Regions and Countries

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p. 5 of 5 BACK | NEXT I. Country Strategy II. Current Development Trends and Issues III. Implementation of the Country Strategy and Program IV.Portfolio Management Issues V. Country Performance and Lending Levels

Country Strategy and Program Update 2003-2005: Tonga

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V. Country Performance and Lending Levels

A. Lending Level Proposed

38. Consistent with ADB’s policy on performance-based allocations for ADF funding, the level of ADF funds allocated to Tonga is linked to the country’s performance with respect to policy, institutional reforms, and portfolio management. Accordingly the proposed base case 3- year rolling allocation is fixed at US$9.7 million for 2003– 2005. As Tonga is classified as a B1 country, it also has limited access to ordinary capital resources lending; an amount of US$2 million is available for the same period.

39. The exact allocation of ADF resources will depend on performance against agreed upon parameters (triggers). Key parameters include continued progress in economic management, fiscal policy, and public sector reform. Three scenarios of ADB’s lending and the proposed lending triggers are presented in Appendix 2, Table A2.8. The base case scenario for 2003– 2005 is for an allocation of US$9.7 million. In the case of performance deteriorated to the lower scenario, the allocation would be US$6 million; in the case of performance improved to satisfy the upper case triggers, the allocation could increase to US$13 million. For 2003–2005, two loans of US$5 million each, and five TAs valued at US$2.5 million have been included in the program for Tonga. Details of the lending program are shown in Appendix 2, Table A2.9.

B. Nonlending Program

40. The nonlending assistance for the period 2003–2005 focuses on (i) continuing the economic and public sector reform agenda through a PPTA on Public Enterprise Sector Rationalization in 2003, and (ii) facilitating economic growth through an agriculture sector development PPTA in 2004. Two TAs are also proposed for 2003: one is for the provision of business services to support Tongan owned small and micro enterprises, and the second is to provide training to improve financial management skills to householders affected by the public sector reform program, and to teach poor rural and urban youth basic office and other business skills to improve their employment prospects in the private sector. Details of the nonlending program are shown in Appendix 2, Table A2.10.

C. Summary of Changes to Lending and Nonlending Program

41. The ADB program of assistance to Tonga continues the strategy of fiscal and public sector reform underpinned by private sector-led growth. Assistance to the Government in implementing the EPSRP continues to be a cornerstone of ADB’s program for the next 3 years. A program loan of US$5 million is included in 2004 to provide adequate funding to assist the implementation of public enterprise rationalization recommendations, and to implement the performance monitoring regime applicable to public enterprises remaining in public ownership. A sector development program loan valued at US$5 million has been included in the lending program for 2005 for the agriculture sector. The loan will be needed to implement the recommendations arising from the agriculture sector review: product promotion, market access arrangements, and value-added processing facilities.

42. An additional TA has been proposed for 2005 to assist in the adjustment process arising from the EPSRP. Appendixes 3 and 4 provide the concept papers for the assistance pipeline for 2003–2005.

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