DeMPA

PROCESSES AND IMPLICATIONS

Solomon Islands Experience

Presented at the Asian Regional

Public Debt Management Summit

3rd – 5th November 2009

Kuala Lumpur, Malaysia

By: Cyril Teboua

 Presentation Outline

I. Map of Solomon Islands

2. Some Facts about the Country
3. Debt Situation
4. DeMPA Processes
5. DeMPA Mission I Results
6. Implications
7. Conclusion
1. Solomon Islands

Source : University of Texas Library Website, Perry-Castañeda Library Map Collection

 2. Some Background Facts

z Population (2009 Estimate) - 518, 338

z Independence – 7th July 1978
z GDP –USD 642 million (USD $1,266 per capita)
z GDP Growth (CBSI prediction for 2009) – 1%
z Inflation (CBSI July 09) – 5.9%
z Major Export Commodities and Revenue Earners
z Logs, Copra, Fish, Palm Oil, Cocoa and Tourism
z Gold mining production is expected in 2010
z Nickel and other minerals are also expected in a couple of years
z Major Imports
z Fuel and Manufactured goods
z Classified as LIC
 Some Background Facts Cont…..

z Solomon Islands is a Non-HIPC country

z Not qualified under G8 for Debt Relief
z Some of the initiatives to contain the level of debts includes;
z No further borrowing until “Green Light” status under WB/IMF debt distress
rating system is achieved
z Setting aside 15% of government revenue (reduced to 10% in 2009) for debt
servicing
z Fiscal strategy built around balanced recurrent budgets and bias against
borrowing to fund the losses of state owned enterprises.
z DeMPA Mission February 2009
 3. Debt Situation

2,000.0 
Official Public Sector Debt SBD$’ million
1,800.0 

1,600.0 
External Debt
1,400.0 

1,200.0 
Domestic Debt
1,000.0 

800.0 
Total
600.0 

400.0 

200.0 

‐
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
 Debt Situation Cont…..

Debt sustainability indicators

2005 2006 2007 2008 2009 2010 2011 2012

Debt/GDP 53% 47% 38% 31% 25% 22% 19% 16%
Debt/exports 210% 168% 128% 101% 95% 94% 90% 91%
Debt/Government revenue 189% 129% 95% 88% 79% 70% 63%
Debt Servicing/Government revenue 9% 11% 11% 6% 5% 5% 5%
Debt Servicing/Exports 11% 11% 11% 6% 6% 7% 8%
* These are Ministry of Finance and Treasury estimates
* Projections for 2009‐2012 assume that the Government does not undertake any further borrowings and that no contingent claims against the Government
are realised.
SIG WB/IMF DSA Targets: SIG WB/IMF DSA Targets:
Debt service in percentage of Debt in percentage of

Exports Revenue Exports GDP Revenue

15 25 100 30 200
Debt Situation Cont…..

4% 5%
OTHER
AUD
13% 31%

EUR
USD

JPY
12%

XDR

34%
Currency Composition External Debt
 4. DeMPA Process

In the application of the DeMPA Tool in Solomon Islands, it

was clear from the mission that, the tool is a;
ƒ Standardized metric used to assess how public debt
management is performed.
ƒ Objectives were to:
¾ Assess debt management performance and monitor progress
¾ Support design of actionable Capacity Building (CB) programs
¾ Strengthen coordination with service providers
ƒ Synergies with PEFA
There is a direct link between PEFA and DeMPA
¾ PEFA assesses critical aspects of Public Financial
Management including some aspects of debt management.
¾ DeMPA is more focused on debt management operations,
functions and institutional environment
 DeMPA Process Cont…..

ƒ Coverage and Scoring encompasses

¾ Central Government debt management and connected activities
¾ Provides a set of rating from A to D
ƒ Output
¾ The DeMPA report was developed and finalized in close consultation
with host country authorities
¾ Highlights strengths and areas where improvements in debt
management capacity and institutions are needed
ƒ No conditionality
ƒ No specific recommendations
ƒ Disclosure driven by country authorities – openness encouraged
ƒ Divergent views cited – no secrets, no hidden agenda
5. DeMPA Mission I Findings
DeMPA Mission I Findings Cont…..

¾ Establishment of formal Debt Management Unit (DMU) in

MoF&T to carry out debt restructuring and consolidate DM
functions
¾ Improvement in macro coordination resulting in the country’s
adoption of the 2009 fully funded Recurrent Budget and the
development of a Medium Term Fiscal Strategy (MTFS)
ƒ In terms of the Changing Context , mission recognizes that;
¾ Growth in macro imbalances with imports outpacing exports
¾ Reduction in key export sector and forex and revenue earners –
mining sector slow in getting started
¾ Unsustainable harvesting of logs and its impact on the environment
¾ Strong search for alternative source of growth
¾ Tightening in monetary and fiscal policy that calls for sharp reduction in
current expenditure levels
DeMPA Mission I Findings Cont…..
 6. Implications

The DeMPA mission findings have under its 6 broader categories of

assessment, clearly identified where the strengths of DeM activities
and operations lies in Solomon Islands, and at the same time,
highlights areas for improvements.

Of significant importance, the priority areas most needing attention

were:
1. Formal Debt Management Strategy
2. Strengthening of audit framework, including mandating performance audits
3. Strengthen DMU in terms of ; staff capacity, functions and, procedures &
expertise, particularly with:
ƒ Analytical capacity (incl. DSA)
ƒ Primary responsibility for external debt recording and reporting to be
handled by DMU and
ƒ Integration of cash-balance forecasting with DeM
4. Data integrity and secure access and backups
5. Preparations for future borrowing
 Conclusion

9 DeMPA is a very useful tool particularly for countries like

Solomon Islands where DeM is in its infant stage and lacks the
necessary expertise to advance DeM operations and functions.
9 Sets out a road map on which strengths and weaknesses can be
identified and highlighted for appropriate actions
9 Provides flexibility in use depending on a country needs that
leads towards adopting internationally recognized ‘best/sound’
DeM practices
9 Enables a country full freedom to decide on policy directions
9 A comprehensive assessment tool that provides avenues for
better utilization of a country’s energy and resources.
9 WB’s Debt Management Facility (DMF) – mechanism for
supporting further enhancement of DeM
Thank you