From Matangi Tonga Magazine, Vol. 16, no. 1, June 2001.

The Tongan economy is expected to remain sluggish during the next financial year 2001/02.

The Budget statement of Tonga’s new Minister of Finance, Hon. Sosiua ‘Utoikamanu, presented to parliament on June 5 said there would be no significant economic growth during the new financial year. Instead there will be a slight drop in the growth of GDP, from 4.4% in real terms last year to 3.2% in the new financial year. The Inflation rate is expected to remain at the current peak 8%, after slowly rising from 4.2% in February 2000 and 7.1% in December 2000. These are the highest levels since the early 1990s.

The Minister in his Budget Statement also predicted that the gross official Foreign Reserve would remain at its current low of $23.3 million, enough for 2.1 months of imports, and that the government’s financial position would remain difficult due to high expenditure commitments.

Increased expenditure

The total government expenditure for 2001/02 is estimated at $128.6 million, an increase of 32.6% from the last year’s figure of $97.02 million.

The increase in government expenditure is due partially to the establishment of three new departments, the Department of Communications, Department of the Environment, and a Commissioner of Public Relations.  On top of this, all ministries and departments have a slight increase in expenditure, but the big three are the Ministry of Education, which went by 51% from $12.66m to $19.11 million, followed by Health which went up from $8.78 million to $14.54 million, and Foreign Affairs from $3.54m to $10.23m. The 189% rise in the budget of the Ministry of Foreign Affairs is due in part to its taking over of the management of the Immigration Department and the new Department of Communication.

The increase in the budget of the Ministry of Education is due mainly to an increase in government’s financial support to non-government  schools which has increased from $50 to $100 per head.

New tax system

The Minister of Finance said that there would be no increase in taxes to meet this year’s increased government expenditure, even though a comprehensive new taxation system including the current tariff system would be presented to Parliament this year. A major portion of this year’s budget, $85.94m comes from the government’s general revenue, $7.97m from government’s Revolving Fund, $13.27m from overseas Donor Funds, $7.48 from the Tonga Trust Fund and Local community contribution, and $13.95m in kind contributions.

The Budget states, “the current economic situation is delicate, with a low level of foreign reserves, high inflation, a lower exchange rate, and slowdown in the global economy posing a specific risk to remittances from our families overseas and the global economic environment to which we are increasingly part of.

“For the Government, the main challenge is to choose a strategy that will generate new jobs for a growing labour force,” said the Minister. The government proposed to pursue a higher growth development strategy based on decreasing the public sector by reducing public expenditure progressively, and increasing the role for the private sector, church groups and non-government organisations.

“Export growth requires high priority,” he said. The review of the economy noted that fishing now closely followed squash as the second highest earning export with tuna accounting for half of the fish exported. The manufacturing industry contributed less than 5 per cent of GDP.

Currency

The Budget noted that between 1996 and 2000 the pa‘anga had depreciated by 27 per cent against the US dollar and during the 2000-01 year the pa‘anga had depreciated more sharply. In June 2000 the limits within which the Reserve Bank may make adjustements to the exchange rates were extended and the basket of currencies against which the pa‘anga is pegged was revised to reflect developments in trading patterns.