Annual Program Performance Report for Solomon Islands 2007 08

Annual program performance report for Solomon Islands 2007–08

SEPTEMBER 2008

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AusAID Annual program performance report for Solomon Islands 2007–08 1

Contents

Abbreviations

Summary

Country performance

Political and economic overview

Harmonisation and Paris Declaration

Millennium Development Goals

What are the results of the bilateral aid program?

Objective 1: Help government better serve the Solomon Islands people

Objective 2: Help build strong and peaceful communities

What are the results of the Regional Assistance Mission to SolomonIslands?

Objective 1: To contribute to a safer and more secure Solomon Islands

Objective 2: To contribute to a better functioning government

Objective 3: To contribute to greater prosperity for all Solomon Islanders

What is the quality of AusAID activities in SolomonIslands?

Implementation progress

Achieving objectives

Monitoring and evaluation

Sustainability

Bibliography

AusAID Annual program performance report for Solomon Islands 2007–08SEPTEMBER 2008 1

Abbreviations

AIDSAcquired Immune Deficiency Syndrome

AusAIDAustralian Agency for International Development

ADBAsian Development Bank

CNURACoalition for National Unity and Rural Advancement

GDPgross domestic product

HIV human immunodeficiency virus

ICTinformation and communications technology

MDGMillennium Development Goal

NGOnon-government organisation

QAIquality at implementation

RAMSIRegional Assistance Mission to Solomon Islands

SIPFSolomon IslandsPolice Force

AusAID Annual program performance report for Solomon Islands 2007–08: 1

Summary

Australia’sofficial development assistance to Solomon Islands continued through challenging circumstances in 2007–08.This assistance totalled AUD 229.8 million, primarily delivered through the Regional Assistance Mission to Solomon Islands (RAMSI). It alsoincludes assistance to the RAMSI Participating Police Force by the Australian Federal Police, and AusAID’s bilateral program,which complements RAMSI.Australia is the largest donor to Solomon Islands and the leading donor to RAMSI.In line with the Paris Declaration on Aid Effectiveness, Australia works closely with other donors, including New Zealand, the European Union, the United Nations agencies, the World Bank, the Asian Development Bank and regional organisations.

In 2007–08 Solomon Islands experienced two distinct periods in the political environment.Prior to December 2007 the aid program operated in a challenging political context, experiencing numerous events that undermined program implementation, with subsequent impacts on aid effectiveness.The strained relationship with the Sogavare Government affected aspects of the Australian Government’s development program.However, in mid-December 2007 the Coalition for National Unity, Reconciliation and Rural Advancement, led by Dr Derek Sikua, took government and established a more positive environment for Australia’s aid program.

While significant challenges remain, the new political context has been seen as an opportunity to improve development outcomes for Solomon Islanders. In January 2008 Prime Minister Sikua launched the new government’s policy document for development, which focuses heavily on governance reform and political, social and economic stability as key objectives.Following a visit by Prime Minister Rudd, Australia committed additional funds to infrastructure and tsunami reconstruction and foreshadowed an additional AUD 10million to meet other priorities of the Solomon Islands Government in 2008–09.Assistance provided through the AusAID bilateral program will be increasingly guided by the Solomon Islands Government’s Medium Term Development Strategy and a Pacific Partnership for Development which is being negotiated during 2008. RAMSI and the Solomon Islands Governmentare also progressing a partnership frameworkto provide a shared strategic vision for the future implementation of RAMSI programs.

The Australian Government’s program of development assistance to Solomon Islands varied in effectiveness during 2007–08.AusAID undertook an internal review of the bilateral program and committed to developing a new country strategy to ensure that the objectives of its assistance were defined more clearly and linked more closely to a performance framework.The effectiveness of Australian assistance contributed through RAMSIwas highly contested in the RAMSI annual performance report and through a number of external reviews, including by the Pacific Islands Forum in 2007.The importance of quality, especially in a difficult operating environment, is recognised by the Australian Government.All major initiatives in the program were peer reviewed, and 15 evaluations (such as independent reviews and mid-term reviews) took place in 2007–08.

Ratings for Australia’s Bilateral Program and RAMSI

Objective / Rating / Relative to previous rating
Bilateral program
1. Help government better serve the Solomon Islands people / 
(amber) / Unchanged
2. Help build strong and peaceful communities / 
(amber) / Unchanged
RAMSI
1. To contribute to a safer and more secure Solomon Islands / 
(green) / Unchanged
2. To contribute to a better functioning government / 
(green) / Unchanged
3. To contribute to greater prosperity for all Solomon Islanders / 
(amber) / Declined

Note:(green) denotes the objective is on track to be fully achieved within the timeframe. (amber) denotes the objective will be partly achieved within the timeframe.

