World Bank: Tongan Gov Needs To Constrain ‘Unproductive Spending’

Fiscal sustainability best pursued through containing unproductive spending while boosting critical expenditures on health and education

NUKU‘ALOFA, Tonga (Matangi Tonga April 21, 2017) – Two key challenges that the Tongan economy faces now are for government to manage carefully its wage bill and also its financing of the 2019 South Pacific Games related constructions, the World Bank says in its latest Economic Update for Tonga.

The Economic Update Report for East Asia and Pacific April 2017 stressed that if Tonga is able to manage its expenditures prudently, it will be able to retain the fiscal space necessary to meet pressing service delivery needs, and respond effectively to the frequent natural disasters shocks.

For Tonga to ensure that it has fiscal sustainability, the World Bank believes that Tonga should undergo an economic reforms to shore up its revenue, “contain unproductive spending while boosting critical expenditures on health and education, and build up buffers against shocks.”

It has been an established formula of the Government annual budget that more than 50% of a ministry's budget allocation is for salaries. In some ministries it can be as high as 70%. With so much going on salaries, there is very little left for public services, let alone the concept of building up buffers to counter disasters shocks. To finance the construction of public facilities and to build up buffers, government would need to either seek concessional loans or financial assistance from aid donors.

However, the report pointed out that Tonga has multiple opportunities to achieve higher economic growth. It specifically identified Tourism, Labor Mobility and Information Communication Technology (ICT) as enabled opportunities, offering employment opportunities and shore up Tonga’s revenue.   

To maximise benefits from tourism, it recommended for Tonga –

  • To tap more into the Chinese tourism market
  • Increase the number of luxury resorts
  • Capture more of the retiree market.

Tonga has ventured out to attract more Chinese tourists. Tonga’s PM Hon. ‘Akilisi Pohiva and the Chinese Ambassador HE Mr Huang Huaguang on 9 June 2016 signed a Mutual Visa Exemption Agreement for ordinary passport holders.

The agreement enables citizens from Tonga and China to be exempted from visa requirements for entry into, from or transit through the territories of the other for a period of stay not exceeding 30 days.

In a farewell function on 8 April, HE Mr Huang Huaguang announced that direct flights from China to Tonga would start soon.

There has also been talk of a regional air service, based in Tonga, utilising a MA60 aircraft that China donated to the Tongan government.

The MA60 aircraft is currently being operated by the Real Tonga Airline, on its inter-islands service between Tongatapu and Vava’u.

But moving forward with Tonga’s aiming to host the 2019 Pacific Game and to build luxury hotels the Minister for Revenue Collection and Customs, Hon. Tevita Lavemaau introduced into the House on 17 February the Pacific Games 2019 Taxation Incentives.

Tonga's hosting of the 2019 Pacific Games has encountered many problems, primarily because of disagreement by government officials and individuals who were selected to oversee the construction of sporting facilities and organising and the running of the games.

The Pacific Games 2019 taxation Incentives Bill 2017 was rushed through the House and was passed with votes of 13-3.

The nine page Act will clearly benefit big investors. Under the new act , in return for a large tourism development investment of $3 million or more investors may apply for income tax deductions of up to $6 million of their income.

The Minister of Revenue and Customs may also grant a special tax incentive to a person who is eligible if they make a donation of more than $50,000 to a sporting body.

When Hon Tevita Lavemaau presented the Bill to the House he stressed the importance for the Bill to be passed. “If we don’t pass this Bill, the sports (2019 Pacific Games) will be a sad Story.”

Initially it was estimated that Tonga need USD$70 million to be able to host the 2019 Pacific Games.

Matangi Tonga Magazine
Copyright © 2017 Matangi Tonga. All Rights Reserved

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