Tonga needs to grow private sector to resolve fiscal challenges [1]
Tuesday, May 5, 2020 - 18:11. Updated on Tuesday, May 5, 2020 - 18:12.
Tonga needs to grow its small private sector in order to find a lasting solution for the country's fiscal and development challenges, reports the International Monetary Fund (IMF).
In order to do this Tonga will have to address the main deterrents to private sector and foreign investment in the country, stressed the report published on 17 April.
Tonga is a large recipient of IMF technical assistance and is on a 24-month consultation cycle.
The most recent IMF Article IV consultation mission took place between February 10-20, 2020, and structural constraints were identified to be impeding Tonga’s private sector development.
Tonga is lagging in terms of registering property, and the legal framework and processes for resolving insolvency.
There is also scope to improve governance, particularly regarding regulatory quality and enforcement, government effectiveness, and control of corruption.
Reforms are needed to increase access to skilled labour by improving the Technical and Vocational Education and Training (TVET) programs and facilitating the integration of Seasonal Workers Program (SWP) workers into higher value added activities and female workers into the labour force.
According to the IMF report, Tonga’s monetary stance should stay supportive through the economic fallout of the CoViD-19 pandemic. The National Reserve Bank of Tonga (NRBT) is maintaining a monetary policy rate at zero per cent and the statutory reserve deposit rate at 10%.
The IMF regarded the recent announcement by the NRBT of its readiness to provide liquidity to banks if needed, as appropriate.
Nevertheless, financial sector vulnerabilities need to be better understood, closely monitored, and continued improvements in supervision and inclusion are needed.
The NRBT is strengthening risk-based offsite supervision to complement its onsite efforts. New regulations came into effect in 2019 and others are being drafted or awaiting Cabinet decisions.
“As the pandemic unfolds, continued vigilance regarding its impact and that of the announced restructuring of loans on bank capital and liquidity buffers is warranted. Improving financial literacy and awareness and strengthening institutions such as credit bureaus will help improve financial inclusion. Given the importance of remittances for the economy and the financial system, the Anti-Money Laundering/Counter Financing of Terrorism AML/CFT framework should be strengthened,” stated the report.