IMF CAUTIONS TONGA: CUT SPENDING, AVOID

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BORROWING
Economic growth of 1.2 percent predicted this year

WELLINGTON, New Zealand (Radio New Zealand International, March 31, 2011) – The International Monetary Fund says the Tonga economy is likely to grow slightly this year.

It predicts growth of 1.2 percent because of stronger tourism activity and pro-growth fiscal policies, supported by donor aid and previously contracted loans.

The IMF also says that remittance inflows have stabilised in recent months after falls following the global financial crisis.

But it says the growth momentum will likely be limited due to tough lending standards from banks after a rise in nonperforming loans in the past two years.

It says risks remain high due to external factors such as the weak global economy and high commodity prices.

The IMF says Tonga is still threatened by high debt distress, leaving it vulnerable to shocks, including natural disasters.

It has recommended the Government avoid new borrowing, reduce current spending, improve tax administration and promote transparency.

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