Prime Minister Manasseh Sogavare yesterday (Monday 4 May 2020) launched the Solomon Islands Economic Stimulus Package at the Heritage Park Hotel in Honiara.
Speaking at the ceremony, Prime Minister Sogavare said the Economic Stimulus Package is a demonstration of the Government’s Commitment to address the negative economic fallout of the pandemic.
He said the Government has decided to provide a first round Economic Stimulus Package of SBD $309 Million to ease the fallout of the pandemic, on businesses and the general population and to keep the economy afloat.
For details, read below the PM’s official speech delivered during the launching ceremony yesterday.
HON PRIME MINISTERS STATEMENT ON THE LAUNCHING OF THE ECONOMIC STIMULUS PACKAGE (COVID 19) AT THE HERITAGE HOTEL 4TH MAY 2020
Ministers of the Crown
Members of Parliament and Constitutional Post Holders
Excellences and members of our Development Partners, both Bilateral and Multilateral
CEO of our Business Communities and State Owned Enterprises
Permanent Secretaries and Senior Government Officials
Representative of the Media and Communication
Ladies and Gentleman,
Our People throughout the length and breadth of the country listening over the SIBC to this launch.
It is my pleasure to present to you the official Solomon Islands Government Economic Stimulus Package to address the Impact of COVID-19 Pandemic on our economy and society.
The Economic Stimulus Package is a demonstration of the Government’s Commitment to address the negative economic fallout of the pandemic. Before l outline the financial details of the Economic Stimulus Package, I must re-iterate the actions my Government has taken since the World Health Organization (WHO) has declared the corona virus a pandemic.
My Government have taken a phased approach in addressing the ramification of the pandemic:
First, there is the ongoing emergency response phase to the pandemic and this includes the several critical measures previously announced and those that we will announce in the coming days and weeks.
- Reprioritization of the budget to free up financial resources and beef up support to the health sector.
- Closing our national borders through the cancellation of International Flights
- Encouraging the Honiara residents to travel back to their villages in their respective provinces
- Declaring the emergency zone within the Honiara City from Alligator Creek in the East to Poha in the West.
- Declaration of the Western Border regions between Northwest Choiseul and Shorthand Island’s as an emergency zone.
- Closing of night clubs, pubs and Kava bars within the Honiara City
- Imposing curfew for Honiara residents over the Easter Weekend.
The second phase of our response is crucially important to dampen the negative impact of the Covid 19 pandemic on the economy – Economic Stimulus Package. The Covid 19 pandemic is unleashing havoc and generating a lot of uncertainty around the world, including Solomon Islands that requires the government to take a pragmatic and progress approach towards stabilizing the domestic economy while also safeguarding our population from the pandemic.
Preliminary predictions from CBSI and the Ministry of Finance indicate that Covid-19 is ‘likely to have considerable negative impact on the Solomon Islands economy’. The country is heading towards recession in the second half of 2020 with a significant decline in GDP growth is expected to decline further to [-4.9] percent in 2020 as a result of reduction in logging and fisheries exports; a contraction in tourism, as well as the negative impact of containment measures that include suspension of all international flights, entry restrictions of non-citizens and strict mandatory quarantine for all returning passengers
The forestry sector expects an 11% decline in log output, 9% fall in foreign exchange receipts and a 6% drop in government revenue from duties on logs. With nearly half of the Solomon Islands workforce thought to be directly or indirectly associated with the logging sector, the economic impacts will reverberate across all parts of the country.
The tourism sector is also being hit hard. The tourism operators in Honiara predict a 10% occupancy rate for April and the predictions for May and beyond are expected to be lower. This all points to a dire prospect for the national economy through business closures, loss of jobs, pressure on government revenues, and a serious contraction in aggregate demand.
In our efforts to dampen the impact of the pandemic, especially the immediate impacts, my Government has decided to provide a first round Economic Stimulus Package of SBD309 million or approximately USD$38 million, to ease the fallout of the pandemic on businesses and the general population and to keep the economy afloat.
Before I outline the detail of the Stimulus Package, let me highlight the two guiding principles of this package.
- This package is intended to address the immediate impacts of the crisis and is the highest priority. The further the country falls into an economic hole, the longer, harder and more painful the recovery will be. It is more sensible to prevent people losing their jobs now rather than trying to get them back into work once the pandemic has receded.
The fiscal response will require cash injections or other forms of assistance to support sectors, businesses and households directly affected by the crisis. This will be done through existing structures and mechanisms.
The underlying objective of the short-term package is to ensure as much money as possible flows into the economy as quickly as possible to improve cash flow for businesses and individuals. This will enable our domestic economy maintain economic activity, production, employment and spending, and hence stimulate aggregate demand in the economy.
- The second guiding principle of this package is building the capacity of the economy to quickly recover and grow over the short and medium term, by investing into the engine of growth which is the productive and resources sectors, support major players in the economy and inject resources into critical infrastructure that would support increased economic activity and create employment opportunities.
