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Solomon Islands: Improved Fiscal Sustainability Reform Program

Sovereign (Public) Project | 52074-001 Status: Closed

The proposed Improved Fiscal Sustainability Reform Program will help the Government of Solomon Islands implement policy and institutional reforms that improve public finances and investments, strengthen fiscal management and sustainability, and contribute to private sector development.

Project Details

Project Officer
Matthew Hodge Pacific Department Request for information
Country
  • Solomon Islands
Sector
  • Public sector management
 
Project Name Improved Fiscal Sustainability Reform Program
Project Number 52074-001
Country Solomon Islands
Project Status Closed
Project Type / Modality of Assistance Grant
ND
Source of Funding / Amount
Grant 0629-SOL: Improved Fiscal Sustainability Reform Program
concessional ordinary capital resources lending / Asian Development Fund US$ 5.00 million
Grant: Improved Fiscal Sustainability Reform Program
World Bank US$ 10.00 million
European Union US$ 2.90 million
New Zealand Grant US$ 2.00 million
Government of Australia US$ 1.50 million
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Regional integration
Drivers of Change Gender Equity and Mainstreaming
Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Public sector management / Economic affairs management - Public expenditure and fiscal management

Gender Equity and Mainstreaming Effective gender mainstreaming
Description The proposed Improved Fiscal Sustainability Reform Program will help the Government of Solomon Islands implement policy and institutional reforms that improve public finances and investments, strengthen fiscal management and sustainability, and contribute to private sector development.
Project Rationale and Linkage to Country/Regional Strategy

Solomon Islands is confronted with a narrow production base, remoteness and geographic dispersion, thin administrative capacity, vulnerability to natural disasters and climate change, a large infrastructure gap, and high dependence on aid and imports. Despite these constraints, its economy has continued to grow in recent years. Growth averaged 2.9% per annum during 2013-2017, which is higher than the regional average of 2.4% over the same period. But population growth of about 2.3% means there is limited per capita income growth. The government's challenges in managing and accounting for its scarce resources, combined with weak internal coordination, poor utilization of capital expenditure, and outdated business and taxation laws and regulations, has often resulted in poor public sector management and service delivery.

Although economic growth has been broadly steady, it has relied on expansionary fiscal policy, unsustainable logging, and post-flooding reconstruction. While export performance is currently strong, the longer-term prospects for sustaining growth are uncertain. The government is well aware that recent trends are not sustainable, especially as logging (which accounted for around 20% of domestic revenue and two-thirds of exports in 2017) is expected to gradually decline over the medium term. When the government was formed in late 2017, one of the first steps it took to accelerate its reform program was reactivating the Core Economic Working Group (CEWG) and adopting a policy reform matrix that would unlock budget support from development partners. In the past the CEWG has proven effective in utilizing policy financing to sustain reform momentum and efforts to strengthen fiscal sustainability.

During 2010-2014, the government streamlined the process for foreign investment, modernized company and business legislation, and liberalized the telecommunications industry in order to improve the business and investment climate. Following the global financial crisis in 2009-2010, the government implemented several important financial reforms, including adopting fiscal management targets for the budget and public debt, launching a debt management strategy, establishing a multiagency public financial management (PFM) working group, and strengthening internal auditing across government. From 2011, and working closely with the International Monetary Fund, the government also maintained a cash buffer of at least 2 months of recurrent expenditure to improve its ability to respond to shocks. However, the fiscal position deteriorated during 2015-2017, reversing earlier surpluses, because of poor fiscal management, in particular rising discretionary expenditure and changes in government priorities that resulted in limited policy dialogue and reform slippage. The government's cash buffer declined to less than 1 month of cash reserves in September 2017, well below the target of 2 months of total spending. Action is needed to restore a sustainable budget and improve PFM processes to strengthen budget credibility.

Key leadership changes in late 2017 have enabled the resumption of reform momentum. In 2018 the government made a concerted effort to reestablish macroeconomic and fiscal stability through a balanced budget and a targeted fiscal adjustment program that included budget support and rebuilding of cash buffers. This approach is closely aligned to the National Development Strategy; ADB's Pacific Approach, 2016-2020; and its three-pronged strategy to reduce costs, manage risks, and enable value creation. It is also consistent with the IMF's policy advice to the government. Achieving a fully funded budget, however, has come at the expense of substantial reductions in development expenditure. The government adopted the same prudent approach to the July 2018 supplementary budget, which was around $28.9 million. Line ministries were advised that new or additional expenditure pressures would only be accommodated if there was a commensurate increase in revenues and/or funds could be reallocated from the 2018 recurrent budget. No new or additional discretionary expenditures have been included. Consequently, the government's fiscal framework maintains a near-balanced budget.

Impact

The rate of inclusive economic growth reinvigorated and increased.

The environment for private sector development improved and investment opportunities for all Solomon Islanders increased.

Project Outcome
Description of Outcome The program will help the government achieve the National Development Strategy objective of sustained and inclusive economic growth. The outcome will be improved public sector management and service delivery through enhanced public financial and investment management, improved fiscal management and sustainability, and fostering of a more supportive private investment climate.
Progress Toward Outcome
Implementation Progress
Description of Project Outputs The environment for private sector development improved and investment opportunities for all Solomon Islanders increased
Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Nation-wide
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects The proposed program will not result in a project with infrastructure component and will not lead to policy or regulatory reform affecting environmental laws or country safeguard systems.
Involuntary Resettlement The proposed program will not include any civil works. The policy actions to be supported will not cause any invonlutary resettlement impacts.
Indigenous Peoples The proposed program will not impact any distinct and indigenous vulnerable groups.
Stakeholder Communication, Participation, and Consultation
During Project Design The proposed program is designed and implemented in partnership with the Core Economic Working Group (CEWG). Consultation in various forms has been carried out during formulation and implementation of the National Development Strategy and the government's policy documents.
During Project Implementation
Responsible ADB Officer Matthew Hodge
Responsible ADB Department Pacific Department
Responsible ADB Division Pacific Liaison and Coordination Office in Sydney, Australia
Executing Agencies
Ministry of Finance
G.P.O. Box 26
Honiara
Solomon Islands
Ministry of Finance and Treasury
P.O. Box 26
Honiara, Solomon Islands
Timetable
Concept Clearance 15 Sep 2018
Fact Finding 08 Aug 2018 to 16 Aug 2018
MRM 28 Sep 2018
Approval 26 Nov 2018
Last Review Mission -
Last PDS Update 12 Jun 2019

Grant 0629-SOL

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
26 Nov 2018 29 Nov 2018 07 Dec 2018 31 Dec 2018 - 12 Feb 2019
Financing Plan Grant Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 21.40 Cumulative Contract Awards
ADB 5.00 26 Nov 2018 5.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 16.40 26 Nov 2018 5.00 0.00 100%

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

None currently available.

Evaluation Documents See also: Independent Evaluation

None currently available.

Related Publications

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Tenders

No tenders for this project were found.

Contracts Awarded

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Procurement Plan

None currently available.