From left, Natalia Latu, Hon. Lisiate 'Akolo and Pilimilose Balwyn Fa'otusia

The Minister of Finance, Hon. Lisiate 'Akolo has launched Tonga's biggest ever national budget amounting to T$357.6 million for the 2013-14 financial year, expressing concern over low returns to government from public enterprises.

He was also concerned about a recent change in Tonga's loan status from high risk to medium risk with implications he feared could lead to loss of grants from donors.

The total budget amount revealed on Friday, 7 June is $18 million more than the current national budget, and notably the third year in a row that a substantial portion of the budget is funded by pledges from foreign aid donors.

The government will contribute $163.1 million while the balance comes from $35.7m in Budget Support from Aid Donors; $50.3m in cash for development projects by development partners, and $108.5m money in-kind from aid donors.

The total working budget for government ministries and government bodies is $198.8m, being a $19.84m increase from the current budget.

The Minister of Finance at a press conference announced that he has a balanced budget, but he must make sure that foreign aid donors will honour their pledges.

He revealed that the World Bank and the EU had not honoured their pledges of budget support for the current budget "because we did not abide by what is called the Policy Metric."

He said that under Policy Matrix there was a list of things for government to do before budget support funding is released. Under the current budget because the Tonga Energy Road Map (TERM) had failed to fulfill the EU requirement, they did not release their budget support.

Government loans burden

The Budget Support funding became available to government after the government loans amounted to 45% of the Gross Domestic Product (GDP).

Lisiate said that 45% for some countries is not a worry, but for Tonga it is, and the government had agreed, that there would be no more new loans until Tonga reduces the 45%.

The government loan repayments in the coming financial year has increased by $9.1 million, mostly to repay the estimated $120 million loan from China for the reconstruction of Nuku'alofa.

The Minister said that during the past five years Tonga had been paying just the interest on the China loan, but starting this September they will be paying interest and principal. Tonga's total loan repayment allocation under the new budget is about $20.1 million.

Risk status

Our reliance on overseas donors to balance our budget while we are trying to repay our loans is becoming a contentious issue;

The Minister of Finanace said that under the Chapter IV annual review of the Tongan economy by the International Monetary Fund (IMF) this year, Tonga had been declared as being "high risk", with regards to being able to repay its loans, and therefore was allowed "no more loans".

However, just at the end of May, the IMF had declared Tonga's loan status as "medium risk", which meant that Tonga may borrow.

"That was the good news," said Lisiate, "but the bad news is that we no longer can have access to 100% grant, now it is going to be 50% grant and 50% loan. The problem with this approach is that other donors, such as the Asian Development Bank will follow suit and that will not be good for Tonga."

Under such an arrangement the Minister was puzzled with the thought that the $34 million grant from the World Bank to bring in the fiber optic telecommunications cable network to Tonga, which was originally going to be a grant means that Tonga will have to repay half of it as a loan.

"We are drafting a response to the IMF, that declaring Tonga as "medium risk" is not good for Tonga," said Hon. Lisiate 'Akolo. "We have to get our response to them before the end of June when they will finalise their decision on Tonga's loan status."

Revival of economy

The solution to all these problems is to revive the Tongan economy which is in its lowest ever. The IMF has forecasted that the Tongan economy will grow by half a percent in the coming financial year.

Lisiate said that reviving the Tongan economy is very difficult because of the difficulty of trying to change the people's mind-set.

"For a number of years our main source of revenue come from remittances, and it has became a way of life for people to just sit around waiting for remittances to come from their families and relatives overseas, but with a dramatic decline of remittances by 50% from $200 million per annum, and an increase in unemployment in industrial cities, we have to revive our economy."

Lisiate said that it was easier said than done.

He gave an example that under the current budget there was an allocation of $1 million that was set aside to encourage exports, "so that exporters, could pay the growers cash, thereby encouraging the growers to go out and grow more, leaving the exporters to concentrate in the business of export. Some of this money has not been utilized because the people involved wanted to use it for production, but that will open up the doors to demand the same thing."

Lisiate believed that there as just too much talk but no action, and that was the fundamental problem in trying to revive the Tongan economy.

Royal Commissions

To get the Tongan economy back on track and reduce Tonga's reliance on remittances and foreign aid, Lisiate has allocated a half a million to investigate declines in revenues and also a social problem in schools.

The allocation is for the establishment of two Royal Commissions. One Royal Commission will investigate the management of government public enterprises. Lisiate claimed there was a dramatic decline in the dividends that some of these  enterprises were paying to government. He said that one public enterprise used to pay a $6 million dividend annually, but was now paying only about $300,000.

He said that the dividends from government public enterprises were very important income that was required to balance his budget. In the new budget there are no increases in taxes and duties, but there is an increase in the allocations for all ministries, though some more than others.

Destablize the country

The other Royal Commission is to investigate and to find a solution to the fighting that has been going on for years between secondary schools students.

He said that something has to be done because the fighting had spread out into villages and it could destabilize the country and undermine the economy.

But going back to the drawing board, the he said that the theme for his new budget is "Continuing to Create Opportunities by Building on Inclusive Sustainable Growth", and the three distinct groups which are targeted are: Communities, Private Sectors, and Government, as well as the management of Government Finance.

Communities

An allocation of $1.7m has been set aside for the elderly, aged from 75 years upward. There is also an allocation of $0.48m for the transportation of children to schools, and also the Electoral Constituency Fund of $2m - an amount that elected People's Representatives to the Tongan parliament could use to implement community projects in their constituents.

Private Sector

With the Private Sector, Lisiate said that six Sector Growth Committees would be formed, and come under the umbrella of a National Growth Committee. "So there would be an Agriculture Growth Committee, a Tourism Committee, a Fisheries Committee, a Manufacturing and Processing, Construction and Services, Commerce and Trade, and Retailing and Wholesale".

He said that half a million pa'anga was allocated to Manufacturing and Processing, another half a million for Tourism, and $1 million for the Tourism Authority.

Airline support

They will also assist the Real Tonga Airline, and they have allocated $250,000 to pay for the airline's Withholding Tax, "because they have to pay their tax, but they are new and still struggling and at the same time to assist tourism."

Government

The budget allocation for the Ministry of Health will increase by about a million pa'anga. There will also be an allocation of about $1.2m to revive the Tonga Maritime Polytechnic, and $480,000 for roads work.

The allocation for the Ministry of Police goes up by $800,000, and the Judiciary by $900,000.

The Minister has also allocated $250,000 each for the establishment of Tonga's first Chief Justice, and an Anti Corruption Commissioner. He said that these salaries were too low for what a foreigner in those positions would demand. "But the question is why is it only Tonga in the region that does not have a local as a Chief Justice?" he asked.

The 2013-2014 National Budget will be formally presented to parliament on Thursday, 13 June.