The Ministry (for Finance and National Planning) is willing to assist and respond to questions raised to the Budget that Government is currently tabling to the House, and more importantly, to take the cue from the House proceedings.
In relation to the letter to the Editor on Government bonds, the proposed budget 2014/15 includes a Government proposal to raise a loan of TOP$20 million through the issue of bonds in order to:
(i) Replace part of the government’s existing ‘transfer value’ debt owed to Retirement Fund Board which carries an annual interest of 6 percent using $10 million Pa’anga; and
(ii) Fund on-lending operation to promote private sector growth and to infuse low-cost credit into the economy—using $10 million Pa’anga.
Both the above will form part of public debt. However, Government considered in the budget formulation the high level of liquidity existing in the economy, the high spread between lending and savings, cost of borrowing and returns to the economy from (i) and (ii) above. The proposals may raise fiscal risks however, Government has taken steps to put in place specific measures to contain these risks.
We all know, that carrying substantial debt is neither comfortable, nor financially prudent, however doing so gives Government more choices necessary to support the budget objectives. As a percentage of GDP, our level of debt equivalent to 46 percent considered manageable in accordance with the improved rating of Tonga’s debt distress by IMF from high to moderate since July 2013. Tonga ceased to be considered at ‘high risk’ of debt distress due to recent improvements in Government policy and institutions. We are unlikely to return to ‘high risk’ because new rules require that the contribution of remittances to improved debt sustainability is taken into account, when they had previously been excluded. It will be rare for countries with high remittances such as Tonga, to be classified as ‘high risk.’
Among other financing means including donor financing first where possible grants, Government has also opted for the choice of issuing Government bonds as part of its financing plan for the 2014/15 budget.
Will be happy to assist and respond to further queries.
CEO, Ministry of Finance and National Planning
secretary [at] finance [dot] gov [dot] to