Tonga can look forward to economic growth of three percent a year for the next three years, according to the kingdom’s 2016-17 budget.
The Ministry believes that preparations for the 2019 Pacific Games, along with number of other large projects, will support further growth.
According to the Budget Statement 2016-17, growth will be supported in the short term by a number of major events and building projects, including the Tupou College 150th anniversary and the Mormon church’s centenary.
However, the Ministry of Finance and National Planning has warned that a range of external factors could affect the kingdom’s economy and growth is expected to slow this financial year.
The kingdom remains deeply in debt to the Chinese EXIM Bank.
The cost of commodities like oil have fallen, with inflation falling as a result. In recent years the kingdom has faced high domestic inflation driven by difficulties in the agriculture sector resulting from the El Nino drought.
Remittances continue to be a critical source of income, contributing some 28 percent to disposable income, linked to the expansion of the overseas worker programs.
The Ministry of Finance has warned that growth in Tonga is highly dependent on the conditions of its main trading partner economies, Australia, New Zealand and the United States.
The Ministry also warned that while activity in the construction sector will help drive the economy, the timing of these construction projects is uncertain, and delays are possible.
Global commodity prices, including food and oil, are expected to remain relatively stable, but if they increase, this will increase costs of production, raise inflation, and could reduce household disposable income
Tonga remains highly vulnerable to extreme natural events and climatic change.
The Total Cash Appropriation in the budget is $327.7 million. When in-kind support is included, the total budget covering recurrent and development is $545.1 million.
Total revenue estimated for 2016/17 is $500.2 million. This is made up of $234.0 million from tax and non-tax revenue and $266.2 million from grants. Total expense, for 2016/17, is estimated at $346.1 million. The single largest item remains government wages at $139.2 million. The gross operating balance is a surplus of $154.0 million.
Following the change in Tonga’s debt status, the government has started to borrow on concessional terms for budget support and a few critical infrastructure projects. Domestic borrowing (through bonds) has also recommenced to provide funding for private sector initiatives of providing low cost loans.
The government expects that high priority projects will help stimulate economic development. The Ministry said the Government recognised the importance of ensuring that these projects are implemented successfully.
The construction of the facilities for the Pacific Games would be among the high impact projects. The Ministry said tank Farm project would increase the national capacity for storage of fuel, realizing economy of scale and cost saving for the economy.
Other projects focusing on improved transport and energy infrastructure include:
- New Ministry of Fisheries to drive growth of this key sector
- Nuku’alofa Beautification and National Park Projects
- New Faua Extension and Domestic Terminal Wharf
- Teufaiva Stadium Reconstruction
- Fua’amotu and Lupepau’u Airport Upgrade and Renovations
- St George Building and Tonga High School Phase II Reconstructions
- Renewable Energy Investments
Total public debt June 30 2016 is projected to be $454 million. This is 55 percent of GDP, with external debt making up 90% of the total debt.
Nearly two thirds of this is owed to the Chinese EXIM Bank. The debt service is estimated at 2.6 percent of GDP for both domestic and foreign loan for 2015/16.
The main points
- Tonga can look forward to economic growth of three percent a year for the next three years, according to the kingdom’s 2016-17 budget.
- According to the Budget Statement 2016-17 preparations for the 2019 Pacific Games, along with number of other large projects, will support further growth.
- However, the Ministry of Finance and National Planning has warned that a range of external factors could affect the kingdom’s economy and growth is expected to slow this financial year.
- The kingdom also remains deeply in debt to the Chinese EXIM Bank.
