The International Monetary Fund has warned the Tongan government not to raise wages and to keep an eye on costs during the South Pacific Games.
An IMF team visited the kingdom in February and met with Prime Minister ‘Akilisi Pohiva, Finance Minister Dr ‘Aisake Valu Eke, the Governor of the National Reserve Bank of Tonga Dr. Sione Ngongo Kioa, senior government officials and business representatives.
In a statement released after the visit, IMF team leader Yasuhisa Ojima said Tonga needed to “closely control the spending programme for the South Pacific Games to avoid any potential cost overruns” while it struggled to maintain a sustainable economy.
According to Ojima, Tonga’s economy grew by about two percent in the financial year ending in June 2014, largely driven by agriculture and construction. This followed a contraction in the previous financial year caused by the completion of a large capital project.
However, Ojima warned that lifting the kingdom’s potential growth was a key challenge.
He said the country’s Strategic Development Framework would play an important role in making growth more sustainable.
Structural reforms would be important to supporting the private sector and raising the possibility of financial growth.
The IMF has recommended revising the Foreign Investment Act as part of these reforms.
In the meantime, grants and remittances have bolstered the country’s financial reserves and inflation has been kept down.
“Inflation has remained moderate at around zero to three percent in recent years, reflecting low global food prices and, more recently, a sharp decline in oil prices,” Ojima said.
The Tongan government would face financial pressure due to the reconstruction in the wake of Cyclone Ian and demands for wage increases for civil servants.
However, while the kingdom would continue to face challenges, Ojima said there had been progress in some areas, notably in “improving commercial banks’ balance sheets and strengthening the legal framework of the financial sector.”
“The IMF will continue to support Tonga’s reform efforts by providing technical assistance in the areas of public financial management, banking regulation and supervision and macroeconomic statistics,” Ojima said.
The main points
- The International Monetary Fund has warned the Tongan government not to increase wages and to keep an eye on costs during the South Pacific Games.
- The IMF said the kingdom needed to “closely control the spending programme for the South Pacific Games to avoid any potential cost overruns” while it struggled to maintain a sustainable economy.
- It said the Tongan government would face financial pressure due to the reconstruction in the wake of Cyclone Ian and demands for wage increases for civil servants.
- However, while the kingdom would continue to face challenges, there had been progress in some areas, notably in “improving commercial banks’ balance sheets and strengthening the legal framework of the financial sector.”
For more information
‘IMF Staff Concludes 2015 Article IV Mission to the Kingdom of Tonga’ (IMF)
