governance Program include:

  • Solomon Islands debt was substantially reduced from pre-RAMSI levels of over 100% of Gross Domestic Product to 11% at the end of 2013, well under the sustainable benchmark of 30%.
  • Taxation administration and compliance was improved, dramatically increasing domestic revenue collection from SBD 258 million to over SBD 3.3 billion in 2013.
  • Stronger budget expenditure controls and financial management systems were put in place, to better control payroll spending, and prevent spending in excess of budgeted levels.
  • A new government payroll system was implemented for payment of all Solomon Islands Government employees, with all employees now being consistently paid on time.
  • Monthly and annual government financial reports are now being consistently undertaken in a timely fashion.
  • A new budget management system was implemented in 2009, and continues to be used to produce and deliver the Solomon Islands national budget.
  • The financial impact of the Global Economic Crisis in 2008-2009 was minimised through a range of revenue and expenditure measures implemented by the Ministry of Finance and Treasury, with RAMSI assistance.
  • International donors are now able to channel funds, including budget support, through Ministry of Finance and Treasury systems.

Another major achievement under the Economic Governance program was the passing into law and commencement of the Public Financial Management Act 2013.  The Act supports Solomon Islands Government policy to improve accountability and transparency in its financial management and its ongoing commitment to international donor partners.  It provides a clearer definition of roles, responsibilities and requirements in the prudent management and use of public resources, and provides processes to enhance better decision making.