SOLOMON ISLANDS BUDGET 2006
BUDGET STRATEGY AND OUTLOOK
CIRCULATED BY
THE HONOURABLE PETER BOYERS, MP,
MINISTER OF FINANCE
FOR THE INFORMATION OF HONORABLE MEMBERS
ON THE OCCASION OF THE BUDGET 2006


TABLE OF CONTENTS
1
2006 Budget Overview .......................................................................................1
1.1
Overview......................................................................................................1
1.2
Economic situation......................................................................................1
1.3
The 2006 Budget ..........................................................................................1
1.4
Revenue issues.............................................................................................2
1.5
New spending decisions ............................................................................2
1.6
Budget reform..............................................................................................4
2
Economic outlook ...............................................................................................5
2.1
Overview......................................................................................................5
2.2
The external sector ......................................................................................6
2.3
Balance of trade ...........................................................................................7
2.4
Exports..........................................................................................................8
2.5
Imports .........................................................................................................9
2.6
International reserves and the exchange rate .........................................9
2.7
Inflation ........................................................................................................9
2.8
The monetary sector .................................................................................10
2.9
The economy and revenue forecasts ......................................................11
2.10 Economic reform.......................................................................................12
3
Fiscal Outlook....................................................................................................17
3.1
Overview....................................................................................................17
3.2
Revenue and expenses .............................................................................17
3.3
Financial management priorities for 2006.............................................24
3.4
Debt management.....................................................................................26
3.5
Budget support..........................................................................................29
4
2006 Budget – New Spending Measures .......................................................36
4.1
2006 Budget Packages...............................................................................36


1 2006 Budget Overview
1.1 Overview
The 2006 Budget is fully funded from available resourcing, continuing and
building upon the Budget stabilisation of the past few years. Continued
steady economic growth, together with some compliance gains, has led to an
increase in Government revenue over and above that expected at the 2005
Budget.
In this Budget the Government has looked both to 2006 and beyond. The
Baseline Budget framework has been further developed — providing an
environment in which Ministries can implement programs and plan
expenditure. In this Budget, for the first time, the Government is publishing
Forward Estimates of revenue and expenditure to help people understand the
resources that might be available and the consequences of new decisions.
The challenge for Solomon Islands is to rebuild public sector capacity to
deliver Government services and rebuild the quality of spending.
This
Budget puts in place a series of strategic new spending initiatives designed to
support key public sector functions and services and rebuild public
infrastructure.
1.2 Economic situation
Steady, moderate growth was recorded in 2005, reflecting both underlying
trends and a continued rebound following the years of civil unrest. As in
2004, growth in 2005 was strongly influenced by donor inflows, rebound in
the agricultural sector and high rates of export of round logs. Growth in 2006
is expected to continue to reflect these trends, with forecasts pointing to a real
growth rate of up to 5 per cent. The reopening of significant projects such as
the Gold Ridge Mine and Guadalcanal Plains Oil Palm Plantation should
provide further impetus for the economy over the coming year.
1.3 The 2006 Budget
2006 Budget expenditure is fully financed by forecast domestic revenue
($688.1 million), the use of estimated accumulated cash reserves
($80.0 million) and New Zealand budget support provided to Education
($61.3 million). 2006 total estimated finance of $829.4 million is $56.8 million,
or 7.4 per cent higher than the total finance available in 2005. This takes into
account the latest revenue forecasts for 2005. Total domestically sourced
finance (excluding New Zealand Budget support) available for 2006 is $688
1

million — $88 million or 14.7 per cent higher than domestically sourced
finance in 2005.
The starting point for the 2006 Budget process was to derive a Baseline
Budget for each Ministry. The Baseline Budgets identified the cost of current
Government activities. They were based on the resourcing available to each
Ministry in 2005, less any one-off (discontinued) funding items, increased by
3 per cent. Once the cost of current activities had been established, the
Government could make strategic decisions about additional expenditure
within the funding envelope. After meeting the cost of Baseline Budgets there
is $159.5 million available for strategic additional expenditure.
1.4 Revenue issues
Domestic revenue continued to grow above expectations in 2005. The revised
estimate for 2005 domestic revenue is $599.8 million. This is $49.8 million, or
around 9 per cent, higher than the $550 million estimated in the 2005 Budget.
2006 growth in domestic revenue collections is expected to be around
14.6 per cent – broadly consistent with nominal growth in the economy. After
taking into account some isolated one-off payments received during 2005 and
factoring in large payments expected to be brought to account in the coming
year, 2006 domestic revenue is forecast to be around $688 million.
In contrast with the approach taken in the 2005, estimates of compliance gains
have not been factored into the 2006 forecast. The large compliance gains
experienced between 2003 and 2005 are unlikely to be repeated – particularly
as many of these comprised back-payments or taxpayers returning to the
system.
Inland revenue collections remain the single largest source of domestic
revenue. In 2006, inland revenue collections are expected to be $386.1 million
– around 56 per cent of the total domestic revenue. Customs and excise
collections are expected to be $227.5 million – around 33 per cent of domestic
revenue. The remaining $74.5 million – around 11 per cent – is collected by
various other Ministries, in the form of fees, fines and other payments.
1.5 New spending decisions
The Government has distributed additional funds of $159.5 million in 2006
over the Budget Baseline through nine packages of new spending which are
designed to benefit all Solomon Islanders.
2

The Government has allocated an additional $34.1 million to Increase Basic
Service Delivery in the health and education sectors. This funding will
significantly improve services at all levels of education and enhance essential
medical services.
The increased expenditure on services will be
complemented by an increased share of revenue being provided to the
provinces through the $6.8 million Support for the Provinces package.
The Government has committed an additional $45.7 million to improve public
infrastructure through the Maintaining Critical Infrastructure package. The
major component of this package is the establishment of a Strategic Capital
Investment Fund for which $44.8 million has been transferred to the
Development Budget. Resources from the Strategic Capital Investment Fund
will be primarily allocated to infrastructure projects which generate economic
growth including joint projects with donors, based on competitive investment
selection criteria. Funds will also be available for investment in both major
and minor capital works.
Detailed arrangements for administration of the Strategic Capital Investment
Fund will be developed by the Government in consultation with private and
public sector stakeholders within Solomon Islands. Details on the operation of
the Fund will then be announced at a later date. A major proportion of the
investment generated by the Strategic Capital Investment Fund is expected to
benefit the Provinces.
The Government has demonstrated its commitment to strengthening the
productive sector through the allocation of an additional $26.4 million in the
Revitalising the Productive Sector package. Funding will support the growth of
local commercial enterprises and trade and also includes $20 million to
further reduce trade creditor arrears.
The Government has also allocated $4.5 million to the Safeguarding our
Communities package to support the police and prison services and bolster the
justice sector.
An additional $21.7 million is being provided to Support the Public Sector. This
funding includes provision to meet increased utilities costs which could not
be absorbed by public sector agencies without significant impact on their
capacity to deliver services. Funding is also provided to implement an
information technology strategy which will lead to a more efficient public
sector.
The need to support key public sector accountability and governance
functions, particularly the national election, has also been recognised in this
3

Budget through the $16.6 million Strengthening Responsible Government
package.
To enhance revenue collection in Solomon Islands, an additional $1.5 million
has been allocated to support the Department of Finance and Treasury in its
Customs and Excise and Inland Revenue function. This measure is part of the
Building National Wealth package.
The Solomon Islands economy should also benefit from the international
promotion afforded by the $2.1 million allocated to the Promoting Solomon
Islands
package.
Details of all 2006 Budget measures can be found in Chapter 4: 2006 Budget –
New Spending Measures.
A list of 2006 additional strategic funding
allocations can be found in Table 4.1.
1.6 Budget reform
Budget reform commenced with the 2004 Budget process. These reforms look
to put in place a consultative and sustainable Budget framework. A key
feature of the new framework has been establishing a Baseline Budget for
each Ministry which allows the Government to make strategic decisions about
new spending.
The Baseline Budget framework has also assisted
Departments with financial planning, drawing an explicit link between
allocated resourcing and service delivery. This will improve accountability in
management of public funds.
In the 2006 Budget, the Government is building on these reforms with the
publication of the Forward Budget Estimates.
The Forward Budget Estimates are an important planning tool that assists the
Government to further develop a medium-term fiscal strategy for meeting
ongoing national policy objectives. Across Government, publication of the
Forward Budget Estimates will enhance the capacity of Ministries to
undertake better informed planning of expenditure and activities. Better
planning will deliver better services and policy advice.
However, it is important to note that while the Forward Budget Estimates
provide a good guide on the direction of the Government’s likely forward
year expenditure and Budget flexibility, the estimates should not be regarded
as guaranteeing that forecast funding will be available. Forward Budget
Estimates are by their nature dynamic and subject to change from year to year
in the light of experience and events. The Forward Budget Estimates will be
reviewed and revised as necessary in each future Budget.
4

2 Economic outlook
2.1 Overview
The economic performance of Solomon Islands for the first nine months of
2005 reported generally positive outcomes; however, associated risks are still
slanted to the downside. The forecast is for rates of real growth of up to 5 per
cent during 2006, with inflation remaining broadly at current levels.
Particular risk is posed by the global oil market. Developments in the oil
market throughout 2005 have underlined structural weaknesses in the
Solomon Islands economy. The global price rise experienced early in the
second quarter of 2005 had a considerable impact on the domestic economy,
through increased prices associated with transportation and utilities.
The high dependence on the forestry sector for rural incomes, government
revenues and foreign exchange indicates a major weakness in the economy.
While the return of law and order has given rise to improved government
finances and re-engagement of development partners, other impediments to
the business environment such as investment procedures, infrastructure and
utilities need to be improved and strengthened. In this regard, the reform
programs that started in late 2003 need to be vigorously implemented,
including by the new Government after the 2006 Elections. There is no room
for complacency.
Available data shows that after rebounding from recession from late 2002,
economic growth peaked in 2004 and began to ease in mid-2005. Performance
so far through 2005 indicates that the recovery remains broadly on track with
growth, reflecting both underlying growth and some continuing economic
rebound.
While this growth rate will take some time to deliver the levels of GDP
experienced in the late 1990s, the recovery is slowly regaining lost ground.
Assuming that the economy grows annually at the rate of 4.5 per cent, and
taking into account rapid population growth of around 2.8 per cent, it will be
around two decades before Solomon Islanders again enjoy the levels of
income experienced in the 1990s.
Successful implementation of the
Government’s reform program is therefore crucial to the future of the
Solomon Islands economy.
Production outcomes up to September were mixed (see Chart 2.1). Copra and
cocoa production increased, while fish and log production was lower than at
the same time last year. Despite this, other sectors appear to be performing
5

