Tonga's over all Public Debt at the end of January 2015 stood at $392.6 million pa‘anga or 48.4% of its Gross Domestic Product (GDP), according to financial statistics released by the Ministry of Finance this week.

Tonga's External Debt amounted to $361.6m and Domestic Debt amounted to $30.98m.

Most of the debt is to the Export-Import Bank of China ($233.3m)  which includes the $138.9 million Tonga borrowed for the reconstruction of the Nuku'alofa Central Business District, which was destroyed during the riots in November 2006.

Since 2013, the IMF and World Bank rated Tonga’s debt sustainability position to improve from a “high risk level of debt distress” and Tonga had improved the rating to a “moderate level” of debt distress, the Ministry of Finance stated.

Loans restraints

The size of Tonga's debts remained a concern.

The Ministry of Finance stressed, “the importance for Government to strengthen its financial position, mitigate exchange rate risks and refrain from new non-concessional loans.”

The main currency denomination is the Chinese Yuan, which forms 66.7% of the loan debts.

Tonga's loan from the Export-Import Bank of China is in three parts

• $138.9m for the reconstruction of the Nuku'alofa CBD, which was destroyed during the riot in November 2006;
• $91.8m for a road project;
• $2.6m for the renovation of the now defunct Dateline Hotel.

Tonga’s other significant creditors include the Asian Development Bank ($60.8m) and IDA, a division of the World Bank ($50.6m).

Onward lending

Government has on-lent $51.5 million pa'anga to various public enterprises and other entities.

Some of those loans are outstanding. The main on-lent loans outstanding are for the CBD projects at $42.9m.

The on-lent loan repayment arrears are estimated at $8.9m, including the default by Sea Star of $6.3m and to CBD on-lent projects at $2.6m “including Sanft Ltd, Taumoepeau Ltd, Tungi Colonnade Ltd, City Assets Ltd and Royco Ltd.”

“City Assets Ltd. has yet to sign the loan documents with Government, while Royco, Sanft, Taumoepeau and Tungi Colonnade have all signed. However, only Royco Building is in satisfactory compliance with the loan requirements,” the Ministry stated.

Grant policy

The Ministry also noted that Tonga's current “moderate risk of debt distress” had also resulted in a change of financing modality by IDA and ADB “to a 50:50 loan and grant combination” from the financial year 2013-14. Previously, there was a 100% grant policy.

“The new government will continue to stress fiscal prudence in managing public debt in preparation for the annual budget of 2015-16,” the Ministry of Finance stated.