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Marshalls focuses on reforming state-owned enterprises

MAJURO — With some of the worst performing state-owned enterprises or SOEs in the Pacific region, the Marshall Islands Ministry of Finance has launched a reform program in an effort to change the picture.

This has included the recent establishment of an SOE monitoring unit within Finance and engaging a consultant expert in functions of SOEs. Finance Minister Brenson Wase said the Asian Development Bank’s support for Public Financial Management Reform and the creation of the Reform Coordination Unit within the Ministry of Finance has taken on a new dimension, with the start of work to support SOE reforms through the new monitoring unit.

Last month, Finance officials started a weekly two-hour session for managers and boards of SOEs. These weekly workshops are focusing on revised SOE legislation adopted by parliament in 2015, but not widely implemented. The sessions are a launch to the new Finance monitoring unit’s oversight of SOE compliance and performance. The SOE law requires government agencies to develop business plans, a variety of performance measures and codes of conduct.

The Marshall Islands has 11 SOEs — utility companies, a national airline, Ports Authority and the Marshall Islands Development Bank among them — which as a group have performed poorly by regional standards for decades, according to reviews of government-run agencies.

In comparison with other Pacific economies, the state-owned enterprise sector in the Marshall Islands is one of the region’s weakest performers.

As of 2014, the SOE sector owned about a 20 percent share of the total Marshall Islands economy but contributed only about 5.3 percent to gross domestic product.

The average return on SOE assets in the 2002-2014 period was negative, at minus five percent. A significant contributor to the SOEs’ poor financial performance are so-called “community service obligations” that are not formally mandated or properly “costed.” Air Marshall Islands, for example, provides service to numerous remote islands at an operating loss because many small islands lack the number of passengers and cargo to make air service commercially viable.

Air Marshall Islands, the country’s national air carrier, is one of 11 government-owned enterprises that as a group have performed poorly and required government subsidy for decades. Photo by Giff JohnsonAir Marshall Islands, the country’s national air carrier, is one of 11 government-owned enterprises that as a group have performed poorly and required government subsidy for decades. Photo by Giff Johnson

Most SOEs in the Marshall Islands — in particular Air Marshall Islands and utility companies — are sustained by a high level of government subsidies. Government provided $43.9 million in subsidies to its SOEs in the five-year period of 2010-2014 and access to discounted loans.

The SOE Act of 2015 identifies specific requirements and timelines for SOEs to prepare formal business plans, issue statements of corporate intent, to fully cost approved community service obligations and to publish annual report summaries, as well as directing matters of SOE governance and performance.  It has not been widely implemented, a fact the Ministry of Finance is hoping to change with its new focus on reform of the SOE sector.

Source: Marianas Variety : http://www.mvariety.com/regional-news/104376-marshalls-focuses-on-reforming-state-owned-enterprises

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