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Economy and Trade

Tonga starts repaying $10.8m a year to China for reconstruction

Nuku'alofa, Tonga

Nuku'alofa riots of November 2006. The Taumoepeau Building and Molisi Tonga ablaze on Salote Road.

By Pesi Fonua

The Tonga Government will start paying $TOP10.8 million a year during the next ten years, (principal only) of its  $TOP119m loan from the Exim Bank of China.

The loan, approved by the Tongan Parliament on 2 July 2007 was for the reconstruction of the Nuku’alofa CBD after it was ravaged during riots on 16 November 2006.

The Minister of Finance at the time, Hon. Siosiua ‘Utoikamanu, told members of the House before they approved the loan that it was known as “Export Credit”.

“The way the Export Credit works is that the [Exim] Bank pays a contractor to come and construct the buildings. None of the money is given to the government. The government picks the work that needs to be done and then informs them,” he said at the time.

A total of ten projects were funded with the loan and a ceremony was held on 14 August 2012 to mark the completion of the reconstruction projects.

The projects completed under the loan were:

  • $31.9 million Vuna Wharf Project>
  • $23.5 million Civil Works - (94% complete)
  • $15.6 million Tungi Arcade Building Project
  • $13.7 million Royal Palace Extension Project
  • $9.6 million O.G. Sanft Building Project
  • $6.7 million Taumoepeau Building Project
  • $3 million City Assets (Molisi Tonga) Building Project
  • $1.6 million Royco Building Renovation Project
  • $1,315,536 City Park Project
  • $211,900 Golden Apple Building Design Project.

Tonga later concluded an agreement with the Exim Bank to defer its payment of the principal amount of the loan for five years, although it would start paying the loan interest.

So starting in this current financial year 2018-19 Tonga will start repaying the Principal amount of the loan, plus the interest.

In the 2018-19 government estimated budget, it stated that Tonga’s "public debts interest payment foreign is $6.3m", meaning that Tonga's debts on interest of all its foreign loans is $6.3m; and its "Public Debt Principal Repayment Foreign is $17.8m". This means that all its debts on Principal Repayment of its foreign loans is $17.8m.

Matangi Tonga learned that unfortunately, the Minister of Finance, Hon. Pohiva Tu'i'onetoa was away overseas and no one in the Ministry of Finance was able clarify the total amount of Principal plus Interest that Tonga has to pay the Exim Bank of China annually from now onward during the next 10 years. The amount remains unknown to the public, and the very few people in government who know the true figures were unwilling to reveal it.

However, a reliable source, a former Minister of Finance of the present government, explained that after deducting the government principal repayment of foreign loans from other sources, which amounted to $7m, from the $17.8m for Public Debt Principal Repayment Foreign, the remaining $10.8m is the Principal amount that the Tonga government has to pay the Exim Bank of China annually for the next 10 years for of its $TOP119m loan. He could not verify the loan interest, but the total loan interest that Tonga has to pay the Exim Bank for all its loans, including the $119m loan is $5.4m annually.

Foreign reserves decline

Meanwhile, the National Reserve Bank of Tonga (NRBT) reported this week that Tonga's Official Foreign Reserve declined by $22.8 million over the month of September 2018 to $452.2 million, equivalent to 7.3 months of imports, and 'the commencement of the principal repayment to the Export Import (EXIM) Bank of China contributed to this decline'.

See also:

5 September 2014: Tonga fails to write-off China loan

2 September 2012: NDC parliamentary select committee questions legality of $119m loan from China