A top priority for Tonga is a reduction in the size of its public service and a reduction of the wage bill to 45%, from the current height of about 75% of the government's annual budget, a new economic report by the Asian Development Bank recommends.

The "ADB Economic Outlook on Tonga for 2012", released in Nuku'alofa on July 12 highlighted an on-going battle by the Tongan government to revive the economy since the civil servants 60-70-80% salary rise in 2005, and the destruction of the Nuku'alofa CBD in 2006.

Reconstruction investment brought some temporary relief, and the economy rebounded between 2007 and 2011 with a GDP growth of about 4.7%. The GDP per capita in 2011 was estimated at $4,118.

This growth was attributed to spending on the restructuring of infrastructure financed by development partners, and two multi-million pa'anga loans from the EXIM Bank of China, one for the reconstruction of the Nuku'alofa CBD in 2007 and another for roads rehabilitation in 2010.

Tonga's external debt in 2011, according to the report was 51.4% of its GDP - more than the IMF's recommended ceiling of 40% of its GDP.

Private sector growth

However, the ADB report, in a more positive tone stated that, "Tonga's business environment has both strengths and weakness."

It strongly recommended that for Tonga to attain a sustainable economic growth, it has to invest more in infrastructure and to nurture a private sector-growth economy.

There is also a conviction that Tonga is on the right track to economic recovery, that the World Bank has up-graded Tonga's external borrowing status from High Risk to Medium Risk. This means that the World Bank will no longer can give Tonga a 100% grant; grants from the World Bank will now be 50% grant and 50% loan.

The report identified that state-owned enterprises drained the national budget and hampered economic growth.

It also pointed out that the poor state of Tonga's physical infrastructure is one of the pressing issues facing government, and is hampering the development of the private sector.

Reduction in public service

The 100-pages report gave a comprehensive sketch of the state of the Tongan economy and recommendations for the Tonga government to implement to get the economy back on track.

Top priority for Tonga is a reduction in the size of its public service and a reduction of the wage bill to 45%, from the current height of about 75% of the government annual budget.

The ADB recommended that for Tonga to reverse its extremely low rates of both capital and labor productivity it must nurture a private-sector-led growth economic policy.

High debt

It has also pointed out that the public debt levels have reached "debt sustainability ceilings, and the effectiveness of infrastructure investment is hampered by a large public wage bill, low levels of capital spending, insufficient resources for operation and maintenance, and poor linkages between policy priorities and budget allocations."

Rural poverty reduction

On the issue of poverty elimination, the ADB recommended, that first and foremost, there must be a commitment to improve the income-earning opportunities in the rural areas of the outer islands and in the peri-urban areas.

In 2001 16.2% of the population lived below the basic needs poverty line, but by 2009, 22.5% of the population were living below the basic needs poverty line.

Student drop-outs

With regards to the Education Sector, the report stressed that the highest priority should be accorded to reducing dropout and repetition rates in primary and secondary education, as these are the areas where scope for quality improvement in basic education would be critical.

The report noted that there is a poor performance of students prior to Form 4, and a high repetition and dropout rates after Form 4.

 The ADB Tonga Economic Update and outlook 2012 also recommended for government to appoint an Anti-corruption Commissioner.