The Minister of Finance and Treasury (MoFT) Hon. Harry Kuma yesterday (Thursday 27) held a Media Press Conference to respond to recent media reports regarding the USD$100 billion loan proposal. Read below his full speech.
Representatives from the media, ladies and gentlemen the purpose of this conference is to outright reject and clarify the misleading media report in relation to the US$100 billion financing introduced by the promoter of the financing proposal Mr Terry Wong. What has transpired and the intention of the correspondences from me to Mr Wong is to collate necessary accurate information from the promoter who directly approached me.
First and foremost, it is the legal responsibility of the Minister of Finance and Treasury mandated under the PFM Act 2013 to borrow money on behalf of the Government, having particular regards to SIG fiscal strategy and the Debt Management Strategy.
Given current development challenges and the need to implement development priorities prescribed under Governments Policy Implementation Framework and in the 2020 Budget Strategy, consultations with prospective financiers is a standard component of the due diligence process, to identify potential funding sources which by no means places public finances at risk.
The correspondences that was prematurely leaked to the main stream media are part of this process, and are mere written request for purposes of acquiring accurate and more detail information of the proposal. This is a necessary step to warrant further assessment. It should not be mistaken as an attempt to secure a loan or other forms of financing. “This is not the first time such an offer is being presented to the Ministry or the Government. We had one in 2014, we have one now and it may come again in the future. We will continue to assess such proposals as they come. I followed the right process to request for detail information from the promoter, provided these information to the officials for assessment, and subsequently await formal advice and recommendation from the Debt Management Advisory Committee.
The DMAC met on 7th January 2020, as required under the PFM Act 2013 to assess the proposal. The proposed funding is the largest ever dealt with by DMAC and the material evidence provided are insufficient to make a firm recommendation to the Minister. Because of this the DMAC decided to defer their consideration of the proposal with the view to carry out a further due diligence assessment on the on Mr Wong as the promoter, to ascertain the authencity and to determine a better term and structure of the proposal. Since the DMAC assessment was made nothing has progressed and the Minister has since await DMAC’s advice and recommendation to be formally conveyed to him.
The due diligence assessment done by DMAC is not a waste of resources. A recommendation cannot be resolved and alternative options cannot be decided on unless an assessment is made by the Ministry and DMAC.
It should be understood by all critics that without an advice and recommendation from DMAC, the Minister cannot approve any loan. So essentially I have neither breached any law, and have not made the $100b loan commitment. I have done nothing contrary to my mandate as the Minister responsible for Finance and Treasury, but have simply executed my responsibility under the PFM Act and the Debt Management Regulation.
I do not need petty political propaganda aimed at tarnishing the Prime Minister, or for that matter the intervention of bilateral partners as suggested by the media to respond to an offer or make an inquiry about a funding proposal. We would approach PRC as part of a broader consultation process. For now, however, the robustness of the Debt Management Framework and the integrity of the DMAC is more than sufficient for me to be guided by. The DMAC is comprised of members from the Ministry of Finance and Treasury, Ministry of National Planning and Development Coordination, and the Central Bank of Solomon Islands.
“As a responsible Government, the DCGA cannot accept a loan that is beyond the countries affordability to repay. The Government is careful to only accept loans whose financial return is feasible, or those which the government has the capacity to repay. Furthermore, any financial commitment should not undermine our sovereignty or cause any adverse impact on the economy including inflationary risks that could over heat the economy. Contrary to media speculation, these are areas of concerns which the government which the SIG Debt Management System is designed to safeguard.
The leakage of information related to the proposed $100 billion loan that is with the Ministry may appear to be noble to anti Government commentaries who do not understand the role of the Ministry in respect to such an offer. In hindsight, this breach of confidentiality so misinformation can be used as part of a smear campaign is serious in that it puts Solomon Islands development interests at risk by undermining the integrity of our internal processes and procedures. Information does not have to be prematurely leaked for me to make the right decision and to do a good job. Our system, the debt management framework, is robust enough to be relied upon. I will make sure that those who are involved in leaking information from SIG network and server will be identified and dealt with.
Let me digress for a minute to the state of the economy.
Many challenges facing Solomon Islands remains eminent despite our long journey as nation state. Economic growth has been low and declining recently, youth unemployment along the street of Honiara is on the rise, parents and the government are increasingly facing difficulty in meeting the education need of our children, health and medical services is over stretched, and the country is increasingly vulnerable to sea level rise and severe natural disaster as a result of climate change.
In the international stage, the US – China trade war continues to raise uncertainty and instability in global finance and markets, and risks Solomon Islands economic outlook. Economic growth, due to declining global log demand has been downgraded from 2.8% in 2019 to 2.3% in 2020. Consequently, total government revenue has been projected to reduce from $3.9 billion in 2019 to $3.6 billion in 2020.
The weak economic and fiscal outlook in 2020 will further be affected by the impact of the ongoing Corona virus on the domestic economy and our fiscal performance. In additional expenditure pressure of $20 million has been placed against the budget to prepare the country to counter the virus. Worse still in 2020 the Corona virus will:
- Reduce real GDP growth from 2.3% to 2.2% (a 0.1 basis point reduction)
- Reduce log output from 2.333million M3 to 2.18million M3 (11% reduction)
- Reduce foreign exchange from log by 9% to $2.3 billion
- Reduce log export duty from $497 million to $467 million (6% reduction), and
- Reduce total government revenue from $3.6 billion to $3.5 billion ($100 million reduction).
Amidst this challenging outlook the DCGA is still committed to implement its priority policies and to execution the 2020 budget theme of together towards building our economy. The Ministry of Finance and Treasury will continue to work hard to raise and collect revenue and control unnecessary spending in order to lessen the impact of the corona virus on government’s fiscal balance. We are also open to work with development partners to seek grants and secure concessional financing to cushion the impact of ongoing global economic challenges and risks.
Let me assure Solomon Islands that when seeking concessional loan, the Ministry of Finance and Treasury will ensure that borrowing is well managed and is guided in accordance with the PFM Act and the Debt Management framework. The Ministry is operating a resilient debt managements system based on global debt management modules and cannot accept borrowings that are beyond our capacity to service. It is important to note that the SIG debt is well within the affordable and sustainable level, the threshold has not been breached to date.
The DMAC takes time with loan proposals including the $100 billion loan, with the view to conduct proper due diligent. The diligence with which DMAC handles this loan proposal shows that the Solomon Islands Debt Management Framework is robust and works.