The Australian Government’s program of assistance shows a clear distinction in quality between AusAID’s bilateral program and the whole-of-government and regional approach of RAMSI.In 2007–08 all RAMSI programs were rated as achieving satisfactory progress in their implementation, including in their progress towards their objectives.This contrasts with the AusAID bilateral program; the majority of its initiativeswere performing at a lessthansatisfactory standard.As part of the annual performance reporting process each initiative is rated using a quality reporting system that contributes towards overall assessment. The bilateral program faces a particular weakness in monitoring and evaluation; all of its initiatives were rated either ‘less than adequate’ or ‘poor quality’.While all initiatives’ ratings in monitoring and evaluation were higher than in 2006–07, performance measurement remained weak in bilateral initiatives, which contrasts with the significant investments made in this area under the RAMSI annual performance reporting mechanism.

The Australian Government’s efforts to ensure that project outcomes are sustainable also requires further attention as more than half of the initiatives wereratedas ‘less than adequate’ in these terms, which is consistent with last year’s ratings.The 2005–06 and 2006–07 RAMSI annual performance reports noted that the gains in RAMSI’s performance were fragile, that sustaining them would require changes in public service capacity, leadership and independence. Furthermore, RAMSI-supported initiatives were unlikely to deliver future‘wins’ as quickly as they had previously done.The results in this annual program performance report confirm this forecast.In addition, it is clear that the bilateral program can learn lessons from the RAMSI analysis.

AusAID Annual program performance report for Solomon Islands 2007–08SEPTEMBER 2008 1

Country performance

Solomon Islandsremains a post-conflict, fragile state.The country suffered a period of unrest from 1998 to 2003 known as ‘the tensions’ when violence, criminal lawlessness and economic stagnation led to a breakdown of government services and widespread suffering and insecurity for many Solomon Islanders.As a relatively young country, Solomon Islandsstruggles with many challenges. It has the highest levels of income poverty in the region,a very high population growth, a large and growing number of unemployed young men,an inability of government to deliver services beyond major urban centres,a heavy dependence on unsustainable logging, low returns to private investors and a high risk of further conflict.Political instability continues to add to these challenges. It is within this context that the Australian Government’s aid program operates.

Political and economic overview

In 2007–08 Solomon Islands experienced two distinct periods in the political environment.Prior to December 2007 the aid program operated in a challenging political context and experienced numerous events that undermined program implementation. Thisimpacted on aid effectiveness.The strained relationship with the Sogavare Government affected aspects of Australian development programs.However, in mid-December 2007 the Coalition for National Unity, Reconciliation and Rural Advancement (CNURA), led by DrDerek Sikua, took government through a motion of no confidence and the context changed.

CNURA has placed a strong emphasis on rural development and investment in achieving the United Nations Millennium Development Goals (MDGs). Particular emphasis will be placed on improved service delivery (water, sanitation, roads, health and education) and economic opportunities (land and forestry sector reform, and employment creation).The new government has indicated it intends to deliver early on promises for economic growth.It also plans to introduce ‘political integrity’ reforms aimed at fostering political stability.Prime MinisterSikua supports a tougher stance on corruption, however addressing corruption remains highly sensitive.CNURA has demonstrated ability to articulate its reform agenda, however capacity to implement this new policy direction remains low.

While security remains stable, this stability continues to be underpinned by RAMSI.Proactive management by the Solomon Islands Police Force (SIPF), backed by RAMSI’s Participating Police Force and the military contingent, ensured that the no-confidence vote and change of government in December 2007 did not give rise to violence on the streets.Violent crime in Honiara during 2007–08 remained much the same as in the previous twelve months.There was media speculation about the increases in violent crime, however this was not supported by contestable data. In an attempt to address underlying causes of conflict, the new Solomon Islands Government has committed to an ambitious agenda of reconciliation ceremonies.

Since independence in 1978 living standards in Solomon Islands in terms of gross domestic product (GDP) per person, have trended downwards.The country’s GDP per personis one of the lowest in the Pacific.Further, Solomon Islands’ high population growth rate means real economic growth needs to be above 3percent a year to prevent a decline in GDP per person (Figure1).GDP would need to growin real terms by 5percent a year for the next 20 years to return GDP per person to pre-tension levels.The task of improving prosperity in Solomon Islands is even more difficult given that statistics on GDP per person do not reflect issues such as income distribution and equality.Since RAMSI’s arrival the economy has grown by more than 5percent per year.Real GDP grew by more than 10per cent in 2007 compared with 6.1per cent in 2006. The 2007 budget was also fully funded, with no further borrowing required. Own-source tax revenue grew by 31per cent in 2007 and is forecast to grow by a further 15per cent in 2008.Solomon Islands recorded the strongest growth in the Pacific, however,this has been to a great extent fuelled by its soon to be depleted forestry sector.

Inflation increased to 10per cent in December 2007 as a result of increased prices of oil and locally produced food but was within the target range of below 8per cent for the bulk of 2007.This inflation rate is comparable with the 10.7per cent when RAMSI first arrived in 2003.

Figure 1:Solomon Islands Actual and projected Gross domestic product

Note:Projections from 2007 to 2012 are based on an annual population growth rate of 3per cent.

Source: International Monetary Fund, Solomon Islands: 2007 Article IV consultation—staff report; staff supplement; and public information notice on the Executive Board discussion, IMF Country Report No. 07/304, September 2007; Solomon Islands Ministry of Finance and Treasury projections.

