ADB to Help Tonga Maintain Social Spending, Reforms, in Face of Crisis

MANILA, PHILIPPINES - Tonga will get support from the Asian Development Bank (ADB) to preserve key social sector spending programs that have come under pressure as a result of the global economic crisis.

ADB’s Board of Directors today approved a $10 million grant for an Economic Support Program that will provide budgetary support to the government. The government has committed to maintain spending on basic social services, such as health and education, which are otherwise threatened by the revenue shortfall caused by the crisis. The grant will also give the government financial breathing room to continue reforms designed to make the economy more competitive, sustainable, and private-sector driven.

Tonga, like other small remittance-dependent countries in the Pacific, is highly vulnerable to external shocks and sharp fuel price increases in 2008, combined with a slump in remittances, government revenues, and tourism receipts linked to the global crisis, have hurt its economy. As a result, the government is now projecting a fiscal deficit for the current financial year to June 2010.

“In light of the crisis, the program provides the government with additional financial resources to protect expenditures on high-priority public services and vulnerable groups, and to continue structural reforms designed to promote economic growth and maintain stability,” said Keith Leonard, Regional Director of ADB's South Pacific Subregional Office.

The government has carried out wide-ranging economic reforms in recent years and the program will support further measures including strengthening the government budgetary process, developing and implementing a debt-risk management and mitigation policy, furthering the process rationalizing state-owned enterprises, and improving the legal environment for the private sector, to help lower the cost of doing business.

Given the urgency of Tonga’s needs, the program is structured to disburse funds quickly. It is also aligned with, and complements work being undertaken by, other development agencies in the country, including the Australian Agency for International Development (AusAID) and the New Zealand Agency for International Development.

The grant is being provided from ADB’s concessional Asian Development Fund and will be released in two tranches of $5 million each. The Prime Minister’s Office is the executing agency for the program, which is expected to be completed in June 2011.