Solomon Islands government announces historic debt repayment

The Solomon Islands Government will fully repay all its domestic debts ahead of schedule today – marking a significant milestone in the history of the country’s financial management system.

The Minister of Finance and Treasury, Snyder Rini made the announcement in Honiara.

A total of SB$99.5 million (US$12.2 million) will be paid to bond holders as an early full repayment and final settlement of domestic bonds. The bonds that will be repaid ahead of schedule have maturity years ranging from between 2017 and 2031.  

Rini said by repaying this debt early, the Government will save around SBD $10 million (US$1.2 million) in interest payments.

“This is a significant milestone in the history of financial management in the Solomon Islands and is an indication of the sound fiscal management and prudent debt management that has been practiced since 2004,” Minister Rini said.  

Total Government borrowing as a percentage of GDP peaked in 2003 at 67%. Since then, much progress has been made on bringing debt down to a more sustainable level: the level of Government borrowing will be around 9% of GDP after this early domestic bond repayment is made.

The domestic bonds that will be repaid early came into effect between 2004 and 2006 and were established to repay to creditors around SBD$595 million (US$73.4 million) in domestic debt arrears that SIG had incurred leading up to 2006.  

Since the execution of the bonds, the Government has lived up to its commitment by not defaulting on any scheduled payments which means the Government will have no formal domestic debts owing after this early debt repayment is made on.

The Honiara Club Agreement, signed in 2005, was an enabling factor that promoted fiscal discipline and prudent debt management in Solomon Islands in the period between 2005 and 2012.  

The Honiara Club Agreement was replaced by the Solomon Islands Debt Management Framework in 2012. The Framework has its legal basis in the Public Financial Management Act (PFMA) 2013 and has been endorsed by Cabinet.  

The main objective of the Framework is to ensure that debt does not again reach an unsustainable and unaffordable level, whilst providing a governance framework that promotes the use of debt to fund much needed development in the Solomon Islands.  

New Government borrowing is only allowed in the Solomon Islands if it strictly complies with the Debt Management Framework.    

“This early repayment has come about because of the Government’s sound fiscal and prudent debt management,” Rini said.

With the signing of the Honiara Club Agreement, introduction of the Debt Management Framework and passing of the PFMA 2013, there has been a sharp reduction in the debt burden of the Solomon Islands.  

The Solomon Islands now has the lowest level of debt to GDP in the pacific.  

“This is a clear reflection of the government’s commitment in ensuring this country moves forward,” Rini said.

SOURCE: SIG