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Annual Report 2002 : Pacific

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Tonga

Economic performance

In FY2002 (ending 30 June 2002), Tonga’s real GDP grew by 1.6%, mainly reflecting reconstruction work in the northern islands. A strict fiscal policy stance resulted in a budget deficit of 0.6% of GDP. Inflation was 10.4%, compared with 6.9% in FY2001. A tight monetary policy protected foreign reserves and eased inflationary pressures. At end-FY2002, external debt was 46% of GDP. From a deficit of 9.5% of GDP in FY2001, the current account balance moved to a 5.5% surplus, supported by an increase in total export value of around 48.6%. The capital account balance also improved, reflecting a rise in private capital flows and release of the first tranche under ADB’s Economic and Public Sector Reform Program loan. The overall balance of payments was positive and by end of FY2002, foreign exchange reserves had increased. By end-2002, however, the foreign exchange reserves had fallen to below 2 months of import cover of goods and services.

ADB operations

Operational strategy: ADB’s strategy in 2002 focused on improving the efficiency of public services, capacity building, and economic and public sector reforms. To encourage private sector development as the basis of economic growth, the public sector’s demands on resources will be curtailed by carrying out reforms in departments and public enterprises.

Policy dialogue: Government legislation endorsed economic and public sector reforms aimed at improving public service efficiency and creating an enabling environment to encourage private sector growth. Dialogue in 2002 focused on extending these reforms, including reviewing all public enterprises and other government commercial activities to determine a regulatory regime for public utilities (energy, water, telecommunications, and transport); and a timetable for privatizing government-owned businesses. The need for sustained political commit-ment and direction in ensuring reforms was stressed.

Loans and technical assistance: One loan of $10 million was approved in 2002, for implementing the economic and public sector reforms. One technical assistance amounting to $700,000 was approved (see tables 1, 6, 24, and 25 in the Statistical Annex).

Project implementation: Since joining ADB in 1972, Tonga has received 14 loans totaling $52.9 million, of which 1 was active at the end of 2002. Contract awards totaled $5.0 million, bringing the cumulative figure to $52.1 million. The contract awards ratio for 2002 was 47.0%—higher than the ADB-wide average of 22.6%. Disbursements in 2002 totaled $5.0 million, bringing cumulative disbursements to $46.2 million. The disbursement ratio was 50%—higher than the ADB-wide average of 22.2% (see tables 14–23 in the Statistical Annex).

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