This component would focus on expanding household, businesses and government investment and spending into the economy in collaboration with development partners. The package do also have an equal urban/rural focus to ensure national social cohesion. This may also involve reorientation of some national development programs, such as working with development partners to bring forward infrastructure spending plans and accelerating medium-term economic diversification programs in agriculture, fisheries, forestry and tourism.
THE ECONOMIC STIMULUS PACKAGE
Ladies and Gentleman let me now introduce you to the structure of the Package.
There are four component of the stimulus package targeted at different areas of the economy. These key components of the Economic Stimulus Package are:
- The first component is called the Soft Measures: These are immediate actions aimed at ensuring the economy continues to function during the crisis. These actions include:
(a) Utility providers offered temporarily relief on the cost of utilities to households and business consumers to improve their cash flow.
– Under Solomon Power, our Utility Company will provide the following relief measures; Solomon Power will reduce electricity tariffs by 16% in May in addition to the 44 cents reduction already being implemented. The 16% reduction in the electricity tariff would ease the burden on household and businesses. Further reductions to the electricity tariff are also being considered in consultation with Solomon Power and the relevant line Ministries.
– Under the Solomon Islands Ports Authority, Domestic port charges have been removed for one month and will be extended to 2 months beginning April, 2020, and subject to monthly review. Storage period will be maintained and consideration will be given to local importers and exporters on case-by-case basis.
(b) Support by banks and financial institutions for customers through loan repayment holiday: The Solomon Islands financial system has surplus liquidity, despite emerging signs of rising non-performing loans. Some banks and financial institutions have already announced initiatives to provide relief for their customers on loan repayments.
The Central Bank has also indicated that they are working on an ‘export credit facility’ to assist exporters and have confirmed that they will support the Governments’ bond issue. This is to provide sufficient liquidity, if needed, in the financial system and the beginnings of what could become a secondary bond market in the country. This initiative is expected to cost around SBD120 million.
(c) Tax relief for affected businesses (Short-term economic stimulus):
The Government have agreed to assist taxpayers most affected by the pandemic. The substantive assistance will be to the tourism sector, where operators would be given a five-year tax holiday. Other tax measures proposed for the economy are;
- Remission of tax penalties and interests
- Extension of deadlines for lodgment of income tax returns due on March
- Tax payment relief on case-by-case basis
- Ease of other debt recovery measures
- Refund of tax credits
- Goods tax exemption on personal protective equipment.
- Provisional tax adjustments
- Enhance services and communication initiatives.
(d) Payment to public servants (Short-term economic stimulus): Government payroll to public officers will continue to be paid to ensure cash regularly flows into the economy. The Government had announced a 50% reduction in some public servants salaries, but with strong cash flow, public officers who are on special leave may be able to continue to draw their normal salaries.
(e) NPF relief on surcharges/penalties to employers and the injection of at least $200 million in the economy through member’s payout. This will drive domestic demand.
(f) Special rental relief package to affected SME’s within the emergency zone – Total grant of $5 million.
(g) Engagement of women, youths and students to monitor specific State of Emergency Regulations: Women, youths and students will be engaged to monitor price control regulations and other tax related information. The expected cost of this initiative is SBD5 million.
- Allocation of additional health grants to Provincial Health Authorities to ease the burden on rural health facilities. A grant of $10 Million.
- Under Telecommunication relief package, the Solomon Islands Solomon Submarine Cable Company Limited (SICSSL) is offering additional 50 percent bandwidth to the retail telecommunications operators during this period of crisis in the form of additional free bandwidth .This is in anticipation of increased government and retail usage through this trying period. The implementing committee will work closely with the retailers to ensure that users are benefited from these relief measures.
In addition to these supports under this measure, the government will also inject financial assistance to our Church Authorities to support their ecclesiastic services and to enhance their outreach and awareness of the virus to their congregational members. I want to reiterate again, that this country is still COVID-19 free because of God’s direct response to the payers and petitions of our people.
- The second component of the Package is called Immediate Recovery Measures 1: this measure focusses on the productive and resources sectors especially in investing in value-added products in the agriculture, forestry, fisheries and tourism sectors. The objective of this component of the package is to prevent loss of income and employment in the economy, and diversification of the export and economic base. These measures include:
- Supporting investment in value added or production of targeted agriculture products including noni, kava, cassava, taro, copra, coconut oil etc. A total of SBD$70 million is allocated towards this initiative. I wish to announce that included under this package the Government will introduce a special price or freight subsidies scheme for copra and cocoa for the next 3 to 6 months. This is to ensure that people returning to their villages are invigorated and engage in the production of copra and cocoa. On this regard, I call on all our coconut and cocoa plantation owners to start cleaning your plantation and produce more copra and cocoa.
(b) Supporting and promoting investment in value added or production of targeted products in forestry, fisheries and tourism sectors. The total of SBD44 million is allocated towards this initiative.
(c) Rolling out of Covid-19 lending product for Small to Medium Enterprises by Development Bank of SI. A total of SBD$10 million is allocated towards this initiative.