positively. In the urban centres in particular, there is evidence of a pick up in
retailing, construction, hotel accommodation and property rentals.
Economic performance throughout 2005 has been particularly driven by
increased private sector activities, continued donor support and stable law
and order. Stabilisation in government finances has complemented this
growth, which was made possible by improved financial compliance and
good budget discipline.
Assuming that the new government continues to implement the current
reform programs, it is expected that economic expansion will continue the
upward trend in 2006 as the improved law and order situation consolidates
and better management of government finances becomes more entrenched.
Reactivation of major projects is also expected to contribute to growth over
2006, including the Guadalcanal Plains Palm Oil Limited, which re-
commenced in 2005, and the Gold Ridge mine.
Chart 2.1: Production
(3 month moving average, quantity index)
Index (1994 = 100)
Index (1994 = 100)
130.0
130.0
120.0
120.0
110.0
110.0
100.0
100.0
90.0
90.0
80.0
80.0
70.0
70.0
60.0
60.0
50.0
50.0
40.0
40.0
1980
1985
1990
1995
2000
2005
Source: Central Bank of Solomon Islands
2.2 The external sector
Global economic performance remains broadly on track, although risks are
still pointing to the downside. However, the 4.3 per cent forecast for 2005
world growth remains unchanged. Consensus forecasts are for the world
economy to grow at 4.3 per cent during 2006. The average rate of growth
masks the distribution of expected growth rates in major economies – for
6

example, 1.7 per cent in Japan compared with expectations of 8.1 per cent in
China.
Growth in the United States continues to dominate the expected world
growth rate for 2006. China’s continuing high growth with liquidity
overhang again poses risks of overheating. Japan’s economy is regaining
momentum with GDP growth rising sharply in the first quarter of 2005 and
recent data pointing to continued expansion thereafter.
Global GDP growth picked up in the first quarter of 2005 following
temporary slowdown in mid 2004. This growth stemmed from robust services
sector output more than offsetting slowing global growth in manufacturing
and latterly, trade. In the second quarter, however, coupled with the impact
of high oil prices, signs of dampening re-emerged – in most major world
economies, major indicators are pointing downward and business confidence
weakened.
Leading into the fourth quarter of 2005, global manufacturing and trade are
now strengthening, with leading indicators picking up; however, downside
pressures include high oil prices and delivering productivity and indications
of price pressures.
Against this background, the balance of payments data up to September
indicated a $106.2 million surplus. This favourable outcome stems from
inflows from donors, export receipts and spending on house rentals, hotel
rooms and living expenses sourced from overseas funds. However, the
continuing increase of oil prices poses greater risk for the economy given that
it is narrowly based and susceptible to external shocks.
2.3 Balance of trade
High prices for oil imports (which also affected other imported components)
meant that the value of imports more than offset the increased value of
exports through 2005 (see Chart 2.2). Consequently, net merchandise exports
in 2005 have so far been negative – Solomon Islands has recorded a trade
deficit of $238.1 million.
Both imports and exports are continuing to grow throughout the remaining
part of the year. However, owing to the high oil price, import growth is
expected to increase faster than export growth. A deficit balance of trade is
expected for 2005.
7

Chart 2.2: Balance of Trade
$ mil ion
$ mil ion
1000.0
1000.0
800.0
800.0
600.0
600.0
400.0
400.0
200.0
200.0
0.0
0.0
-200.0
-200.0
-400.0
-400.0
1998
1999
2000
2001
2002
2003
2004
2005
Exports
Imports
Trade balance
Source: Central Bank of Solomon Islands
2.4 Exports
Performance in the export sector for the first nine months of 2005 was driven
largely by logs, cocoa, and other exports. Log exports, which accounted for
68 per cent of the total receipts rose by 3.2 per cent to $374.5 million compared
with the same period of last year. The increase was due to favourable prices in
the international market, triggered largely by strong demand in the Asian
markets. However, over dependence on log exports has serious implications
for foreign exchange earning and government revenue, particularly given the
expected fall in logging in the next three to five years. Broadening the export
base is very important in the medium term.
Other export receipts rose by 91 per cent to $59.3 million during the first nine
months. The Central Bank is asking the commercial banks to supply more
detail when reporting export proceeds for its Foreign Exchange Transactions
(FET) database so that the “other” receipts category can be properly identified
and allocated to the appropriate commodity.
Receipts from cocoa went up by 60 per cent to $53.0 million owing mainly to
increases in export volumes as well as favourable prices. Copra receipts on
the other hand, dropped by 35 per cent to $11.9 million during the first nine
months, stemming mainly from the unfavourable price in the international
market. This is despite increased production volumes.
Fish exports for the first nine months totalled $54.7 million compared to
$107.8 million in the same period of 2004. The significant drop is due mainly
8

to decline in fish catch due to the seasonal nature of fishing and the ageing
fishing fleet.
2.5 Imports
Over the first nine months of 2005, the value of imports was $791.6 million.
This is an 87 per cent increase over the same period of 2004. This mainly
reflects the impact of high oil prices – there has been a 94 per cent rise in the
value of oil imports over the first nine months of 2005 reflecting both
increasing costs and volumes of oil imports.
The value of imports of plant, vehicles and machineries, and building
construction materials rose by 84 per cent and 40 per cent respectively.
Strong growth in these imports reflects increased investment activities in the
country, which is made possible by the improved law and order situation.
Finally, food imports increased significantly by 70 per cent to $118.5 million.
2.6 International reserves and the exchange rate
Significant donor inflows, high export receipts and some investment inflows
over recent months increased gross international reserves to $705.1 million
(US$93 million) in late October. This level of reserves represents
approximately 6 months worth of imports of goods and non-factor services.
Given the high level of reserves, there was further relaxation in the exchange
controls for import payments.
The Solomon Islands dollar exchange rate has remained relatively stable
against the United States dollar since 2003. In September 2005, the local
currency depreciated by a margin of ½ per cent against the US dollar
compared to the same period last year. It lost ground in all other major
trading currencies with the exception of the Japanese yen which appreciated
slightly by 0.3 per cent. The local currency depreciated by 9.7 per cent against
the Australian dollar; 1.5 per cent against the pound sterling; 6.9 per cent
against the New Zealand dollar; and 1 per cent against the Euro.
2.7 Inflation
As of October 2005, inflation, based on a three month moving average, was
9.8 per cent, down slightly from the 10 per cent recorded in the previous
month (see Chart 2.3). This is significantly higher than the 7.1 per cent
recorded at the same time last year.
Inflation had been trending downwards through the early part of 2005 (with
5.8 per cent recorded in May). However, the high oil price triggered inflation
both directly (through the price of fuel) and indirectly (through higher
transportation and utility costs). Rental prices have also risen, attributed
9

largely to the combined effect of demand for accommodation from donor
agencies and supply shortages.
As the main driver of inflation, the second round effect of high fuel prices has
led the domestic component of the Honiara RPI to exert a significant influence
on the overall inflation rate. However, the imported component of the index
was relatively low, reflecting the relative stability in the exchange rate.
It is of increasing concern that unrestrained inflation would prejudice the
reform effort and have a negative effect on the Budget and inward
investment. Inflation is sensitive to exchange rate movements, the fuel price,
fiscal operation and monetary growth.
Chart 2.3: Honiara Retail Price Index
(per cent change – three months on the same period a year earlier)
Per cent
Per cent
30.0
30.0
25.0
25.0
20.0
20.0
15.0
15.0
10.0
10.0
5.0
5.0
0.0
0.0
Jun-03
Oct-03
Feb-04
Jun-04
Oct-04
Feb-05
Jun-05
Oct-05
Al Items
Imported
Domestic
Source: Central Bank of Solomon Islands
2.8 The monetary sector
Monetary developments in the first nine months saw broad money increase
by 24 per cent to $769.7 million. This outcome was triggered mainly by
favourable results in the balance of payments, which saw net foreign assets
rising from $575.9 million in 2004 to $716.4 million in September 2005.
Domestic credit rose by 3.6 per cent to $327.8 million in September (see
Chart 2.4). Increases in private sector lending more than offset the decline in
net credit to government as its deposits in the banking system continued to
grow. Private sector lending rose by 41.4 per cent to $337.5 million. The
commercial banks have reported increasing levels of loan approvals, and high
10

levels of undrawn credit and unutilized overdrafts. This excess liquidity is a
potential threat to price stability.
Liquidity showed a downward trend until around August. However, by
September liquidity had risen by 0.7 per cent to $262.3 million (and would
have been higher, had the government not maintained its deposits in the
banking system).
Solomon Islands interest rates have been historically high, reflecting cautious
lending policies among the commercial banks. This is mainly the result of the
fragile business environment. The indicative weighted average interest rates
on deposits and lending were 0.71 per cent and 14.39 per cent respectively in
September thus resulting in the interest rate margin of 13.68 per cent.
Chart 2.4: Domestic credit (three month moving average)
$ mil ions
$ mil ions
500
500
400
400
300
300
200
200
100
100
0
0
-100
-100
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
SIG
Private
Total
Source: Central Bank of Solomon Islands
2.9 The economy and revenue forecasts
The state of the economy is a key driver of Government revenue. Although
other factors, such as improved compliance have made a major contribution
to revenue collections over the last few years, there is a limit to the extent to
which this will continue. In the longer term, it is economic growth that
enables revenue collections to increase.
The 2006 revenue estimates are based on expectations of continued
improvement in the economy, building on the achievements of 2005.
Nominal economic growth is forecast to be around 13 per cent in 2006, made
up of inflation remaining broadly at around current levels economic growth
11

in the range forecast by the Asian Development Bank (ADB) and International
Monetary Fund (IMF). This is expected to flow through to revenue growth in
broadly similar proportions, particularly given the decline over 2005 in
exemptions for export duty on log timber exports.
A number of major projects are expected to come on stream during 2006 (see
section 2.10, below). Once these commence, economic growth could be higher
than expected. However, as a number of projects have been granted tax
concessions as part of their re-establishment, the flow-on to Government
revenue is likely to be limited.
2.10 Economic reform
Solomon Islands is recovering from the effects of conflict. Between 1998 and
2002 the economy contracted by about a quarter.
By the end of 2004 some progress had been made, but real Gross Domestic
Product (GDP) is still around 15 per cent smaller than it was in the mid-1990s.
When put in real GDP per capita terms this decline is even starker. In 1995,
real GDP per capita – that is, the share of all the output of the Solomon
Islands economy for each Solomon Islander – was around $6,200 (in 2005
values). By 2002, that had fallen by one third to around $4,160. By last year,
real GDP per capita had increased to around $4,390. While encouraging, this
is still around 30 per cent below the 1995 peak.
Overall GDP remains well below pre-conflict levels and Solomon Islanders’
incomes significantly lag comparable Pacific economies.
Further economic recovery should occur over 2006 as a number of major
businesses closed during the tensions come back on line. Reactivation
facilitated by Government include the Guadalcanal Plains Palm Oil
Plantation, the Gold Ridge Mine and the Pacific Timbers Mill. The first two
industries together previously accounted for around 45 per cent of GDP.
Increasing growth is not, however, guaranteed. The current recovery faces
challenges including aid dependence and the imminent decline of Solomon
Islands’ timber industries, which have long been subject to unsustainable
harvesting. Even with increasing plantation forestry, there is expected to be a
significant decline in income from logging.
Low, or lower than potential, growth means the Solomon Islands economy
will continue to lag behind comparable Pacific economies. This will continue
to prevent Solomon Islanders from affording better health care, better
education and a higher standard of living. Unless growth rates improve the
12

government will be unable to provide the services that Solomon Islanders
demand. The current high population growth further stretches incomes and
the provision of services. The status quo is neither desirable nor sustainable.
Economic reform – progress in 2005
To encourage growth, the government is undertaking a range of economic
reforms. The Government’s reform action list is shown at Table 2.1. Reforms
to date include new foreign investment legislation that will considerably ease
restrictions on foreign investors. This in turn will help attract much needed
capital investment and is part of a strategy to improve business conditions in
Solomon Islands.
Agreement has also been struck to introduce management contracts in the
power and water utilities. These contracts will assist local managers produce
the reliable water and power services that are essential for large scale
economic activity and provide a basis for improved water and electricity
supply to provincial areas.
In aviation, the Government has signed the Pacific Islands Air Services
Agreement and the Pacific Islands Civil Aviation Safety and Security Treaty
as well as appointing a new Comptroller of Civil Aviation. On marine
transportation, the government has removed customs duties on the
importation of ships and marine equipment, reducing the tax burden on
many of these items from a prohibitive 43 percent to under 20 per cent.
While important, these reforms will not improve Solomon Islanders’ living
standards if barriers to investment or administrative bottlenecks persist in
other sectors. As a result, the Government’s reform agenda is focused on
three broad areas — supporting private sector growth; improving
government services; and increasing economic opportunities for Provincial
areas.
Improving the business environment
A number of new regulatory reforms are being pursued to create an
environment in which private business can flourish. These include:

Reform of taxation. This will simplify tax legislation, replace damaging
taxes and broaden the tax base by removing tax incentives and
exemptions;

Reducing administrative barriers to business and reforming business
law. This includes the review of the labour and immigration acts and
business regulation to make it easier to start and operate businesses; and
13


Improving access to capital. This will be achieved by removing
impediments to expansion of financial services throughout Solomon
Islands and also by improving applicants’ financial literacy, and hence
the ability of Solomon Islanders to access capital and financial services
more generally.
Improved State Owned Enterprise performance
The Solomon Islands Government controls a significant stake of the national
economy through State Owned Enterprises. It is important that this sector
operates efficiently. The Solomon Islands SOE sector is very large, and it
operates in key industries like water and power. To encourage and support
private sector led economic growth the Government is taking steps to
improve SOE performance. This includes examining the continued need for
Government ownership of smaller SOEs.
The overall SOE framework is also being examined to clarify SOEs objectives,
legislation and to strengthen SOE incentives to perform as commercial
enterprises.
Opportunities for Provincial economic growth
A measure of success of economic reform will be the extent to which the
benefits are enjoyed across the entire nation, including rural areas. Specific
reform programs targeting infrastructure to spread the benefits are therefore
underway.
Infrastructure remains vital to the economic expansion
throughout
Solomon
Islands.
Without
effective
shipping,
telecommunications and aviation, Solomon Islanders will not be able to share
in the country’s economic growth. The focus of infrastructure reform is:

Shipping reform, which seeks to remove undue barriers to operators
plying all economic routes. This in turn will allow all regions to benefit
from regular and reliable transport services;

Telecommunications reform, in which the Government is examining
options to improve the quality of existing services and to extend services
to rural areas; and

Aviation reform, in which the Government is examining options to
increase the reliability of domestic and international services, a key
requirement for encouraging tourism.
In addition to the above reforms the Government is working with donor
partners to progress a number of reforms. This will lead to improvements
14

with economic benefits in the areas of rural roads, land reform, agriculture,
health and education among others.
Table 2.1: Solomon Islands Government reform action list
Reform
Progress to date/ Completion Date
Achieving Macroeconomic Stability
Return Budget to surplus
Completed
Introduce forward budgeting
2006 budget (November 2005)
Introduce a medium term fiscal strategy
To be completed 2006
Synchronise Recurrent and Development Budgets
To be completed 2006
Strengthen performance budgeting and expenditure
controls
Ongoing
Comprehensive tax reform
To be completed 2007/2008
Sustainable Debt
Comprehensive debt management plan
Completed
Restructure domestic debt
Majority Completed (including debts to commercial
banks and NPF)
Arrears payments to domestic trade creditors
Over 90 per cent have been paid in ful
Negotiate sustainable terms on remaining domestic
and international debts
Ongoing
No new borrowings or government guarantees until it is
sustainable for it to do so
Ongoing
Pay down of debts in accordance with debt
restructuring agreements
Ongoing
Pursue grant financing and other ODA for its
financing requirements
Ongoing
Improving SOE performance
Reform Governance of SOEs
To be completed 2007
Update financial accounts for SOEs
To be completed mid 2006
Sol Air - improving air services
To be completed mid 2006
Management Contract for SIEA/SIWA
Implemented early 2006
Sel SI Printers and Sasape Marina
To be completed mid 2006
15

Table 2.2: Solomon Islands Government reform action list (continued)
Reform
Progress to date/ Completion Date
Improving Infrastructure
Pacific Islands Air Services Agreement (PIASA) and Pacific
Islands Civil Aviation Safety and Security Treaty
Ratification by end 2005
Pass legislation to bring treaties into ful effect
To be completed mid 2006
Removed customs duties on the importation of ships and
marine equipment
Completed
Removing a range of barriers to efficient shipping
To be completed mid 2006
Review of the telecommunications monopoly
To be completed 2006
Improving land title management and survey database
Streamlining Business Regulation
New foreign investment bil
To be passed November 2005
Business Administration Reforms
To be completed mid 2006
Comprehensive tax reform
To be completed 2007/2008
PAYE legislation amendments
To be passed November 2005
Tax administration modernization
Underway. To be completed by end 2006
Improve Administration of Tax Exemptions Committee
To be introduced by end 2005
Customs legislation and administration modernisation
Increasing Access to Financial Services
Reform credit unions legislation and governance
To be completed 2006
Reform NPF legislation
To be completed 2006
Public sector reform
Improve recruitment
Recruitment Task Force established March 2005
– ongoing.
Implement new Cabinet processes
Ongoing
Financial Management Improvement Strategy
Approved by Cabinet in October 2005; to be
(including: SIGAS; update Financial instructions;
completed end 2006)
amend key legislation)
Public Service Improvement Strategy (including
Ongoing; IPAM operational
implementation of IPAM)
Strengthening accountability institutions (Leadership
Underway
Code Commission, Ombudsman's Office, Auditor
General's Office)
Electoral Reforms
Preparation for 2006 Election
Improve public service asset management
Public housing survey completed
Establish service wide IT platform
To be completed by end 2006
16

3 Fiscal Outlook
3.1 Overview
The 2006 Budget is forecast to be fully financed without borrowing.
The 2006 Budget puts in place a series of strategic new spending initiatives
designed to continue support for key public sector functions and services and
to rebuild public infrastructure. Measures introduced in the 2006 Budget will
improve service delivery for the people of Solomon Islands. Extra funding
has been provided specifically for the Provinces. Funding for the important
basic services of Education and Health will increase substantially. A range of
measures will assist in revitalizing the private sector, including promoting
trade and investment and promoting Solomon Islands overseas.
Together, the approach of funding the Budget from existing resources and
implementing a sustainable Budget process, mean that the 2006 Budget
continues the nation’s progress along the long path to fiscal sustainability.
3.2 Revenue and expenses
The 2006 Budget will be fully financed, with expenditure being met from
within the available finance (see Table 3.1). Maintaining at least a fully
financed budget is part of the commitment the Government made with its
creditors in the Honiara Club debt negotiations.
The total funding available for 2006 is estimated to be $829.4 million,
comprising forecast domestic revenue of $688.1 million, estimated
accumulated cash reserves of $80.0 million and New Zealand budget support
provided to Education of $61.3 million. Funding for additional strategic
spending above Ministry Budget Baseline allocations in this Budget amounts
to $159.5 million.
Should budgeted expenditure going forward exceed the available revenue
estimate the Solomon Islands would risk running a Budget shortfall. With
insufficient cash reserves to cover it, this deficit would return the Government
to a position where it would have insufficient cash to pay its bills. This would
destroy growing donor, business and public confidence in the improved fiscal
management of Solomon Islands. Such an undesirable outcome would result
in failing economic conditions and shrinking Budget allocations into the
future, rather than the moderate but sustainable growth that will accompany
fiscally responsible Budgeting.
17

In 2006 the Government has avoided the above situation by balancing
expenditure with available revenue while delivering a series of targeted new
spending proposals designed to benefit all Solomon Islanders.
Table 3.1 depicts the expected revenue and expenditure picture for 2006.
Table 3.1: Summary of revenue and expenditure
Actual
Estimates
2004
2005
2006
C hange
$m
$m
$m
%
Revenue
Inland revenue
299.1
341.1
386.1
13.2
C ustoms and excise
172.7
200.9
227.5
13.2
Other ministries
44.0
57.8
74.5
29.0
Domestically sourced revenue
515.8
599.8
688.1
14.7
Budget support (a)
0.0
40.0
61.3
53.2
Total revenue
515.8
639.8
749.4
17.1
Expenditure
Payroll charges
171.3
228.4
225.0
-1.5
Other charges
232.7
369.4
457.9
24.0
Debt service charges
49.6
78.0
101.7
30.4
Funds transferred to development
0.0
15.0
44.8
Total expenditure
453.6
690.8
829.4
20.1
Finance available from accumulated
cash reserves
80.0
80.0
0.0
Anticipated underspends
0.0
51.0
0.0
Total available finance
515.8
770.8
829.4
7.6
Accumulated cash surplus/deficit
62.2
80.0
0.0
-100.0
(a) The 2004 Budget included Solomon Islands Government funds only.
Revenue
Consistent with the last two years, in 2005 the Government has experienced
strong revenue growth.
In 2005, domestic sourced revenue is estimated to be $599.8 million. This
estimate takes into account trends observed in the year to date, as well as
expectations for the remainder of the year. Total domestic source revenue in
the first eight months of 2005 was $505 million, around 10 per cent higher
than the expected year to date result. Stronger than expected collections in
the year to date have been seen in personal tax (around 45 per cent higher
than expected) and export duties on log timber (around 40 per cent higher
than expected).
In addition to strong performance in a number of heads of revenue,
collections can be expected to be higher in the second half of the year. This
18

reflects, among other things, balancing company tax payments as well as
higher collections of consumption taxes through the Christmas period.
The revised 2005 revenue estimate is $84 million, or 16.3 per cent higher than
the result recorded in 2004 and $49.8 million, or around 9 per cent, higher
than the estimate contained in the 2005 Budget.
Domestic revenue for 2006 is estimated to be $688.1 million. This represents
an increase of 14.7 per cent over the revised 2005 estimate of $599.8 million.
For 2006, it has been decided to base revenue forecasts on expectations of
nominal economic growth but with some additional allowance due to large
increases in air navigation fees revenue being brought to account in 2006. The
best currently available estimate of 2006 nominal growth is around
13 per cent, with inflation remaining broadly at current levels and the
consensus real growth forecast of around 5 per cent.
The 2006 revenue forecast also reflects the assumption that the large
compliance gains that characterised revenue collections between 2003 and
2005 are unlikely to be repeated. Compliance driven gains in these years
reflected large back-payments as well as taxpayers returning to the system.
The revenue base is now thought to have stabilised.
Sources of domestic revenue
The Solomon Islands Government has three principal sources of domestic
revenue: inland revenue; customs and excise and other Ministries (ad hoc)
revenues.
Inland revenue continues to be the largest source of domestic revenue,
representing around 56 per cent of collections in 2006. Customs and excise
collections will make up around 33 per cent, with the remainder – around
11 per cent – being collected by various other ministries.
2006 forecast revenue by source is shown in Chart 3.1. This shows that
domestic revenue is expected to continue to increase across all collections. In
2006, New Zealand will also provide an increased level of Budget support for
education of $61.3 million.
19