Unsustainable logging activity accounts for around 17per cent of the economy and 70per cent of export earnings. Its decline and expected eventual collapse will have a significant negative effect on the economy as there is no obvious replacement for the loss of exports and revenue.It is estimated that the continued undervaluing of round log exports by the Solomon Islands Government resulted in losses to government revenue of SBD115 million (approximately AUD 23.5 million) in 2007 alone.In April 2008 the government gazetted the first increase in the determined export price of logs—previously well below world prices—to more accurately reflect market values.A further increase, scheduled for 1June, was delayed whilethe Solomon Islands Government responds to forest industry concerns.

Structural reforms are required to address key economic challenges, including state-owned enterprises, transport and communication links between urban and rural areas, infrastructure and service delivery including education.Weak land tenure arrangements are one of the key structural constraints to foreign investment and this issue needs to be addressed before large scale investment can take place in Solomon Islands.

Cabinet recently adopted a Medium Term Fiscal Strategy.It commits the Solomon Islands Government to prudent fiscal management in exchange for donorfunded fiscal stimulus to enhance economic potential.Given the expansionist nature of the 2008 budget, the government’s commitment to responsible spending in the medium term will be crucial.

Harmonisation and Paris Declaration

Solomon Islands dependsheavily on aid.Current assistance from the Australian Government exceeds total expenditure by the Solomon Islands Government.Australia is by far the largest donor in Solomon Islands with 64per cent of funds provided to the Solomon Island’s development budget in 2008 (Figure2).Australiaprovides over 90per cent of RAMSI’s development assistance funding and around 80per cent of RAMSI personnel.New Zealand, through its bilateral aid program, is the other main funding partner for RAMSI programs. In 2007–08 approximately 81per cent of Australia’s total official development assistance to Solomon Islands was provided through RAMSI programs, 13per cent through AusAID’s bilateral development assistance, and the remaining 6per cent through AusAID’s regional and global programs and through other Australian Government departments.

Figure 2:Contributions by donors to the Solomon Islands Government’s 2008 Development Budget

Data source: 2008 development estimates.

The Solomon Islands Government has expressed dissatisfaction with the lack of coordination between donors.However,since 2006 it has been without a development strategyand has struggled to effectively engage with donors and facilitate alignment.The dialogue between the government and donors during 2007–08 lacked a sustained focus on policy issues and strategic objectives.As a resultthe dialogue focused largely on project implementation. The government was committed to developing a Medium Term Development Strategy and a draft strategy was prepared in June 2008. Early indications are that this document will draw heavily on CNURA policy documents, with an emphasis on providing guidance on development priorities over the next two to three years.The Ministry of Development Planning and Aid Coordination has advised that the final strategy will be debated at the November 2008 sitting of the National Parliament.

Early in its term, the new Solomon Islands Government expressed a view that RAMSI could do more to assist the government to meet its priorities for provincial development, indicating that it sees RAMSI as an effective mechanism to achieve results quickly.Australia responded to the request for additional support by increasing bilateral program support and continues to stress to senior officials in the Solomon Islands Government the comparative advantages in certain sectors of bilateral mechanisms over regional mechanisms.

During 2007–08 there were notable achievements in working in partnership with other donors towards the harmonisation objectives of the Paris Declaration.The AusAID bilateral program made substantial progress in establishing a sector-wide approach to health support, bringing together a range of donors including the World Bank, the United Nations Population Fund,the United Nations Children’s Fund and the World Health Organization to help the Solomon Islands Government to achieve its priorities in the sector.RAMSI is also delivering two projects of substantial scale to the provinces—in rural development and strengthening provincial government. These programs were developed in partnership with the European Union, the World Bank and the United Nations Development Programme through pooled donor-funding approaches.

Taiwan (Republic of China) continues as a significant donor providing SBD85million, (approximately AUD 17.2 million), including over 6per cent of the development budget, in 2008.Some commentators have suggested that Taiwan’s aid is neither transparent nor accounted for, and in some cases is directly channelled to members of parliament in Solomon Islands through, for example, the Rural Constituency Development Fund.

The World Bank is increasingly engaged in Solomon Islands, particularly in rural development and health, and will establish an office in Honiara during 2008.The increased interest by the World Bank reflects, in part, the Australian Government’s efforts to engage it in the Pacific and the relative stability in Solomon Islands since RAMSI’s arrival in 2003. The Asian Development Bank, while a relatively modest financial contributor, has played a key role in coordinating donor assistance in transport infrastructure and emergency reconstruction since the 2007 tsunami.

Millennium Development Goals

The Solomon Islands’economy continued to grow in 2007–08;yet, it still faces severe challenges in meeting basic development standards.It is likely that several of the MDGs will not be reached within the designated timeframes despite some apparent gains in recent years, including in reducing infant mortality.However, as with all Pacific island countries it is extremely difficult to accurately assess progress towards the MDGs because of incomplete and poorquality data.Solomon Islands is restricted in being able to assess overall poverty levels and, as a result, is receiving donor funding for assistance to improve its MDG monitoring systems, such as the 2009 census, which is funded by the Secretariat of the Pacific Community.