Tonga To Face Loan Repayment Challenges

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ADB predicts declining surplus over coming year

NUKUALOFA, Tonga (Matangi Tonga, Jan. 4, 2013) – The government’s repayment of loans poses a fiscal challenge in 2013, this according to the Asian Development Bank’s Pacific Economic Monitor.

The Monitor says that although a fiscal surplus (3% GDP) was achieved in 2012 it was largely due to budget support grants worth $22 million, without these grants supporting the budget a deficit of over 1% GDP would have been recorded.

The government projects a smaller surplus of almost 1% GDP in 2013, due to an expected decline in budget support grants. Total expenditures are projected to increase by 7.7%, driven by higher capital spending despite the continuing winding down of donor-funded capital projects.

The government in September 2012 introduced a Social Benefits Scheme for the elderly, paying out $65 a month to 2082 elderly, 75 years-old and over.

An allocation of $1.6 million was approved by parliament for the Social Benefits Scheme in the 2012-13 national budget.

The Monitor reports that a combination of a large wage bill and rising debt servicing commitments will reduce other essential services.

Public debt remains around 45.1% of GDP, exceeding the 40% threshold recommended by the IMF and World Bank for low-income countries. More than 90% of the total debt is from external creditors.

Private sector credit continues to decline prompting the government to initiate discussions with multilateral development partners such as ADB and the World Bank to help improve private sector lending.

One positive outcome for 2012 however has been the growth in tourism. A sharp rise in the number of New Zealand tourists offset declines earlier in the year and tourism from Australia have recorded a high growth of over 23%.

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