Chart 3.1: Revenue by source, 2001 - 2006
$ mil ion
$ mil ion
450
450
400
400
Estimates
Projections
350
350
300
300
250
250
200
200
150
150
100
100
50
50
0
0
2001
2002
2003
2004
2005
2006
Inland revenue
Customs & excise
Other Ministries
Budget support
Inland revenue
Inland revenue comprises personal taxes, company taxes, withholding tax,
goods tax, sales tax, stamp duty and licence fees. Table 3.2 shows the
breakdown of inland revenue by tax type.
Revised forecast collections for 2005 are expected to be $341.1 million –
$34.2 million, or 11.1 per cent higher than forecast in the 2005 Budget. This is
mainly the result of stronger personal tax collections which are expected to be
$27.5 million, or 45 per cent higher than forecast in the 2005 Budget.
In 2006, inland revenue is forecast to increase in line with nominal economic
growth – that is, by around 13 per cent.
Table 3.2: Inland Revenue by tax type
Actual
Estimates
Revised
2004
2005 Budget
2005 Budget
2006
$m
$m
$m
Company Tax
61.5
57.0
55.1
62.3
Personal Tax
60.7
61.1
88.6
100.2
Withholding tax
26.2
21.5
24.4
27.6
Goods Tax
126.4
141.5
143.2
162.2
Sales Tax
16.9
18.4
20.6
23.3
Stamp Duties
4.3
4.1
5.2
5.9
Vehicle/Driving Licences
3.2
3.4
4.0
4.5
Total
299.1
306.9
341.1
386.1
Per cent change
49.6
2.6
11.1
13.2
20

Customs and excise
Customs and excise collections arise as a consequence of border controls on
exports from and imports to Solomon Islands and taxation (excise) on the
production of beer and tobacco. Sources of revenue include import duty,
export duty, license fees, acceptance fees, excise duties and levies. Table 3.3
shows the breakdown of these revenues by type.
Table 3.3: Customs and excise revenue by type
Actual
Estimates
Revised
2004
2005 Budget
2005 Budget
2006
$m
$m
$m
Import duty
82.4
97.2
80.4
90.9
Export duty
Timber
64.5
57.3
80.4
91.2
Fish
2.4
3.0
1.1
1.2
Minerals
0.3
0.4
0.4
0.4
Shel s
0.3
0.4
0.6
0.7
Other
0.1
0.1
0.1
0.1
Excise
Beer
13.4
15.0
16.3
18.4
Tobacco
7.3
4.6
20.9
23.7
Fees and charges
2.0
0.5
0.9
1.0
Total
172.7
178.5
200.9
227.5
Per cent change
23.4
3.4
12.6
13.2
Revised collections for 2005 are expected to be $200.9 million - $22.4 million,
or 12.6 per cent higher than forecast at the 2005 Budget.
The revised forecast for customs and excise collections is driven mainly by
collections of export duty on timber, which was $23.1 million, or 40.3 per cent
higher than expected at the 2005 Budget. This strong performance mainly
reflects both the decision by the Minister of Finance to suspend exemptions
for log timber export duty and a decline in the stock of extant exemption
through the year.
However, strong performance in timber export duties is partly offset by lower
than expected results in import duty. The 2005 Budget forecast has been
revised down by $16.8 million, or 17.3 per cent. This is mainly the result of
reduced collections of duty on imported tobacco products, reflecting the
switch to local production during 2005. The decrease in import duties on
tobacco products is itself partly offset by increased collections of excise on the
local product.
21

Customs and excise revenue for 2006 is expected to be $227.5 million, 13.2 per
cent higher than the revised forecast for 2005. This reflects both the
assumption that most customs and excise revenues will increase in line with
nominal economic growth and the effect of the cessation of exemptions from
timber export duties and the reduction in the stock of extant exemptions as
they are used by exporters.
Other Ministries
Most Ministries collect some revenue for the Government. This revenue
comprises non-tax items such as fees and charges arising from the normal
course of operations. 2006 revenue from other Ministries is forecast to be
$74.5 million – 11 per cent of total collections. Revenue collections under this
category have increased significantly, principally due to increased revenue
from air navigation fees collected by the Ministry of Infrastructure
Development.
Distribution of revenue
Table 3.4 shows that the largest collections of revenue are seen in the Ministry
of Finance - reflecting that Ministry’s inland revenue and customs and excise
functions.
Table 3.4: Revenue collections by Ministry
Actual
Estimates
Revised
2004
2005 Budget
2005 Budget
2006
$m
$m
$m
Agriculture & Lands
3.8
2.9
5.1
5.7
Auditor General
0.0
0.0
0.0
0.0
Education & Human Resource Development (a)
0.9
41.1
41.4
62.9
Finance & National Reform and Planning
472.8
486.5
542.2
613.7
Foreign Affairs, Commerce & Tourism
4.3
4.2
4.7
5.3
Governor General
0.0
0.0
0.0
0.0
Health & Medical Services
0.0
0.0
0.0
0.0
Infrastructure Development
3.6
8.3
10.8
20.2
National Debt Servicing
1.3
1.1
0.0
0.0
National Parliament
0.0
0.0
0.0
0.0
Natural Resources
27.4
43.3
33.5
39.1
Prime Minister & Cabinet
0.0
0.8
0.1
0.1
Pensions & Gratuities
0.0
0.0
0.0
0.0
Police, National Security & Justice
0.5
0.4
0.9
1.0
Provincial Government, National
Reconciliation & Peace & Home Affairs
1.3
1.4
1.1
1.3
Total
515.8
588.5
639.8
749.4
Per cent change
36.6
14.1
8.7
17.1
(a) Includes New Zealand Budget Support.
Table 3.4 shows that the Ministries of Natural Resources and of Infrastructure
Development have the largest domestic source revenue collections after the
22

Ministry of Finance. In the Ministry of Natural Resources, these collections
are mainly from fisheries licence fees and fish export permits, with a smaller
amount collected from royalties on plantation timber. Collections in the
Ministry of Infrastructure are mainly from air navigation fees, Telekom traffic
fees and radio license fees.
Higher growth is expected in non-tax revenues than the rate of nominal
economic growth. This mainly reflects the inclusion of a large one-off
increase in air navigation fees being brought to account in 2006.
Expenditure
The 2006 Budget continues the large increases in expenditure financed in 2004
and 2005. The increase in expenditure in 2006 is largely due to the
corresponding increase in domestically sourced finance available to
Government and increased New Zealand Budget support.
After excluding one-off payments in 2005, most Ministries will benefit from
increased ongoing funding in 2006 with significant proportional increases to
key education, health and infrastructure sectors (Chart 3.2 refers).
The 2006 Budget provides another rise in funding available to Departments
and an increased focus on planning and management will be required to
ensure that funding is effectively spent.
Chart 3.2: Expected expenditure by Ministry, 2005 and 2006(a)
$ mil ion
$ mil ion
250
250
200
200
150
150
100
100
50
50
0
l
s
t
r
e
r
a
l
b
t
n
t
e
t
0
t
i
o
n
c
e
e
r
a
a
l
t
h
n
s
e
n
t
u
r
e
e
e
r
c
e
i
o
l
i
c
e
o
d
g
u
l
t
u
n
e
a
n
e
D
e
c
a
i
n
f
f
a
i
r
s
i
n
i
s
t
e
r
u
A
e
n
H
o
u
n
s
P
r
n
m
B
r
i
c
G
d
u
F
G
r
l
i
a
m
M
e
g
E
r
s
t
r
u
c
a
e
s
e
P
v
e
n
t
A
P
o
e
d
i
t
o
r
r
e
i
g
n
r
n
o
r
i
m
l
G
m
u
o
I
n
f
r
a
r
a
l
R
P
A
F
v
e
i
a
o
t
u
e
l
o
p
G
a
N
v
i
n
c
e
v
2005
2006
r
o
D
P
(a) Funding for Education includes New Zealand Budget support for education of
$40 million in 2005 and $61.3 million 2006.
23

3.3 Financial management priorities for 2006
Priority financial management areas for 2006 include: maintaining and
increasing public and donor confidence in the Solomon Islands Government
Budget; continuing Budget control and monitoring; increasing Government
revenue; continuing expenditure control; the pursuit of value for money in
order to enhance service delivery to the community; and a closer linking of
departmental strategic objectives with outlays.
Maintaining public and donor confidence in the Solomon Islands Budget
The Solomon Islands Government has sought to further improve public and
donor confidence in its financial management through the delivery of a
credible and fully financed Budget without borrowing. Formal debt servicing
remains at around 15 per cent of domestic revenue. The Budget continues the
path to reform with the publication of the Forward Budget Estimates.
Continued Budget control and monitoring
As in 2005 funding for Ministries in 2006 will be allocated on a half yearly
basis to assist in maintaining fiscal discipline while providing Ministries with
sufficient flexibility to plan their expenditure. Previously allocations were
made quarterly. It is expected that reduced administrative burden on
Ministries through this measure will allow more time for them to focus on
internal financial management issues.
Fiscal discipline on a whole of government basis will be ensured through a
continuation of both published monthly reports and quarterly budget
reviews. Ministries that exhibit unusual expenditure profiles in any month
will, as necessary, be assisted in their financial management by the Ministry
of Finance to ensure that they can live within their annual budget.
Increasing Government revenue
The focus on improved taxation compliance in 2004 and 2005 greatly
increased revenue collections in the areas of Inland Revenue and Customs.
This focus of attention will be maintained and strengthened in 2006 including
with additional funding support for Customs and Inland Revenue.
Continuing steps that could lead to further increases in the revenue base
include:

Controls to ensure that the appropriate amount of revenue is collected in
accordance with legislation and reaches the Official Revenue Account;

Auditing the practices of Ministries collecting revenue to ensure
transparent and accountable practices are adhered to;
24


Reviewing and revoking inappropriate tax exemptions, and limiting the
number of exemptions granted in future; and

