The Asian Development Bank (ADB) and the Government of Tonga signed a $10 million policy-based grant agreement today, 12 April, to help expedite economic recovery from disasters caused by natural hazards and health emergencies.

The agreements were signed at the ADB headquarters in Manila Philippines, by ADB Executive Director Made Arya Wijaya, on behalf of the Government of Tonga, and ADB Director General for the Pacific Department Leah Gutierrez.

Improving economic management program

The ADB-supported Improving Economic Management Program first subprogram will help the government implement reforms to mitigate fragilities intensified by the Covid-19 pandemic, and the 2022 volcanic eruption at Hunga Tonga–Hunga Ha'apai (HTHH) and tsunami.

“The subprogram will help Tonga meet development financing needs and build resilience against disasters, which will be intensified by climate change,” said ADB Senior Public Sector Economist and Program Team Leader, James Webb.

“The program comprises two subprograms that will strengthen public sector management and sustainability and boost social and economic resilience in Tonga.”

The Public Financial Management Bill supported under the program includes putting a numerical limit on new debt and codifying the need for debt management and fiscal strategies.

Further reforms support the continued implementation of the Electronic Sales Register System, which will transmit point-of-sale transaction data to help assess tax liability, better assess risk, strengthen enforcement of consumption tax, and partially automate value-added tax returns.

Activities to improve private resilience include the approval of the pilot Authorized Economic Operator (AEO) Secure Export Scheme that will create a network of accredited, vetted suppliers and transporters for streamlined exports; especially important for perishable exports and supporting recovery following disasters. A revised National Policy on Consumer Protection and Competition will strengthen the regulation of anticompetitive or unfair practices, empowering consumers to enter into transactions with confidence that their rights will be protected and to promote the further development of competition in markets in Tonga.

Meanwhile, ADB stated that social inclusion will be improved through the approved National Social Protection Policy (NSPP), 2023–2033, which takes lessons from the challenges experienced during COVID-19 to reviews current programs, identify gaps and improvements (including social and gender vulnerabilities), and outline policy priorities. The NSPP promotes transparency and accountability around investments in social protection as the economy grows and the fiscal recovery allows.

The ADB- supported program builds on previous ADB policy-based operations and public sector management engagements in Tonga, while supporting ADB’s Strategy 2030 of strengthening governance and institutional capacity.

The program was developed in coordination with the World Bank and the governments of Australia and New Zealand, in consultation with the International Monetary Fund.