No more loans for Tonga, Finance Minister warns [1]
Tuesday, July 5, 2011 - 21:54. Updated on Monday, September 9, 2013 - 18:40.
By Pesi Fonua
THE Tonga government will not be able to borrow money for a number of years, after it has completely drawn-down its $118 million pa'anga loan from China at the end of March 2012, Tonga's Minister of Finance, Hon. Sunia Fili warned the Tongan parliament, when he tabled his 2011-12 Budget to the House in June.
By June 2011, public debt was estimated to be $392.45 million or 56.1% of the GDP and well above a 40% approved threshold. The EXIM Bank of the People's Republic of China is the main creditor, accounting for 52% of external debt followed by the Asian Development Bank with 26% and other creditors, including the World Bank, the International Fund for Agricultural Development and small amounts from several commercial banks.
The Finance Minister's message to Parliament is that the new government has come to terms with "challenges" facing the country and his only consolation was for people to collaborate and work together "to develop and promote a just, equitable and progressive society in which the people of Tonga enjoy good health, peace, harmony and prosperity, in meeting their aspirations in life."
But prosperity seems elusive given the looming possibility of debt distress and the fact that for years, possibly very many years, to come there will be no more loans for government.
The Minister of Finance said that the final draw down of the remaining $31 million from the Chinese loan will be used to complete existing roads and building projects. "Once this loan is fully drawn down, we will not be able to borrow further for some years, so we will focus on maximizing the available grant funding and putting it to productive use, meeting development objectives throughout the kingdom."
"Equally important, we will devise a medium debt strategy to address and manage our high debt level," he said.
But even after taking into account the loans input there remains an estimated overall deficit of $24.7 million for 2011-12.
Hold tight
Although Tonga is heading for a very difficult time, the new budget does not offer any alternative other than to complete projects that have been set in motion by the previous government and to set objectives, which the government may not be able to implement before the next election in 2015.
So realistically it is a "hold on to dear-life" situation for the next four years while Tonga tries to pay off its large debts and somehow to accumulate enough capital to create jobs. So if prosperity for Tonga means being able to stand on our own two feet instead of relying entirely on aid donors to bail us out, it is not going to happen soon.
4,000 civil servants
There is "no line breaking move" in the new budget. A key decision on the restructuring of government to reduce the number of CEOs and civil servants has been deferred to 2012-13.
At present there are 26 CEOs and about 4,000 civil servants, whose salaries absorb as much as 90% of some government ministries budgets, leaving very little funding for providing the services that the ministries are supposed to be doing.
A cost cutting measure suggested during the budget debate was the shifting of the Tongan High Commission in Wellington to Auckland, the moving of the High Commission in Canberra to Bangkok and the moving of the High Commission in London, possibly to Brussels but where the savings were in such proposals were not immediately clear.
No obvious austerity measures have been planned.
Aid Donor support
The total expenditure of Tonga's budget for 2011-12 amounted to $344.6 million pa'anga, the Minister of Finance and National Planning, Hon. Sunia Fili told parliament when he tabled the national budget into the House in early June.
To finance the budget he said $170.9 million would come from government revenue, which comprises of $142.9 million from government domestic revenue and $27.9 million budgetary support from aid donors. He said that about 76.7% or $109.7 million of domestic revenue would be collected from taxes and duties imposed.
He sourced the budgetary support of $27.9 million to the World Bank, $8.7 million; European Union $12.8 million and $6.5 million from Australia and/or New Zealand.
Development grant
An additional source of revenue he said would be $134.2 million In-kind Grant and $39.5 million in cash from development partners for specific projects, mainly for Capital expenditure 47.2% and for Purchases of Goods and Services 36.7%.
He said that government would also use the remaining $31 million from the Chinese loan to complete roads and building projects during the 2011-12 financial year.
King's travel allowance
The debate in the House on the new budget was flat, and apart from a few publicity stunts such as a suggestion for the Law Lords not to be paid out of the Vote of the Palace Office, and for the travel allowance of the king to be reduced from $1 million to $100,000, there was nothing of substance to actually create employment or to inspire local growers to export produce.
Ministers and even members of parliament were more concerned with making sure that there was no cut to their own Votes.
When the Deputy Prime Minister Hon Samiu Vaipulu challenged the Speaker on the legitimacy of a $1.7 million Constituency Development Fund to be disbursed by members to their own electorates, pointing out that it was purely a campaigning stunt and it would be unfair in an election year, it caused a stir in the House. One veteran member even argued that it had been a long-standing practice of the House and "it used to work fine."
Apart from a few fires that were lit to liven-up the debate in the House, such as a petition to dismantle the Rugby Union Authority; a suggestion by some People's Representatives that the reconstruction of Vuna Wharf was illegal and it should stop; and a dispute by members over how the Speaker and the Clerk had recruited the new staff of the House; there was an allegation that a fast typist was sidelined, while one who does not know how to type was hired.
No opposition
Apart from all that the budget debate went reasonably smoothly after it was finally realized that the Cabinet and the Parliament are one, there was no credible opposition in the Tongan parliament and the budget was entirely their own creation.
After passing the Vote 1 of the Palace Office of $3.4 million on Thursday June 16 with a vote of 17-7, the other 25 votes went through the process reasonably smoothly, and by Wednesday afternoon, June 29, the Tonga government Budget for 2011-12 was passed.