Tonga's economic growth to drop slightly in 2017-18 [1]
Monday, December 12, 2016 - 17:17. Updated on Tuesday, December 13, 2016 - 10:59.
Economic forecasts show that while the Tongan economy is expected to grow by 3.1 % in the current financial year up to 30 June 2017, it will not maintain that growth rate.
According to an Asian Development Bank Country Operations Business Plan for Tonga 2017-2019, published in November 2016, The Tongan economy for the 2017 Financial Year will grow by only 2.6%.
Notable risks that the Tongan economy could face during the 2017 Financial Year, are natural disasters such as Tropical Cyclones, and a large increase in spending and cost overruns in Tonga’s preparation to host the 2019 Pacific Games “that could weaken fiscal sustainability and raise public debt.”
Tonga’s commitment to host the 2019 Pacific Game is seen as a double-edged sword. While the forecasted 2.6% economic growth for 2017 is attributed to construction, tourism and trade in the run-up to the 2019 Pacific Games, there is also a warning of cost overruns for the Pacific Games that contribute to the estimated 0.5% decline in growth.
The report also pointed that Tonga’s growth performance between 2005 and 2015 has been volatile due to a combination of resources constraints, and exposure to external shocks.
But while Tonga’s capacity is “thin” it has undertaken significant political and economy reforms over the past few years.
The plan for the Private Sector to be the driving force of the economy, and to speed up the democratisation process was implemented and remains in progress.
The report noted that by embarking on these reforms, successive governments, and development partners had identified and put in place policy reform measures needed to improve Tonga’s growth performance, and resilience to the impacts of climate change and natural disasters.
Overall, these efforts have lifted Tonga’s economy into a leading position among Pacific developing member countries, “with high country performance assessment, ease of doing business, state owned enterprise portfolio performance, and Millennium Development Goal ratings.”
Low productivity
Investment in infrastructure is crucial for Tonga’s economic recovery. It provides a boost to economic activity and jobs but also creates assets that could have long lasting economic benefits.
However, the productivity of much of this investment is low, being channelled, for example, into residential and office space construction; “the latter has excess capacity.”
There are many empty office spaces in Nuku’alofa.
According to the report, Tonga’s indicative allocation from the ADB for 2017-2019 is $39.89 million, including $10.41 million from Disaster Risk Reduction resources.
The ADB’s proposed cumulative lending program for the three-year period is estimated at $160.8 million. The ADB will also seek additional sources of financing.
The ADB indicative annual non-lending assistance pipeline to Tonga is about $1.3 million, which will be supplemented by regional Technical Assistance to improve responsiveness and flexibility.
As agreed with the Tonga government, the ADB will focus non-lending support on project preparation and policy implementation.