Gov’t cash drops

4
Money

SIG cash balance falls this year, revenue lower than expected: Moody

BY CAROL-ANNE SULEGA

MOODY’s Investors Services has admitted that the Government’s cash balance has fallen to low levels this year, revenues have come in below expectations, but still expects the Government to maintain its ongoing commitment to ensuring robust public finances.

“Solomon Islands’ successful graduation from an IMF programme in 2016 has helped strengthen fiscal management through the Public Financial Management Act, the introduction of a multiyear budget framework and enhancements to debt management,” the released document states.

The recently launched tax review, which includes examining the consumption tax, sales tax, income tax and other taxes such as gambling tax, would raise prospects for government revenue receipts if successfully implemented.

Moody adds that at this stage and given the likely implementation lags and potential narrowing of the scope of the fiscal reforms, it does not factor a significant broadening of the tax base in our projections.

Larger borrowing to fund key development projects such as the Tina River Hydro project will be done on concessional terms and include grants.

“We also expect Australia to continue to provide aid to Solomon Islands, which will help to maintain the sovereign’s low borrowing needs and high debt affordability.

“Overall, interest payments on government debt will remain below 0.5 percent of government revenues, a very low level compared to other rated sovereigns.

“Beside financial assistance, Australia provides technical support that contributes to the smooth functioning of the Solomon Islands’ government institutions,” it further adds.

Technical advisors are seconded to help strengthen the Solomon Islands’ capacity to undertake core state functions.

Although an escalation of domestic political and social tensions could have a high credit impact by threatening the continuity of donor support and hampering the effectiveness of policies and economic growth, Moody’s Investor Services thinks it is a low probability risk.

There has been some progress on restoring law and order in the past decade through the Regional Assistance Mission to Solomon Islands (RAMSI), which Moody’s Investor Services expects to persist.

“We expect Australia’s technical and financial engagement with Solomon Islands to continue following the conclusion of RAMSI.

“Australia will continue to provide development support for justice and governance, education, health and police development through its bilateral aid investment program.

“Australia provides about 70 percent of Solomon Islands’ total aid, equal to around 28% of the government’s revenue or 12 percent GDP.

“The signing of a security treaty in August 2017 underscores the continued engagement on security issues between the two countries,” it further adds.

Moody’s Investor Services then elaborated that low incomes, narrow economic base and weak institutions constrain shock absorption capacity.