Closely examining the taxation system with a view to implementing
reforms that will streamline the existing tax system, reduce exemptions
and broaden the tax base.
Continuing expenditure control and pursuit of value for money
The 2006 Budget is consistent with the Government’s commitment to live
within its means. To ensure that the Budget remains affordable and
sustainable, expenditure will need to be closely monitored and controlled
throughout 2006. Financial analysis and the continuation of the publication of
monthly reports by the Ministry of Finance of Departments’ monthly
expenditures should assist in keeping spending under control.
Linking departmental strategic objectives with outlays
The use of Baseline Budgets to link departmental objectives, priorities and
outputs to budget line item expenditures represents the start of a broader
focus on corporate and strategic planning as part of wider improvement in
measures designed to improve the operation of government.
Debt management and Budget funding
The Government’s total level of debt is estimated to be around $2.2 billion at
the end of 2005. This is composed of around $1.7 billion in official public
sector debt and around $500 million in other debts, which include informal
debt obligations, and contingent liabilities and guarantees. The Government
has continued to make progress in regularising its debts and has restructured
and resolved a number of its debts this year. In a world first the Government
also initiated its own multi-lateral debt meeting with its external creditors,
dubbed the ‘Honiara Club’, which resulted in the provision of some debt
relief to the Solomon Islands.
Owing to the substantial level of Government debt, the Government plans to
continue to run balanced budgets or cash surpluses going forward. As a
consequence, the Government will not be seeking to borrow any funds to
finance the recurrent Budget.
In its recent discussion with international creditors, the Government
committed to maintain fully funded recurrent budgets, undertake no further
borrowing, not issue sovereign guarantees, and to use debt servicing funds
only to service debt. This was a major commitment to rebuild financial
credibility.
25

The 2006 Budget allocates 17.7 per cent of domestic sourced revenue
($121.7 million) to debt servicing. In 2006, $101.7 million of this is for official
public sector debt servicing and $20 million for informal arrears. While these
amounts are substantially higher than the domestic funds available for debt
servicing in 2005, they are not sufficient to cover the Government’s current
debt servicing requirements (including payments of arrears) in 2006.
From the funds available for official public sector debt servicing in 2006, the
Government expects to service its restructured debts and a number of its
external loans. With respect to funds available for informal arrears payments
($20 million) these are significantly lower than the $34.3 million allocated in
2005. However, it is expected that these funds will be sufficient to make some
further part payment on these debt obligations.
3.4 Debt management
Over the year the Government installed the new CS-DRMS 2000+
(Commonwealth Secretariat Debt Recording and Management System) within
the Central Bank and the Debt Management Unit in the Ministry of Finance.
The new system provides data redundancy and also allows debt management
analysis and operations to be performed more efficiently.
In 2006 the Government will continue to focus on implementing the
comprehensive debt management plan including: the continued regularising
and restructuring of debt obligations; the construction of relevant operational
and other debt policies and procedures; the improvement of debt
management activities; and improving local debt management capacity.
Official public sector debt
During 2005, the nominal level of official public sector debt has continued to
fall and is expected to be $1.7 billion by the end of 2005 (see Chart 3.3). The
fall reflects the servicing of restructured and other debt obligations by the
Government over the year.
In 2006 the level of public sector official debt and arrears is set to fall in line
with the outcomes of debt restructuring that the Government is currently
finalising.
26

Chart 3.3: Official Public Sector Debt 1998 – 2006(a)
$ mil ions
$ mil ions
1,800
1,800
1,500
1,500
Projections
1,200
1,200
900
900
Total official public sector debts
600
600
300
300
Total official public sector arrears
0
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
(a) Further depreciation of the SBD exchange rate against the loan currencies will have the
affect of increasing the total stock of formal debt outstanding.
Source: Central Bank of Solomon Islands and Ministry of Finance.
Building on its success with the restructuring of its commercial bank debt in
July 2004, the Government successfully restructured its employee
contribution arrears and its outstanding bonds (totalling around $75 million)
to the National Provident Fund (NPF) in December 2004. Similar to the
commercial bank debt restructuring, the new NPF bonds have an average
interest rate of 2.25 per cent, a 7 year grace period applying to half the
principal and a 15 year term on the longest bond.
One of the major outcomes for 2005 was the conduct of the Honiara Club
meeting. The meeting provided the basis for the Government to negotiate
with its external creditors concerning the provision of some debt relief on its
external debts. Discussions took into account the IMF’s 2005 Article IV report
and Debt Sustainability Analysis where the IMF note that the Solomon
Islands is at high risk of debt distress. The meeting was chaired by a
representative from the New Zealand Government.
As a result of the meeting the Government has undertakings from all
creditors attending the meeting to do a range of things that will lower the
Solomon Island’s debt burden. At the same time, it has given undertakings to
the creditors that it will observe good budget practices and proceed with
implementing reforms to the economy and improving government services.
27

Creditors also agreed to consider providing some immediate debt relief
through a moratorium on debt repayments for two years. Over this period it
is expected that some further debt relief could be settled upon.
In 2006 the Government will continue to follow up Honiara Club outcomes
with its external creditors in bi-lateral meetings. Another Honiara Club
meeting may be held in 2006 to progress discussions about debt relief with
external creditors.
Recently, the Government has agreed an in-principle settlement with one of
its major external creditors that provides significant debt relief (over 75 per
cent of the debt forgiven).
The Government is also currently in discussions with the Central Bank of the
Solomon Islands to restructure its debt of around $200 million. It is expected
that this long outstanding matter will be resolved before the end of the year.
With the expected signing of this agreement the Government will have fully
regularised all its official domestic obligations and cleared all its domestic
official arrears.
Informal debt
The 2005 Budget allocated $34.3 million for the continued part payment of its
informal arrears obligations. These included the Government’s trade creditor
arrears holders and deductions taken from public sector employees’ pay
packets that were never forwarded to various organisations.
The
Government arranged two rounds of payments, with a maximum of $17,000
and $19,000 being paid for each claim respectively. It is planned to have a
third round of payments before the end of the year. The process of verifying
claims is ongoing as the Department of Finance and Treasury continuously
receives claims from originating Ministries on an ad hoc basis. After the first
two rounds of payments, 337 claims had been paid in full during 2005 and
over 92 per cent of the Government’s original trade creditor arrears holders
had been paid off in full.
In dealing with these trade creditor arrears, the Government has sought
individual settlement agreements with large trade creditors. Of the seven
deemed large trade creditors, four have agreed in principle to a repayment
schedule or securitisation of their debt. The Government is in negotiations
with the remaining three large trade creditors.
In addition to the payments made to trade creditor arrears holders, the
Government’s unpaid public service pay deductions were paid in full and are
now up to date. Furthermore, unpaid NPF pay deductions have also been
paid in full. The Government has continued to meet its payroll,
28

superannuation contribution and trade creditor forward commitments as and
when they have fallen due.
Informal arrears obligations
In the 2006 Budget, the Government has allocated $20 million for the
continued part payment of its trade creditor arrears claims. The Government
has also stated that if the Budget position is better than expected, then further
finance for the payment of arrears will continue to be a very high priority.
The Government still has significant domestic trade creditor arrears (in excess
of $75 million) and as a consequence, the Budget allocation of funds only
allows for some additional part payments.
Contingent liabilities and guarantees
The current level of the Government’s contingent liabilities and guarantees is
estimated to be over $350 million. In 2005 a number of additional contingent
liabilities were identified. Namely, the Solomon Islands Electricity Authority
(SIEA) was found to carry substantial debts to the Government (in excess of
$180 million), with no way of servicing these debts and continuing its
operations. In 2006, the Government is likely to assume liabilities that were
previously transferred to the Investment Corporation of the Solomon Islands
(the Government’s shareholding body in Government owned enterprises).
The Government has been working with the NPF (the holder of a number of
Government loan guarantees) to ensure that its guarantees are managed
appropriately. At present, the Government is working with NPF in resolving
guarantees given in respect of loans to SIEA. It is hoped that this matter will
be resolved before the end of the year or at the latest early in the new year. In
2006, the Government expects to continue to work with NPF in resolving a
number of non-performing loans guaranteed by it and provided by NPF. At
present, the Government is not issuing any new Government guarantees.
3.5 Budget support
New Zealand Budget support
In 2006 the New Zealand Government will continue to provide support to the
education sector. New Zealand’s Budget support consists of $61.3 million in
2006 and is designed to assist the Government with the achievement of its key
education goals and objectives as set out in its Education Strategic Plan (ESP),
2004 – 2006, in particular to:

Provide equitable access to quality basic education for all children in
Solomon Islands;
29


Provide access to community, technical, vocational and tertiary
education that will meet individual, regional and national needs for
skilled and competent people; and

Manage resources in an efficient and transparent manner.
Budget Process reform
For many years the Solomon Islands Budget used a single year, zero-based
budget framework. This resulted in large spikes and troughs in resourcing to
agencies, preventing departmental planning and hampering service delivery
across the board, with no future resourcing framework in which to plan. The
framework also resulted in no clear linkage between the budget and
government policy decisions.
The 2004 Budget Reforms
The 2004 Budget focused on achieving a balanced macro-budget position
within the existing zero-based budget framework, while introducing budget
discipline, controls and monitoring. Budget allocations were designed to get
spending back in line with Government priorities. This first step created a
solid platform for further budget reform.
The 2005 Budget Reforms
For the 2005 Budget, a simple marginal budget process was implemented.
This framework allows Government to operate on a more stable basis with
greater certainty to Departments going forward and for Government to link
funding allocations to active policy decisions.
The process also allowed Departments the opportunity to redistribute their
funds between their Budget line items. This allowed Ministries’ internal
budgets to more closely match their intended expenditure and activity
profiles.
The marginal Budget framework is a positive step forward in linking
Government policy, public sector activities and strategic funding allocations.
The framework will also support responsible government as the public can
use the policy decisions to assess the performance of government.
The Next Steps in 2006: Forward Budget Estimates
The next stage of the Budget process reform is being implemented in this
Budget with the publication of the Forward Budget Estimates. The Forward
Budget Estimates identify a best estimate of the funding envelope within
which the Government can expect to deliver its policy objectives over the
30

three forward years after the Budget year as at the time the projections are
made. Funding for spending will however continue to be appropriated on an
annual basis.
The first step in the development of the Forward Budget Estimates was
consultation within Government and with donors outlining methodology for
deriving the Forward Budget Estimates as a tool for forward planning. There
was general agreement through this consultation process regarding the
methodology. A key theme emerging in the consultation process was the
importance of facilitating economic growth in order to ensure revenue targets
are achieved as well as greater social prosperity. The projections outlined
below reinforce the importance of that theme.
Forward Budget Estimates projections
The initial Forward Budget Estimates which have been developed comprise
the Budget (2006) and three year forward estimates of baseline expenditure
and revenue. Chart 3.4 shows the expected rise in forecast ongoing available
finance (top line) and the indexed baseline cost of continuing current levels of
service provision (bottom line). As such Chart 3.4 illustrates the
Government’s internal capacity to fund new expenditure after continuing to
maintain its baseline expenditure bottom line.
Chart 3.4: Forward estimates of revenue and expenditure, 2006 – 2009
$ mil ion
$ mil ion
900
900
Estimates
Projections
800
800
700
700
600
600
2006
2007
2008
2009
Expenditure
Revenue
Funding available for new expenditure across the forward estimates period is
also shown in Chart 3.5. The table depicts two scenarios. The first is that
underlying the 2006 Budget – continued 3 per cent growth in expenditure,
31

with revenue running at 14.6 per cent in the Budget year and 8 per cent in
each year of the projections period.
The second scenario reflects likely outcomes if the economy were to
experience low real growth. In this scenario, revenue projections are driven
by a nominal growth assumption of 6 per cent. However this scenario
assumes that the cost of providing government services rises by 6 per cent
(that is, 3 per cent higher than the current baseline). As Table 3.5 shows, were
such a scenario to play out, it would mean significant constraints on the
quantum of funding available for new expenditure. If this were to occur in
2007 then in concrete terms compared to Scenario 1, the spending cut would
be equivalent to the cost of building 29 Rural Health Clinics, 24 Secondary
Schools or between 30 and 150 kilometers of graded roads. By 2009 the
spending cut against Scenario 1 would be equivalent to the cost of building 97
Rural Health Clinics, 81 Secondary Schools or between 90 and 500 kilometers
of graded roads, a significant loss of capacity for Solomon Islands.
Table 3.5: Funding available for new expenditure ($m) under Budget and low
growth, high inflation scenario

