Tonga has two accumulating government debts that the Minister of Finance, Dr 'Aisake Eke plans to address during the 2014-15 Financial year.

The multi-million dollar loans from China and the $17 million loan that government owes to the Civil Servants Retirement Fund both present repayment challenges for Tonga.

'Aisake explained during a Press Conference on his 2014-15 Budget Statement on Friday June 13 that the government's two accumulative debts were one external debt with the EXIM Bank of China, and the other was a domestic debt with the Civil Servants Retirement Fund.

He said that the repayment of the principal of Tonga's two multimillion dollar loans from the EXIM Bank, China for the reconstruction of Nuku'alofa and for Tonga National Road Improvement project was deferred to start during the 2018-19 financial year.

But to ascertain that Tonga can repay its loans 'Aisake planned to establish a Sinking Fund, which will start accumulating capital for when Tonga will have to start repaying the principal of its multimillion dollars loan from China.

The first loan for the reconstruction of Nuku'alofa was $119 million (USD) and the second loan for a Tonga National Road Improvement project was about $86 million (Pa'anga).

Meanwhile, Tonga is paying $5.4 million annually to the EXIM Bank, just for the interest on the two loans.

He said the government's domestic accumulative debts to the Civil Servants Retirement Fund, now amounted to $17 million at 6% interest,

'Aisake planned to allocate $10 million from the sales of $26 million government bonds to bring down this high debt.

'Aisake said that the loan was taken when the government pension scheme was terminated during the 1990s and the Civil Servants Retirement Fund was introduced. At the time government did not have any money from its Pension Scheme to transfer to the Civil Servants Retirement Fund, and the loan agreement was required. Since then the amount with a 6% annual interest rate kept accumulating to where it was today at $17 million.

"If we want the civil servants to go, we have to give them $17 million," said 'Aisake.

Salary rise

Amid Tonga's financial difficulties, in the new budget the government has agreed to give civil servants a 5% salary rise, back-dated to January 2014.

'Aisake said the 2014-15 national budget is a balanced budget, there will be no major increase in taxes other than an increase in excise tax on tobacco from $200 to $250 per 1000 cigarettes and the introduction of duties on sugared drinks and animal fat.

Other than that government will finance its 41% share of the budget expenditure, with 32.4% from tax revenue, 61.2% from grants and 6.4% from non tax revenue.