Regions and Countries

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p. 45 of 47 BACK | NEXT Developing Asia and the Pacific The global economy Newly industrialized economies Central Asian republics, Azerbaijan and Mongolia People’s Republic of China Southeast Asia South Asia The Pacific Cook Islands Fiji Islands Kiribati Marshall Islands Federated States of Micronesia Nauru Papua New Guinea Samoa Solomon Islands Tonga Tuvalu Vanuatu

Tonga

Economic performance

The economy grew by 5.3 percent in FY2000 (ending 30 June), led by trade and services and supported by increased remittances and a recovery in agriculture. Inflation rose to 5.3 percent in FY2000. The current account recorded a deficit of 6.7 percent of GDP, while the capital account deteriorated substantially because of declining net private capital flows. The official capital balance recorded a small deficit. By mid-2000, foreign exchange reserves declined to 2.5 months’ import cover from 3.5 months in mid-1999.

Domestic policies: Following fiscal deficits in recent years, a surplus of 0.8 percent of GDP was achieved in FY2000, resulting from lower capital expenditure and, to some extent, increased tax revenues from higher imports. Total external debt in FY2000 was estimated at $62.2 million or 41 percent of GDP, comprising mostly concessional loans. Monetary conditions were tightened in FY1999 and FY2000 in response to official reserves losses. The tight monetary policy resulted in a slowdown in private sector credit growth in FY2000 from the level of 18 percent in 1998. Broad money increased by 8.5 percent in FY2000, following an increase of 15 percent in FY1999. Maintaining adequate foreign exchange reserves, in light of high levels of imports of consumer and intermediate goods, is a challenge. Tonga’s taxation system is under review. The system relies heavily on the taxation of trade, with high effective rates of import duties. The planned expansion of the sales tax reduced import duties. Eliminating the bulk of exemptions will facilitate productive investments and lead to a more equitable and efficient tax system. The planned revisions to the licensing procedures for businesses should also facilitate private sector development.

ADB operations

Operational strategy: ADB’s operational strategy for Tonga is to support reforms in economic policy, public sector management, governance, and private sector development. ADB continued to support the Government’s development strategy of sustainable economic growth by promoting private sector development, to ensure equitable distribution of development benefits and environment conservation.

Policy dialogue: Policy dialogue with the Government continued to focus on policies to strengthen public sector management, improve the delivery of basic public services, promote private sector-led economic growth, enhance social security, and improve financial sector efficiency.

Loans and technical assistance: No loans were approved in 2000. ADB approved two advisory technical assistance grants totaling $271,000.

Project implementation: Since joining ADB in 1972, Tonga has received 13 loans, of which 2 were active at the end of 2000. Contract awards totaled $740,000, bringing the cumulative figure to $47.0 million. The contract award ratio was 113.8 percent, higher than the ADB-wide average of 21 percent. Disbursements during the year totaled $2.9 million, bringing cumulative disbursements to $41.0 million. The disbursement ratio was 81.7 percent, higher than the ADB-wide average of 20.5 percent. The high ratios reflect a portfolio comprised of loans in their final stages, which is not associated with corresponding new commitments.

The two ongoing loans—Transport Infrastructure Project and Outer Islands Agriculture Development Project—were classified as satisfactory in terms of implementation progress and achieving their development objectives. Both loans complied with the submission of audited project accounts and financial statements, and their environmental covenants.

   

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