Revenue shortfall of $450m

Hurry Kuma Minister of Finance and Tresury
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MINISTRY of Finance and Treasury has experienced a revenue collection shortfall from taxes around $450 million due to the impact of the coronavirus.

Minister Harry Kuma disclosed this during his debate on the motion to extend the State of Public Emergency to another four months in Parliament on Tuesday.

Mr Kuma said the revised revenue shortfall is expected to be around $450m in 2020 while other international organisations, such as the IMF and Asian Development Bank (ADB) have much higher estimates of the shortfall one as high as $850m.

He said the growth is forecasted to remain subdued over the medium term, with projections to average around 3-4 percent per annum in line with the declining rate of log export receipts.

“If logging declines faster than expected, then there will be a more profound impact on revenue, directly via decreased export receipts and also indirectly via decreased activity in the economy leading to lower revenue collections across many revenue sources,” he said.

Kuma said the impact on Government revenue and slow rebound next year, will constrain our ability to finance development activity from recurrent sources.

“The disruption of activity, together with loss in revenue from exports, has also resulted in a sharp decline in foreign exchange reserves and an immediate external financing gap increasing current account deficit from – 7.9 percent of GDP to -17.8 percent of GDP for 2020, which we will manage with the support of recent disbursements from donors,” he said.

Kuma said the containment measures that many responsible governments around the world have implemented to support the stringent fiscal initiatives have also been put in place in the Solomon Islands government.

“These measures include trial lockdowns, restrictions on bars opening, the closure of casinos and strict social distancing protocols.

“Very strict controls have also been in place, and remain rigidly enforced, for incoming arrivals into the Solomon Islands,” he said.

The Finance Minister said the very recent outbreak of COVID-19 cases in our near neighbour Papua New Guinea and the explosion of new cases in many other parts of the world highlight the reality that this battle is far from over, in fact it appears to be getting worse.

Kuma said this reality reinforces the government’s determination to continue the state of emergency to protect its citizens until such time as these ongoing risks are minimised.

“The government is currently facing an unprecedented fiscal situation and the implementation of the 2020 budget will be complex and challenging, more likely to disrupt most government key policy priorities and planned activities of all ministries.

“This year my ministry issued two financial circulars or instructions to ministries. The first circular was sent to ministries on 11th of February 2020, providing ministries with budget guidelines and rules to effectively implement 2020 budget,” he said.

The second circular was issued on April 1, 2020, providing ministries expenditure control measures in response to COVID 19 pandemic, instructing ministries to prioritize emergency needs that covers, health, national security, disaster planning and COVID 19 related expenditures.

To support ministries in this endeavour, the central ministries through the Budget Coordinating Committee (BCC) led by Ministry of Finance and Treasury conducted a week long follow up consultations with ministries in early June, providing update on the impact of COVID 19 on 2020 budget and aiding ministries to support the government in its effort to maintain fiscal stability and discipline by conducting a midyear ministry budget review and ensure ministries collectively identify and prioritize urgent, essential and mandatory expenditures for the remainder of the year.

Furthermore, in accordance with Emergency Powers (COVID 19) Regulations 2020, section 16 (1), under the Prime Minister’s power to release of funds for public safety measures. The government conducted a whole of government reprioritization exercise and secured a total sum of $156 million savings to fund and implement the SIG COVID 19 Preparedness and Response Plan. The approved savings were derived from 50 percent reduction from all discretionary and non-essential line items in recurrent budget and 15 percent reduction to all ministries’ development projects except for economic and productive sectors.

“During this unprecedented times, we have to response in unprecedented ways because so much is required to happen within short time.

“With the budget measures taken, the government is aware that most of its key policy priorities for 2020 including ministries planned activities will be disrupted for a while, but we have to do this for our health and to protect the well-being of our people,” he said.

Despite the current unprecedented fiscal situation, the government remains committed to maintain fiscal stability and discipline and to ensure ministries revised work plans and activities are affordable.

Kuma said ministries are strongly reminded not to commit the government into contractual commitments without securing funding and ensure we avoid rolling over arrears into 2021.

Therefore, to facilitate smooth operation of all ministries, ministries are urged to provide revised cost work plans and procurement plans in order to collectively support

Treasury to manage the execution of budget in the coming months.

The Parliament meeting concluded yesterday and adjourns to Wednesday, August 12 to consider two Supplementary Bills.