Tonga faces need to restrain public wage growth [1]
Wednesday, April 12, 2017 - 22:12
Tonga faces a growing need to restrain public wage growth to decrease the share of wages in current spending, advises the Asian Development Bank’s Asian Development Outlook 2017.
Public service wages consumed 45% of the government’s total annual expenditure in FY2016, and has risen from 11.4% of GDP in FY2012 to 13.8% in FY2016.
It points out that the increasing cost of Tonga's public wages is "crowding out capital outlays and spending on operations and maintenance, as well as undermining the implementation of policy priorities under the National Development Plan."
The 317 pages ADB report looked at the economies of 45 Asian and Pacific Islands countries with projections for the next two years.
Growth
Tonga's economy grew by an estimated 3.1% in FY2016 led by recovery in agriculture and construction, as well as strong private demand.
"This continues to be a trend since FY2103 of growth supported by post-disaster reconstruction, improved tourism, and strong recovering remittances and private sector lending."
Upward pressures saw, inflation reversed from 1% deflation in FY2015 to 2% in FY2016, accelerating on higher prices for locally produced food following Cyclone Winston in February 2016, higher customs duties on imported food products, and increased construction, (Tanoan International Dateline Hotel and St George Palace office complex.
Tonga's deficits
Tonga’s current account deficit is expected to increase to the equivalent of 7.7% of its GDP in FY2017 and to 11.9% in FY2018, “the gap widened by imports needed to prepare for the South Pacific Games and higher international prices.”
Tonga’s fiscal deficit is forecasted to narrow to the equivalent of 1.6% of GDP in FY2017. A budget surplus of 0.4% on a cash basis is projected for FY2018, narrowed mainly by strong revenue performance, restraint on wages, and a decline in personal emoluments in real terms.
Tonga incurred a fiscal deficit equal to 3.1% of GDP in FY2016, up from 1.1% in FY2015 despite a strong increase in public revenue thanks to higher tax collection and customs revenue.
Budget support drops 60.3%
"The reasons for the increase in fiscal deficit were higher current spending, led by wages, and a 60.3% drop in budget support grants, which were replaced by concessional loans. Net external debt was estimated to equal 43.1% of GDP at the end of FY2016." stated the report.
However the economic outlook remains positive for Tonga, according to the report.
Tonga’s economy is forecasted to grow by 2.6% during 2017 and 2018, supported by construction, tourism, and wholesale and retail trade in the run-up to the 2019 South Pacific Games.
The report called "Asian Development Outlook 2017 – Transcending the Middle-Income challenge", covered four groups of countries, Central Asia (8), East Asia (5), South Asia (8), Southeast Asia (10), and the Pacific (14).
Gorwth is seen to moderate in all South Pacific economies during the forecast period.
With regards to the state of the economies in Asian countries, the report stated that following decades of rapid growth, transforming Asia from a low-income region to middle income, that sustaining growth to power the transition into high income will depend on much greater improvement to productivity, Innovation, human capital, and infrastructure are the three pillars of productivity growth.
Supportive institutions and policies, underpinned by macroeconomic stability can strengthen all three pillars. Asia’s dynamic track record suggests that the journey to high income, while challenging is achievable.