A waning commitment by the Tongan government to reform has caused delays in grants for budget support and raises concerns regarding long-term fiscal sustainability, the Asian Development Bank warns in the December 2015 issue of the Pacific Economic Monitor - Budget Analysis.

The analysis pointed out that even though Tonga’s economic growth remained modest at around 2% in recent years, but government commitment to reform “has been waning".

Government expenditure has continued to increase, and is expected to rise even further because of preparation for hosting the 2019 Pacific Games.

“Despite new taxes, revenue streams have struggled to keep pace with spending,” it stated as a key issue.

Spending increasing

Meanwhile, the Tonga government Fiscal Year (FY2016) budget plans another large increase in public spending, “with capital expenditures set to increase by 75% in FY2016, driven by the expected start of delayed projects”. (These projects were originally planned to be implemented during the FY2015).

“However, capacity constraints could further delay some projects. Recurrent expenses are budgeted to rise by 30%, including a 17% expansion in the public wage bill.

“Revenues are expected to rise with higher excise taxes on unhealthy food and beverages and royalties from broadband cable operations. Higher departure taxes and a controversial new foreign exchange levy are being implemented with the stated purpose of funding preparations to host the 2019 Pacific Games.

“The planned fiscal expansion for FY2016 is expected to result in an overall deficit equivalent to 3.6% of GDP, to be financed from a combination of domestic borrowing budget support, and project loans,” the report stated.

Remittances

Private remittances increased slightly to the equivalent of 26.5% of GDP in FY2015 from 26% in FY2014. However, tourism receipts declined to the equivalent of 7.6% of GDP in FY2015 from 10% in the previous fiscal year.

Tourism

On a positive side of things Tonga, Cook Islands and Samoa appeared to be attracting more tourists from New Zealand.

According to ADB PEM the number of New Zealand who are visiting the Pacific during the first eight months of 2015 went up by 7.7%. Fiji sustained double-digit growth in visitors from New Zealand, while Tonga, Cook Islands and Samoa also recorded solid rates of growth.

Pacific islands exports

Pacific countries exports to Australia fell by 21%, between January-August 2015. The decline was due mainly to a drop in the export of crude oil from PNG to Australia. PNG, however offset the decline with an increase in the export of PNG gold to Australia, which went up by 9.5%.

Pacific countries exports to New Zealand also fell by 21.7% during January-August 2015. The drop in export was due to drop in agricultural export  particularly vegetables from Fiji, and coffee and peanut from PNG.

The Pacific countries import of fuel Singapore during January-September 2015 also fell by 3.7%.

Fiji and Solomon Islands import from Singapore fell by about 50% compare to the same period during the previous year, as they have partly shifted  to suppliers from Australia and New Zealand. However, the decline was offset by PNG when it increased its fuel imports from Singapore by 31.8%.

With regards to the number of tourists who are visiting the Pacific, Fiji was the most popular destination. During the first eight months of 2015, 70% of all visitors to the Pacific went to Fiji.

According to the ADB Pacific Economic Monitor Australian tourists have established a “pattern of substitution” between vacations in Fiji and Vanuatu. When Fiji was struck by severe flooding in 2009 and 2012, Vanuatu saw an increased visitors from Australia. This year after Cyclone Pam hit Vanuatu, the number of Australian visitors has fallen by 27.3%.