Cyclone Ian a blessing in disguise for Tonga [1]
Thursday, February 27, 2014 - 13:30. Updated on Thursday, February 27, 2014 - 13:38.
Cyclone Ian could be a blessing in disguise for Tonga's struggling economy, with the Reserve Bank now predicting an economic stimulation from the inflow of new development assistance.
Dr Ngongo Kioa, the new Governor of Tonga's National Reserve Bank, said this week that he expected that the multi-million dollars assistance pledged by donors for the reconstruction of Ha'apai would stimulate Tonga's economic growth and increase the Gross Domestic Product (GDP).
Speaking on the “State of the Tongan Economy” to members of the Tonga Chamber of Commerce on Monday February 24, Ngongo said that the irony of the situation was that a growth burst of the Tongan economy takes place during reconstruction after a major destruction.
He noted that following the completion of the completion of the reconstruction of Nuku'alofa toward the end of 2010 there had been a noticeable decline in the growth of the Tongan economy and the GDP dropped.
Ngongo was appointed as Governor of the National Reserve Bank in August 2013.
A snapshot of Tonga's current economic position showed that the Tongan economy was expected to grow by a mere 0.2% during 2014. At the same time Tonga's GDP was expected to grow by 2.2%.
In 2015 the GDP was now expected to reach 3% growth because of the financial assistance received for the reconstruction of Ha'apai.
Concern
The National Debt was an issue while it remained at about 50% of the GDP.
Ngongo pointed out that though the International Monetary Fund (IMF) had relocated Tonga's lending position from “High Risk” to “Moderate Risk”, and that Tonga's debt ratio was not as high as that of some developing island economies, but our "debt finance capability is a concern".
Tonga's repayment of its multi-million dollars loan from China for the reconstruction of Nuku'alofa was deferred from last September 2013 and the repayments were now expected to start in September 2014.
Reliance on aid
Meanwhile the Tonga government was relying on “budget support” from donor countries to balance its annual budget.
The Tonga government’s revenue sources continued to be customs duties, income taxes, consumption tax, remittances, and tourism earnings.
Tonga's annual imports form 46% of its GDP, while it exports only 2.5% of its GDP.
On the positive side of things, Tonga Foreign Reserve remains at a record high level, having enough for 10 months of imports, and the inflation rate in January was 4.2% - well below the 6-8% benchmark.
With regards to bank loans, Ngongo said that credit lending was "bottom-up".
This meant that the three commercial banks, Westpac, ANZ and MBF had money to lend, and the money market would be further boosted when the new bank, the Pacific International Commercial Bank began operations in March.
Ngongo closed his presentation with a question, asking: “What can the Private Sector do to boost economic growth?”
The answer to Ngongo's question were more unanswered questions, such as how could government expect the private sector to drive the economy when they were heavily taxed while struggling to survive in a stagnant economy?
There were little to no incentives to attract foreign or local investments.
Chamber of Commerce members also queried what had the government done to attract investment so that Tonga could capitalize on its new multi-million pa'anga high-speed fiber optic telecommunication cable network.
Dr Ngongo Kioa, Reserve Bank Governor (centre), with Chamber members Diane Warner and Paula Taumoepeau