Estimate
Projections
2006
2007
2008
2009
Budget
Expenditure
682.3
709.5
736.3
764.4
Revenue
688.1
743.2
802.6
866.8
Funds available
5.9
33.7
66.3
102.4
Low growth, high inflation
Expenditure
682.3
724.8
768.3
814.4
Revenue
688.1
729.4
773.2
819.6
Funds available
5.9
4.6
4.9
5.2
32

Chart 3.5: Funding available for new expenditure, 2006-2008
Budget assumptions and low growth, high inflation assumptions
$ mil ion
$ mil ion
120
120
100
100
Estimates
Projections
80
80
60
60
40
40
20
20
0
0
2006
2007
2008
2009
Budget
Low grow th, high inflation
Assumptions underlying the Forward Budget Estimates projections in
Chart 3.4
Revenue Forecasts
The Forward Budget Estimates provide projections of revenue growth and
generally take into account the economic growth outlook. The central
assumptions, with total revenue projected at $743.2 million in 2007,
$802.6 million in 2008 and $866.8 million in 2009, are that Inland Revenue and
Customs and Excise collections are assumed to rise with the full extent of
expected nominal economic growth.
Nominal growth is projected to be 8 per cent, based on a combination of
around 4 per cent real growth and 4 per cent inflation. These conservative
assumptions are consistent with the view that a number of internal and
external factors (for example, the outlook for forest industries, ongoing high
and volatile oil prices) could mute growth in the years beyond 2006. The
precise split between inflation and real growth does not materially affect the
projections. The projections do assume that there will be some recomposition
in the economy as forest industries decline over the projections period and
other industries grow to offset that impact.
The current NZAid package of assistance will expire at the end of 2006. A
review in mid-2006 will consider any future requirements or opportunities for
further education support. Revenue projections assume the continuation of
33

NZ Budget support at a level of $40 million which will be revised in the light
of the upcoming review and the negotiation of any future package.
The projections do not take into account any availability of cash reserves
which may or may not be available for additional spending.
Baseline Expenditure
Consistent with the current Baseline Budgeting approach one-off
expenditures included in the 2005 Budget have been excluded from the 2006
baseline starting point for forward projections. An indexation factor of
3 per cent per annum has been applied. It has been assumed that debt
servicing will be maintained at 15 per cent of domestic revenue.
It is important to recognise that the 3 per cent indexation of expenditure
contains an upside risk. As was found in 2006, it may be necessary to increase
base funding by more than the 3 per cent simply to maintain existing service
levels.
Use of the Forward Budget Estimates
The Forward Budget Estimates allow forward planning and prioritising of
expenditure in the knowledge of the level of budget support resources likely
to be available.
However, in using the Forward Budget Estimates to assess the Government’s
financial position, it needs to be recognised that the Baseline Budget only
partly addresses the cost of providing Government services. In a number of
cases, the delivery of recurrent services is underwritten by donor support
such as the contribution Australia is making to delivering police services for
Solomon Islands. Apart from New Zealand Budget support for education,
this donor budget support is not reflected in either the Budget or the Forward
Budget Estimates. If this additional support is taken into account it is clear
that the funding challenge facing the Government in future years is very
much larger than reference to the Forward Budget Estimates would suggest.
The publication of the Forward Budget Estimates will assist with planning
both within and outside Government. The projections published in this
Budget indicate that the Government will have a modest increased capacity to
undertake additional spending beyond baseline expenditure as long as the
economy grows and costs are contained. However, the need for continued
donor support of the Solomon Islands will clearly remain essential to achieve
a self sustaining level of economic recovery.
34

It is important that users are aware that the indicative baselines in the
forward estimates are a planning tool only and do not guarantee that a
specified level of funding will be available. Funding for spending will
continue to be appropriated on an annual basis.
35

4
2006 Budget – New Spending Measures
Through the 2006 Budget the Government has funded a series of major
packages designed to: increase basic service delivery; ensure safer
communities; support the public sector; strengthen responsible Government;
build national wealth; support the provinces; maintain critical infrastructure;
promote Solomon Islands internationally; and revitalise the productive sector.
These measures are consistent with pursuing the National Economic
Recovery, Reform and Development Plan 2003 – 2006 (NERRDP 2003-2006).
The distribution of the $159.5 million of funds (on top of the Budget Baseline)
available for allocation has been determined following close consultation with
all Ministries. These measures are designed to deliver the greatest possible
benefit to the people of Solomon Islands.
The complete list of 2006 additional funding allocations is provided in Table
4.1 and Table 4.2.
4.1
2006 Budget Packages
1
NERRDP 2003-2006 Strategic Area 1: Normalising law and order and
security situation
1.1
Safeguarding Our Communities
These measures focus on maintaining peace and security in Solomon Islands
and building a domestically funded law and justice and sector.
1.1.1 Safeguarding Our Communities – increased resourcing to strengthen
the police and prison services
Ministry
Department
Additional Allocation ($)
Police, National Security and
Police and National Security
3,050,000
Justice
The Government will provide an additional $3.05 million to the Ministry of
Police, National Security and Justice, to support the strengthening of the
police and prison services.
This measure comprises:

$2.3 million to meet increased payroll costs arising from a combination
of adjustments to the pay and allowances received by prison officers
during 2005 and a successful recruitment campaign which has
strengthened the prison service;
36


$0.3 million to meet increased fuel costs associated with operational
police services activities; and

$0.5 million for increased staff housing rental costs and to address the
training needs of headquarters support staff.
1.1.2 Safeguarding Our Communities – increased resourcing for legal and
justice sector
Ministry
Department
Additional Allocation ($)
Police, National Security and
Justice and Legal Services
1,446,800
Justice
The Government will provide an additional $1.45 million to the Ministry of
Police, National Security and Justice, Department of Justice and Legal Services
to strengthen justice and legal services. This additional funding includes:

$0.7 million to increase hearing numbers, which is expected to reduce
the case backlog in the High Court, Local Court, Customary Land
Appeals Court and Court of Appeals by about one-third during 2006;
and

$0.8 million for office support services and to provide for professional
development related overseas travel by High Court Judges and the
Attorney General.
2
NERRDP 2003-2006 Strategic Area 2: Strengthening democracy,
human rights and good governance

These measures focus on assisting the Solomon Island public sector to
effectively and efficiently deliver Government policy for the benefit of all
Solomon Islanders.
2.1.1 Support for the Public Sector
Ministry
Department
Additional Allocation ($)
All
Various(a)
5,557,210
(a) Supplementation has been provided to all Ministries. Calculation of funding was based on
a review of existing services and future needs. The distribution of funds to Departments was
dependent on the extent to which IT services were decentralised within Ministries.
The Government will provide $5.56 million to implement an Information
Technology Strategy to deliver information technology resources to support
the functions of government and delivery of government services.
Funding will be used to:

develop information technology budgets in each agency; and
37


to cover high priority areas of license fees, repairs and maintenance and
replacement of hardware.
Funds will also be sought from donors to assist with implementation of the
Strategy. Details for administration of the Strategy will be further developed
to ensure a consistent approach across Ministries.
Funds allocated to individual Ministries are shown in Table 4.2 below.
2.1.2 Support for the Public Sector – supplementation for increased
utilities costs
Ministry
Department
Additional Allocation ($)
All Ministries(a)
All Departments(a)
11,861,286
(a) Supplementation has been provided to all Ministries. Payments of electricity and water
charges are centralised in some Ministry headquarters hence specific allocations to agencies
have not been made.
The Government will provide total additional funding of $11.86 million in
2006 to all Ministries to defray the costs of extraordinary increases in
electricity and water charges that commenced in 2005. This supplementation
means that agencies can avoid cost cutting in other areas of expenditure to
pay for increased utilities costs. The Government was concerned that cost
cutting could lead to deterioration in the level and standard of service
delivery.
Funds allocated to individual Ministries are shown in Table 4.2 below.
2.1.3 Support for the Public Sector – supplementation for increases in
statutory salaries
Ministry
Department
Additional Allocation ($)
Various
Various
617,904
The Government will provide total additional funding of $0.62 million in 2006
to meet increased payroll costs resulting from recent statutory salary increases
granted to certain Statutory Holders of Public Office in a number of
Ministries.
Funds allocated to individual Ministries are shown in Table 4.2 below.
38

2.1.4 Support for the Public Sector – supplementation for increases in
pensions and gratuities
Ministry
Department
Additional Allocation ($)
Various
Various
822,094
The Government will provide additional funding of $0.82 million in 2006 to
meet the cost of increased pension contributions arising from public sector
salary increases granted during 2005.
2.1.5 Support for the Public Sector – additional funding for the National
Parliament
Ministry
Department
Additional Allocation ($)
National Parliament
National Parliament
133,000
The Government will provide an additional $0.13 million to the National
Parliament to maintain Member of Parliament accommodation benefits and
for repairs and maintenance to Parliament House.
2.1.6 Support for the Public Sector – additional funding for the
refurbishment of houses for incoming Ministers in 2006
Ministry
Department
Additional Allocation ($)
Infrastructure Development
Infrastructure Development
1,000,000
The Government will provide an additional $1 million to the Ministry of
Infrastructure Development to undertake refurbishment of housing for
incoming Ministers following the 2006 election.
2.1.7 Support for the Public Sector – additional funding to support
immigration activities within the Ministry of Foreign Affairs,
Commerce and Tourism.
Ministry
Department
Additional Allocation ($)
Foreign Affairs, Commerce
Commerce, Industries and
790,000
and Tourism
Employment
The Government will provide an additional $0.79 million to support the
activities of the Immigration Division within the Department of Commerce,
Industries and Employment. Within this:

$0.6 million will be used to replenish the stock of official and standard
passports and for increased office expenses; and

$0.2 million will be provided for provincial accommodation for technical
assistance personnel who are contributing to the strengthening of
Immigration services.
39