It is also worth noting that a formal framework towards the implementation of these measures is being finalized and will be submitted for Cabinet approval within the next fortnight. This is to ensure transparent and accountable disbursement of funds combined with effective monitoring to achieve the objective of the package.
- The third component called the Immediate Recovery Measures 2: This component of the package proposes equity injection into government owned or partly owned companies to enable them keep afloat and keep supporting the economy. Other privately owned large companies will also be assisted by way of export credit or other liquidity support through the banking system to maintain production and employment.
These enterprises are important players and taxpayers in the economy. This measure is a combination of direct grant and concessional finance and a total of SBD75 million is allocated towards this initiative. The breakdown of the proposed measure are:
- Solomon Airlines – $20 million (Grant and Concessional loan);
- Soltuna – $5 million;
- Support will also be provided to KFPL
- Solomon Water -$5 million (Grant)
- DBSI – $20 million;(Capital)
- CEMA -$2 Million (Grant). This is to ensure CEMA enhanced its marketing and quality certification capabilities.
I wish also to announce that an additional capital grant injection of $18 million into DBSI to provide specific concessional financial product to support large SMEs or companies. This product will be provided to borrowers at attractive concessional interest rate. DBSI is on track to be officially launched and opened by the end of this month (May 2020)
- The Fourth component is called the Medium-term support to stimulate growth: The medium term element of the package would focus on support to stimulate and build the capacity of the economy to develop and grow. Projects not funded under the NTP programs are included in this element of the package. The proposed infrastructure investment include:
- Infrastructure linking agriculture hubs in the provinces is allocated a total of $39 million
- Major bridges in the provinces is allocated a total SBD30 million; and
- Upgrade of domestic airports expected is allocated a further SBD21 million.
- The final component is called the Medium to Long-term measures bringing forward development partners and multilateral programs and investments. Bilateral and multilateral partners currently fund the majority of capital projects in the country. Government has commenced discussions with development partners on how their planned expenditure on infrastructure that would support economic activity and create employment opportunities can be fast-tracked and brought forward. The proposed measures under this component include:
- Use of labour intensive systems and programs especially in infrastructure projects;
- Sourcing of materials locally, where feasible, to reduce reliance on imports and ease pressures on the balance of payments; and
- Donor programs are to be frontloaded.
FINANCING THE STIMULUS PACKAGE
Ladies and Gentleman, this stimulus package would be funded by the Government’s own resources, raised domestically through the issue of Bonds and through concessional financing abroad. On this note, I wish to announce that on 1st May, 2020, the Government, through the Minister of Finance and Treasury signed the first COVID-19 Domestic Development Bond agreement of SBD$20 million with the Solomon Islands Ports Authority (SIPA). The Government is also expected to sign another COVID-19 Bond agreement with a potential buyer later this week.
The second stream of financing the Stimulus Package will be provided by our Bilateral and Multilateral Partners through direct budget support. On this regard, I wish to thank our partners for the valuable partnership with the Solomon Islands Government to help mitigate the economic fall out of the COVID-19 in Solomon Islands.
FORECASTED IMPACT OF THE STIMULUS PACKAGE ON SI ECONOMY
Before I conclude, let me explain that there have been a lot of analysis and modelling conducted by officials to ensure that the Stimulus Package meets its objectives. Consistent with the 2020 Budget Strategy, approximately 65 percent of the total package will be channeled towards the growth sectors for immediate economic recovery.
It is modelled that this allocation will contribute to productivity in these sectors. Furthermore, approximately 30 percent of the Package go towards the much-needed infrastructure for a stable growth trajectory in the medium term. This will help the economy to shift closer towards the potential growth and help close the output gap between the actual and potential GDP, which has been widened by the effects of the Pandemic.
Ladies and Gentleman, given the uncertainty about how long the pandemic will last, and the severity of its impact, this package is seen as an initial response to stimulate the economy. In order to accommodate the pessimistic scenarios, the Government will also assess other medium to long term investments in the productive and resource sectors as well as medium to long term investments in other key infrastructures.
Officials will closely monitor various scenarios, both domestically and abroad as the impact of the COVID-19 unfolds on our economy and people, and Government will be constantly informed.
Finally, my good people of Solomon Islands, It is critical that the benefits of the package reach the intended beneficiaries and that the desired outcomes of the program are realized. Therefore, the effective implementation of the stimulus package, especially coordinating the implementation phase in the short to medium term is critical.
It is proposed that an implementing committee lead by the Ministry of Finance and Treasury will be responsible for the coordination and oversight of the implementation phase of the stimulus package.
On the whole, it is the duty of my Government to ensure that enterprises and businesses that receive support under the package pass on the benefits to households and consumers. Potential areas for abuse of the support provided under the package will be identified early and addressed quickly to ensure the integrity and reputation of the program is maintained.
My sincere congratulation to everyone involved and who have worked hard to put the Stimulus Package together. However, the real/hard work starts now to implement the SP given the high public expectation on the rollout and implementation of the Economic Stimulus Package, which can be effectively achieved by standing united and working together.
Iumi Tugeda against COVID-19.
May God continue to Bless Solomon Islands from shore to shore!