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Financial Institution Risk Management in Solomon Islands: A Growing Concern
The government of Solomon Islands has been taking steps to strengthen its public financial management (PFM) system, but risk management remains a significant concern.
Public Financial Management System Improvements
According to a recent assessment, the PFM system has improved since 2008, with the Public Financial Management Act of 2013 and the PEFA assessment providing a platform for incremental reforms. However, procurement under the program is still not undertaken in accordance with good practice, posing a medium-level risk.
Challenges with Procurement
- Procurement practices are not always consistent with good practice
- Medium-level risk due to potential misuse or misallocation of funds
Weak Internal Controls and Corruption Risks
Weak internal controls within the Ministry of Finance and Treasury (MOFT) may also lead to funds being misused or not used for their intended purpose, increasing corruption risks. The government has implemented several reforms, including the enactment of the Public Financial Management Act and the introduction of new accounting software, but resourcing and coordination issues remain.
Challenges with Internal Controls
- Weak internal controls within MOFT
- Corruption risks due to potential misuse or misallocation of funds
Government Capacity and Reforms
Another significant risk is the government’s capacity to implement reforms effectively, which may be insufficient due to limited resources and expertise. Political instability could also weaken fiscal discipline and policy commitment, posing a medium-level risk.
Challenges with Reform Implementation
- Limited resources and expertise
- Medium-level risk due to potential weakening of fiscal discipline and policy commitment
Asian Development Bank Support and Engagement
The Asian Development Bank (ADB) has been providing technical assistance to support the implementation of the Economic Growth and Fiscal Reform Program (EFRP), but engagement with development partners is crucial for the program’s success. The government and MOFT have agreed on certain covenants, including regular meetings of the Core Economic Working Group, but there are concerns that the government may limit its engagement or withdraw completely.
Importance of Engagement
- Engagement with development partners is crucial for the program’s success
- Concerns about potential limitations or withdrawal of government engagement
Conclusion
Overall, risk management in Solomon Islands’ financial institutions remains a medium-level concern, requiring continued support from development partners and effective implementation of reforms.