2.1.8 Support for the Public Sector – additional funding to support
activities within the Department of Commerce, Industries and
Employment
Ministry
Department
Additional Allocation ($)
Foreign Affairs, Commerce
Commerce, Industries and
294,000
and Tourism
Employment
The Government will provide an additional $0.3 million to the Department of
Commerce, Industries and Employment for additional operational costs.
These costs include increased house rental, upkeep costs of official buildings
and additional Trade Disputes Panel operational costs to enhance regional
access to those panels.
2.1.9 Support for the Public Sector – establishment of a Ministerial and
Parliamentary Services Group
Ministry
Department
Additional Allocation ($)
Prime Minister and Cabinet
Prime Minister and Cabinet
150,000
The Government will provide an additional $0.15 million to the Office of the
Prime Minister and Cabinet to establish and staff a Ministerial and
Parliamentary Services Group to more efficiently and effectively manage the
vehicle, housing, transport and entitlements requirements of national
Members of Parliament.
2.1.10 Support for the Public Sector – establishment of an official
Government website
Ministry
Department
Additional Allocation ($)
Prime Minister and Cabinet
Prime Minister and Cabinet
80,000
The Government will provide an additional $80,000 in 2006 for the Office of
the Prime Minister and Cabinet to commence the development and
establishment of an official internet web site to disseminate information on
the Solomon Islands and its Government. This funding will complement
support offered by UNESCO for development of the web site. The website
will enhance access to information on services to the community and promote
transparent and effective government.
40

2.1.11 Support for the Public Sector – additional resourcing within the
Ministry of Natural Resources
Ministry
Department
Additional Allocation ($)
Natural Resources
Headquarters, Forestry and
350,000
Fisheries
The Government will provide an additional $0.35 million to the Ministry of
Natural Resources to cover increased costs for the upkeep and maintenance of
official and Government buildings, office and transport expenses and house
rentals, which cannot be absorbed within existing baseline allocations.
2.1.12 Support for the Public Sector – additional resourcing for the
Department of Lands and Survey
Ministry
Department
Additional Allocation ($)
Agriculture and Lands
Lands and Survey
60,000
The Government will provide an additional $60,000 to the Department of
Lands and Survey to increase the scope of its work on tribal land recording.
3
NERRDP 2003-2006 Strategic Area 3: Restoring fiscal and financial
stability and reforming the public sector
3.1
Strengthening Responsible Government
These measures focus on strengthening key public sector accountability and
governance functions.
3.1.1 Strengthening Responsible Government – increased resourcing for
Planning
Ministry
Department
Additional Allocation ($)
Finance, National Reform and National Reform and Aid
1,500,000
Planning
Coordination
The Government will provide an additional $1.5 million in 2006 to the
Department of National Reform and Aid Coordination. The bulk of this
additional funding ($1.4 million) will be used for costs associated with
hosting the 2006 Regional Forum Economic Ministers’ meeting. The
remaining $0.1 million will provide for an increase in bilateral aid meetings
and project management activities.
41

3.1.2 Strengthening Responsible Government – additional resourcing for
the Ombudsman
Ministry
Department
Additional Allocation ($)
Prime Minister and Cabinet
Prime Minister and Cabinet
100,000
The Government will provide an additional $0.1 million to the Office of the
Prime Minister and Cabinet, to strengthen investigation activities by the
Ombudsman. Funding will cover additional office and communication
expenses.
3.1.3 Strengthening Responsible Government – funding for 2006 elections
Ministry
Department
Additional Allocation ($)
Provincial Government, Home Home Affairs
15,020,000
Affairs, National
Reconciliation and Peace
The Government will provide an additional $15.0 million to the Department
of Home Affairs to fully fund the Government’s costs of conducting the 2006
national elections. The Department will also receive $0.02 million to assist
with the costs of the Honiara City Council elections.
3.2
Building National Wealth
This measure focuses on assisting key revenue collection agencies to limit
revenue leakage.
3.2.1 Building National Wealth – increased resourcing to support Customs
and Inland Revenue
Ministry
Department
Additional Allocation ($)
Finance, National Reform and Finance and Treasury
1,501,709
Planning
The Government will provide an additional $1.5 million in 2006 to the
Department of Finance and Treasury principally to support the Customs and
Inland Revenue functions of the Department. Funding includes:

$0.6 million for a new diesel powered generator;

$0.4 million for increased staffing and associated support costs in
Customs; and

an additional $0.5 million for increased housing rental and postage costs.
42

4
NERRDP 2003-2006 Strategic Area 4: Revitalising the productive
sector and rebuilding supporting infrastructure
4.1
Maintaining Critical Infrastructure
These measures focus on rebuilding the public infrastructure that will be vital
to supporting future economic growth in Solomon Islands.
4.1.1 Maintaining Critical Infrastructure – Transfer of Funds to the
Development Budget
Ministry
Department
Additional Allocation ($)
Finance, National Reform and National Reform and
44,800,000
Planning
Planning
The Government will transfer $44.8 million to the Development Budget in
2006 as a first step in establishing a Strategic Capital Investment Fund for
capital investment initiatives that will make a significant cost effective
contribution to the future and welfare of the country.
Detailed arrangements for administration of the Strategic Capital Investment
Fund will be further developed by the Government in consultation with the
private and public sector stakeholders within Solomon Islands and with
donors. Details will be announced at a later date. It is intended that funds
from the Strategic Capital Investment Fund will primarily be allocated to both
major and minor infrastructure projects including joint projects with donors,
based on competitive investment selection criteria. A major proportion of the
investment generated by the Strategic Capital Investment Funds is expected
to benefit the Provinces.
Funds transferred to the Development Budget in 2006 will initially be targeted
at a range of strategic capital investments already identified by the
Government. Details are provided in the 2006 Development Budget.
4.1.2 Maintaining Critical Infrastructure – Support for Transport
Infrastructure and Shipping Services
Ministry
Department
Additional Allocation ($)
Infrastructure Development
Infrastructure Development
830,000
The Government will provide an additional $0.83 million to the Department
of Infrastructure Development to support the development of transport
infrastructure and to maintain communication infrastructure that supports
the safety of shipping services. Within this funding:

$0.5 million will allow the Search and Rescue division of the Department
to take on responsibility for maritime communication; and
43


$0.3 million will be provided in addition to donor funding to meet the
resource requirements of the newly established Transport Policy
Planning Unit.
4.1.3 Maintaining Critical Infrastructure – Support for Meteorological
Services
Ministry
Department
Additional Allocation ($)
Infrastructure Development
Communication, Aviation and
100,000
Meteorology
The Government will provide an additional $0.1 million to the Department of
Communication, Aviation and Meteorology to renovate the Vavaya Ridge
Meteorology upper air station to improve safety at that facility and enhance
weather forecasting and data supply.
4.2
Revitalising the Productive Sector
These measures increase support for initiatives to provide assistance to the
productive sector of the economy.
4.2.1 Revitalising the Productive Sector – continued payment of trade
creditor arrears
Ministry
Department
Additional Allocation ($)
Finance, National Reform and
Finance and Treasury
20,000,000
Planning
The Government will provide an additional $20.0 million in 2006 to reduce
trade creditor arrears.
This continues the Government’s policy of
progressively reducing the level of proven arrears owing to trade creditors.
4.2.2 Revitalising the Productive Sector – promoting trade and investment
Ministry
Department
Additional Allocation ($)
Foreign Affairs, Commerce
Commerce, Industries and
1,150,000
and Tourism
Employment
The Government will provide an additional $1.15 million in 2006 for trade
promotion and facilitation and to encourage investment in the productive
sector.
Activities which will be funded include support for trade fairs ($0.2 million)
and publicity and promotion to increase investor awareness of foreign
investment reform ($0.3 million). Funding of $0.2 million will be provided to
maintain an internet website to disseminate information on trade and
investment opportunities.
44

Funding will also be provided to support the National Trade Facilitation
Committee ($0.3 million), which has been established to advise the
Government on trade and trade-related matters. In addition, a $0.2 million
subvention will be made to CEMA to promote export commodities
marketing.
4.2.3 Revitalising the Productive Sector – support for local and indigenous
industry enterprises
Ministry
Department
Additional Allocation ($)
Foreign Affairs, Commerce
Commerce, Industries and
2,332,540
and Tourism
Employment
The Government will provide an additional $2.33 million in 2006 to support
local business enterprises and develop a policy to encourage development of
indigenous business enterprises. Of the $2.3 million additional funding:

$1.9 million will be provided to support local businesses, mainly
providing grants to enterprises that require ‘seed‘ funding to become
self sustainable;

$0.2 million will be provided for indigenous business policy
development; and

$0.2 million will be provided for provincial accommodation for
technical assistance personnel who are contributing to the development
of industry in the provinces.
4.2.4 Revitalising the Productive Sector – enhancing industrial relations
Ministry
Department
Additional Allocation ($)
Foreign Affairs, Commerce
Commerce, Industries and
200,000
and Tourism
Employment
The Government will provide an additional $0.2 million in 2006 to support
industrial relations programs which will harmonize the interests of employers
and employees in the private sector and improve productivity and growth in
the economy.
4.2.5 Revitalising the Productive Sector – support for the reopening of the
Gold Ridge Mine
Ministry
Department
Additional Allocation ($)
Natural Resources
Mines and Energy
1,400,000
The Government will provide an additional $1.4 million to the Department of
Mines and Energy, to support and assist negotiations which will lead to the
45

reopening of the Gold Ridge gold mine. The funding includes a $1 million
provision for the costs of land acquisition that is required to facilitate
negotiations.
4.2.6 Revitalising the Productive Sector – additional funding for land
acquisition.
Ministry
Department
Additional Allocation ($)
Agriculture and Lands
Lands and Survey
1,000,000
The Government will provide an additional $1.0 million to the Department of
Lands and Survey to meet the costs associated with land acquisition by the
Government which will support industry and infrastructure development.
4.2.7 Revitalising the Productive Sector – Investment in natural resource
development
Ministry
Department
Additional Allocation ($)
Natural Resources
Mines and Energy
340,271
The Government will provide an additional $0.34 million to the Department
of Mines and Energy to support the costs of activities directed to natural
resource development. Funding includes $0.2 million for geological mapping
and seismology and water resource hydrological activities and $0.14 million
for supporting office expenses and overseas travel.
4.3
Promoting Solomon Islands
These measures focus on stimulating economic activity through the
promotion of the Solomon Islands as a tourism and investment destination of
choice.
4.3.1
Promoting Solomon Islands – additional funding to support
the development of ecotourism
Ministry
Department
Additional Allocation ($)
Foreign Affairs, Commerce
and Tourism
Culture and Tourism
100,000
The Government will provide an additional $0.1 million to the Department of
Culture and Tourism to provide assistance to local tourism operators who are
seeking to establish ecotourism ventures in Solomon Islands.
46

4.3.2 Promoting Solomon Islands – additional resourcing for overseas
missions and operating costs
Ministry
Department
Additional Allocation ($)
Foreign Affairs, Commerce
Foreign Affairs
1,565,500
and Tourism
The Government will provide an additional $1.57 million in 2006 to the
Department of Foreign Affairs for increased costs associated with
headquarters support costs and mission operating costs at certain posts.
Within this:

$0.6 million is for support costs met by headquarters and includes
funding for office equipment, staff training and transport costs ($0.2
million) and costs associated with the changeover of High
Commissioners in Canberra; and

$1 million is for increased operating costs of overseas missions at the
United Nations ($0.2 million), Brussels ($0.1 million), Taiwan ($0.2
million), Port Moresby ($0.1 million) and Canberra ($0.4 million).
4.3.3 Promoting Solomon Islands – increased funding for official overseas
visits by the Prime Minister
Ministry
Department
Additional Allocation ($)
Prime Minister and Cabinet
Prime Minister and Cabinet
440,000
The Government will provide an additional $0.44 million in 2006 for the
Office of the Prime Minister and Cabinet to provide an adequate budget for
official overseas travel by the Prime Minister to promote the national interests
of Solomon Islands abroad.
5
NERRDP 2003-2006 Strategic Area 5: Restoring basic social services
and fostering social development

