The IMF has approved US$9.95 million under its Rapid Credit Facility, to help meet Tonga’s “urgent balance of payments and fiscal needs arising due to the COVID-19 pandemic and Cyclone Harold.”

The Executive Board of the International Monetary Fund, in Washington DC, approved the disbursement under the RCF today 25 January.

The RCF provides rapid financial support in a single, up-front payout for low-income countries facing urgent financing needs. Financing under the RCF carries a zero interest rate, a grace period of five and a half years, and a final maturity of 10 years.

The IMF noted that the COVID-19 pandemic and the 2020 Cyclone Harold are taking a heavy toll on Tonga’s economy, derailing the slow recovery from the devastating 2018 tropical Cyclone Gita.

“The IMF Executive Board approved disbursement of US$9.95 million in emergency financing to help Tonga meet its urgent balance of payments and fiscal needs arising due to economic and healthcare support necessary to cope with the pandemic.”

It noted that the authorities are taking strong policy actions to address the pandemic, but stated that: “Continued support from donors, particularly through budget grants and debt relief, will be critical to help Tonga navigate the pandemic and meet its development and climate-resilience needs.”

The early closure of external borders had helped avoid a worse economic outcome.

“Nevertheless, an economic contraction is expected in FY2021.”

The IMF stated that for Tonga, post-pandemic, high-quality fiscal adjustment will be important to ensure debt sustainability while achieving climate and development goals. Continued efforts are needed:

• to broaden the tax base,
• improve spending efficiency and the targeting of fiscal support,
• strengthen transparency and accountability in public financial management, and
• ensure effective debt management strategies.
• Financial supervision warrants further improvements in light of rising risks to financial stability.

“Over the medium term, structural reforms to promote private sector-led growth will help Tonga meet fiscal and development challenges. Continued support from the international community, through grant financing and debt relief, would be essential,” the IMF said.