5.1
Basic Services
These measures focus on increasing the standard of service delivery to all
Solomon Islanders in the areas of health and education.
5.1.1 Basic Services – additional support for essential health services
Ministry
Department
Additional Allocation ($)
Health and Medical Services
Health and Medical Services
6,471,000
The Government will provide an additional $6.47 million to the Ministry of
Health and Medical Services to maintain and enhance essential services
including $1.7 million to support health services funded through the Health
47

Sector Trust account to replace donor funding which has been redirected.
$2.6 million will also be provided to meet housing costs associated with
increasing health worker staff numbers; $1.3 million to employ additional
nursing graduates; and $0.9 million to contribute to establishing an eye clinic.
5.1.2 Basic Services – additional support for Education
Ministry
Department
Additional Allocation ($)
Education and Human
Education and Human
27,675,818
Resources Development
Resources Development
The Government will provide an additional $27.68 million in 2006 to the
Department of Education and Human Resources Development to increase
support across a range of education services. This funding includes:

$15.0 million to provide for overseas tertiary training costs;

$6.1 million as support for Solomon Islands College of Higher Education
to reflect a revision of grant arrangements and to replace donor funding
which is being withdrawn;

$3.1 million for Community High School grants enable a further 44
schools to be established; and

$3.5 million in teacher salary costs. Additional teachers are required to
meet the Government’s commitment to increase the number of
Community High Schools and support the increased enrolment in
primary schools following the Government’s 2005 decision to offer free
primary education.
5.2
Support for the Provinces
These measures focus on increasing the standard of service delivery to the
provinces.
5.2.1 Support for the Provinces – increased provincial grants and funding
for provincial member salary increases
Ministry
Department
Additional Allocation ($)
Provincial Government, Home Provincial Government and
6,806,796
Affairs, National
Constituency Development
Reconciliation and Peace
The Government will provide an additional $6.80 million to the Department
of Provincial Government and Constituency Development, to fund increased
Provincial Grants ($4.0 million) and the cost in 2006 of increases granted
during 2005 to Provincial member salaries (amounting to $2.8 million).
48

Table 4.1: Measures by NERRDP Strategic Area
2006 Measure Al ocation
$
Strategic Area 1: Normalising the law and order and security situation
Safeguarding Our Communities
1.1.1 Increased resourcing to strengthen the police and prison services
3,050,000
1.1.2 Increased resourcing for legal and justice sector
1,446,800
Sub total
4,496,800
Strategic Area 2: Strengthening democracy, human rights and
good goveranance
Support for the Public Sector
2.1.1 Information Technology Strategy for the public sector
5,557,210
2.1.2 Supplementation for increased utilities costs
11,861,286
2.1.3 Supplementation for increases in statutory salaries
617,904
2.1.4 Supplementation for increases in pensions and gratuities
822,094
2.1.5 Additional funding for the National Parliament
133,000
2.1.6 Additional funding for the refurbishment of houses for incoming Ministers
1,000,000
in 2006.
2.1.7 Additional funding to support immigration activities within the
Ministry of Foreign Affairs Commerce and Tourism.
790,000
2.1.8 Additional funding to support activities within the Department of
Commerce, Industries and Employment
294,000
2.1.9 Establishment of a Ministerial and Parliamentary Services Group
150,000
2.1.10 Establishment of an official Government website
80,000
2.1.11 Additional resourcing within the Ministry of Natural Resources
350,000
2.1.12 Additional resourcing for the Department of Lands and Survey
60,000
Sub total
21,715,494
Strategic Area 3: Restoring fiscal and financial stability and reforming
the public sector
Strengthening Responsible Government
3.1.1 Increased resourcing for Planning
1,500,000
3.1.2 Additional Resourcing for the Ombudsman
100,000
3.1.3 Funding for 2006 elections
15,020,000
Building National Wealth
3.1.1 Increased resoucing to support Customs and Inland Revenue
1,501,709
Sub total
18,121,709
49

Table 4.1: Measures by NERRDP Strategic Area (continued)
2006 Measure Al ocation
$
Strategic Area 4: Revitalising the productive sector and rebuilding
supporting infrastructure
Maintaining Critical Infrastructure
4.1.1 Transfer of funds to the Development Budget
44,800,000
4.1.2 Support for transport infrantructure and shipping services
830,000
4.1.3 Support for meteorological services
100,000
Revitalising the Productive Sector
4.2.1 Continued payment of trade creditor arrears
20,000,000
4.2.2 Promoting trade and investment
1,150,000
4.2.3 Support for local and indigenous industry enterprises
2,332,540
4.2.4 Enhancing industrial relations
200,000
4.2.5 Support for the reopening of the Gold Ridge Mine
1,400,000
4.2.6 Additional funding for land acquisition
1,000,000
4.2.7 Investment in natural resource development
340,271
Promoting Solomon Islands
4.3.1 Additional funding to support the development of ecotourism
100,000
4.3.2 Additional resoucing for overseas missions and operating costs
1,565,500
4.3.3 Increased funding for official overseas visits by the Prime Minister
440,000
Sub total
74,258,311
Strategic Area 5: Restoring basic social services and fostering
social development
Increase Basic Service Delivery
5.1.1 Additional support for essential health services
6,471,000
5.1.2 Additional support for education
27,675,818
Support for the Provinces
5.2.1 Increased Provincial Grants and funding for Provincial Member salary
increases
6,806,796
Sub total
40,953,614
Total
159,545,928
50

Table 4.2: Expenditure on measures by Ministry
Ministry and measures numbers
$
Agriculture and Lands
Measures numbers
2.1.1
Information Technology Strategy for the public sector
157,823
2.1.2
Supplementation for increased utilities costs
145,460
2.1.12 Additional resourcing for the Department of Lands and Survey
60,000
4.2.6
Additional funding for land acquisition
1,000,000
Sub total
1,363,283
Auditor-General
Measures numbers
2.1.1 Information Technology Strategy for the public sector
111,191
2.1.3 Supplementation for increases in statutory salaries
48,101
Sub total
159,292
Education & Human Resource Development
Measures numbers
2.1.1 Information Technology Strategy for the public sector
358,682
2.1.2 Supplementation for increased utilities costs
1,641,117
5.1.2 Additional support for education
27,675,818
Sub total
29,675,617
Finance & National Planning and Reform
Measures numbers
2.1.1 Information Technology Strategy for the public sector
1,417,981
2.1.2 Supplementation for increased utilities costs
1,082,813
3.1.1 Increased resourcing for Planning
1,500,000
3.1.2 Support for Inland Revenue and Customs & Excise Divisions
1,501,709
4.2.1 C ontinued payment of trade creditor arrears
20,000,000
Sub total
25,502,503
Foreign Affairs, Commerce & Tourism
Measures numbers
2.1.1 Information Technology Strategy for the public sector
299,439
2.1.2 Supplementation for increased utilities costs
557,284
2.1.7 Additional funding to support immigration activities within the
Ministry of Foreign Affairs, Commerce and Tourism
790,000
2.1.8 Additional funding to support activities within the Department
of C ommerce, Industries and Employment
294,000
4.2.2 Promoting trade and investment
1,150,000
4.2.3 Support for local and indigenous industry enterprises
2,332,540
4.2.4 Enhancing industrial relations
200,000
4.3.1 Additional funding to support the development of ecotourism
100,000
4.3.2 Additional resoucing for overseas missions and operating costs
1,565,500
Sub total
7,288,763
51

Table 4.2:
Expenditure on measures by Ministry (continued)
Ministry and measures numbers
$
Office of the Governor General
Measures numbers
2.1.1 Information Technology Strategy for the public sector
37,043
2.1.2 Supplementation for increased utilities costs
84,412
2.1.3 Supplementation for increases in statutory salaries
66,852
Sub total
188,307
Health & Medical Services
Measures numbers
2.1.1 Information Technology Strategy for the public sector
624,370
2.1.2 Supplementation for increased utilities costs
2,071,688
5.1.1 Additional support for essential health services
6,471,000
Sub total
9,167,058
Infrastructure Development
Measures numbers
2.1.1 Information Technology Strategy for the public sector
472,798
2.1.2 Supplementation for increased utilities costs
1,186,214
2.1.6 Additional funding for the refurbishment of houses for
1,000,000
incoming Ministers in 2006
4.1.2 Support for transport infrantructure and shipping services
830,000
4.1.3 Support for meteorological services
100,000
Sub total
3,589,012
National Parliament
Measures numbers
2.1.1 Information Technology Strategy for the public sector
259,578
2.1.2 Supplementation for increased utilities costs
1,405,326
2.1.3 Supplementation for increases in statutory salaries
86,352
2.1.5 Additional funding for the National Parliament
133,000
Sub total
1,884,256
Natural Resources
Measures numbers
2.1.1 Information Technology Strategy for the public sector
221,189
2.1.2 Supplementation for increased utilities costs
319,311
2.1.11 Additional resourcing within the Ministry of Natural Resources
350,000
4.2.5 Support for the reopening of the Gold Ridge Mine
1,400,000
4.2.7 Investment in natural resource development
340,271
Sub total
2,630,771
Prime Minister & Cabinet and the Public Service
Measures numbers
2.1.1 Information Technology Strategy for the public sector
569,030
2.1.2 Supplementation for increased utilities costs
68,304
2.1.3 Supplementation for increases in statutory salaries
111,700
2.1.9 Establishment of a Ministerial and Parliamentary Services Group
150,000
2.1.10 Establishment of an official Government website
80,000
3.1.2 Additional Resourcing for the Ombudsman
100,000
4.3.3 Increased funding for official overseas visits by the Prime Minister
440,000
Sub total
1,519,034
Pensions & Gratuities
Measures numbers
2.1.4 Supplementation for increases in pensions and gratuities
822,094
Sub total
822,094
52

Table 4.2:
Expenditure on measures by Ministry (continued)
Ministry and measures numbers
$
Police, National Security & Justice
Measures numbers
1.1.1 Increased resourcing to strengthen the police and prison services
3,050,000
1.1.2 Increased resourcing for legal and justice sector
1,446,800
2.1.1 Information Technology Strategy for the public sector
676,321
2.1.2 Supplementation for increased utilities costs
2,931,459
2.1.3 Supplementation for increases in statutory salaries
304,899
Sub total
8,409,479
Provincial Government, National Reconciliation
& Peace and Home Affairs
Measures numbers
2.1.1 Information Technology Strategy for the public sector
351,765
2.1.2 Supplementation for increased utilities costs
367,898
3.1.3 Funding for 2006 elections
15,020,000
5.2.1 Increased Provincial Grants and funding for Provincial Member salary increa
6, se
80 s
6,796
Sub total
22,546,459
Transfer to Development Budget
Measures numbers
4.1.1 Transfer of funds to the Development Budget
44,800,000
Sub total
44,800,000
Total
159,545,928
53


   © 2006, USP Library. Copyright & Disclaimer                         Contact Us
last updated Sat Sep 01, 2012