Tonga: Implementing Strategic Economic Management

Sovereign Project | 45270-001

Summary

The focus of the technical assistance (TA) project, which is to support the Tongan Government's efforts to sustain momentum of its economic management reforms, is consistent with the aims of the Tonga Strategic Development Plan (TSDP) and ADB's Pacific Approach 2010-2014. The TA builds on achievements under TA 7475-TON Support for Economic and Strategic Management, which is scheduled for completion on 31 December 2011. A TA fact finding mission visited Tonga from 22 26 August 2011 and reached an understanding with the Government and other stakeholders on the impact, outcome, outputs, implementation arrangements, cost, financing arrangements, and terms of reference for consulting services.

Latest Project Documents

Title Document Date
Implementing Strategic Economic Management Dec 2011

Consulting Notices

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Procurement Notices

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Procurement Documents

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Project Name Implementing Strategic Economic Management
Project Number 45270-001
Country Tonga
Project Status Approved
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 7959-TON: Implementing Strategic Economic Management
Technical Assistance Special Fund US$ 675,000.00
TA 7959-TON: Implementing Strategic Economic Management (Supplementary)
Technical Assistance Special Fund US$ 675,000.00
TA 7959-TON: Implementing Strategic Economic Management (Supplementary)
Technical Assistance Special Fund US$ 300,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Partnerships
Sector / Subsector

Public sector management - Public expenditure and fiscal management

Gender Equity and Mainstreaming No gender elements
Description The focus of the technical assistance (TA) project, which is to support the Tongan Government's efforts to sustain momentum of its economic management reforms, is consistent with the aims of the Tonga Strategic Development Plan (TSDP) and ADB's Pacific Approach 2010-2014. The TA builds on achievements under TA 7475-TON Support for Economic and Strategic Management, which is scheduled for completion on 31 December 2011. A TA fact finding mission visited Tonga from 22 26 August 2011 and reached an understanding with the Government and other stakeholders on the impact, outcome, outputs, implementation arrangements, cost, financing arrangements, and terms of reference for consulting services.
Project Rationale and Linkage to Country/Regional Strategy

The Tongan economy contracted by 1.4% in FY2010 owing to domestic banking consolidation, weak export and tourism receipts due to the global economic crisis (GEC), and slow recovery in major remittance source economies such as the United States and New Zealand. Remittances, typically equivalent to 30% of gross domestic product (GDP), fell to 22% of GDP in FY2010 and are unlikely to return to pre-FY2009 levels in the medium term. GDP growth is estimated to rebound to 1.4% in FY2011 on the back of stronger tourism activity and an expansionary fiscal policy financed by development partner funds and previously contracted loans. However, risks to this outlook are weighted on the downside and relate to rising inflation, weak global demand, and Tonga's high public debt. The International Monetary Fund expects growth to remain at around 1.7% over the medium term in line with the average of the past 15 years but slightly above the average of the past 10 years. This medium-term outlook, however, assumes implementation of the government's plans, including stepped up donor-financed capital spending, structural reform, and improved fiscal management to support fiscal consolidation.

According to the 2010 Public Expenditure and Financial Accountability (PEFA) assessment, the Tongan public financial management system is, overall, operating at average or above average levels when compared to international best practice. However, some areas are worthy of continued attention, especially in light of the difficult fiscal situation that the Government is facing over the medium term. Tonga, already at high risk of debt distress, requires on-going budget support grants to fund its development priorities, whilst at the same time achieving fiscal consolidation through lower fiscal deficits and no additional borrowing. The areas requiring continued attention include maintaining budget credibility, the need to embed multi-year perspectives in budgeting, and presenting the budgetary impacts of policy changes (a symptom of weak planning budget links).

ADB approved TA 7475-TON in December 2009 for $500,000, funded by the Japan Fund for Poverty Reduction to assist government achieve (i) regular monitoring and reporting on progress of the TSDP, (ii) use of a GDP and revenue forecasting model, (iii) robust and timely economic policy analysis and proposals, (iv) a medium term budgeting framework (MTBF) that is strategically aligned and used, and (v) improved policy coordination. A subsequent change in scope dropped work on output (ii) so as to direct additional resources to output (iv), reflecting Government commitment to bring forward the establishment of the MTBF through the preparation of an in-depth scoping report. All outputs have been fully achieved. The report contains 48 detailed recommendations that have been endorsed by the Government and which will assist it to develop a framework for implementing a sustainable medium-term budgeting system over the two year period of the TA (2012 and 2013).

Impact Enhanced resource allocation to improve rates of economic growth and achieve national development priorities
Project Outcome
Description of Outcome Improved economic management processes adopted by the Ministry of Finance and National Planning (MFNP).
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

1. A strategically aligned Medium Term Budget Framework (MTBF)

2. A strategically aligned MTBF that is used by whole of Government.

3. A strengthened GDP and revenue forecasting model.

Status of Implementation Progress (Outputs, Activities, and Issues)

Additional financing approved for $600,000 on 10 June 2014 to allow a major change in scope and help to:

(i) support the integration of the budget and planning divisions of the Ministry of Finance and National Planning (MFNP) into a single team;

(ii) strengthen budget reporting measures to more fully include donor assistance, including in-kind contributions;

(iii) develop an online training tool for integrated planning and budgeting and to build skills across MFNP; and

(iv) establish a new gross domestic product (GDP) and revenue forecasting model.

Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design

The proposed TA will support the strengthening of Tonga's GDP and revenue forecasting model, and ongoing development and implementation of the MTBF. The latter is envisaged to take a minimum of two budget cycles, and will require extensive work with line ministries, as well as outreach with Parliamentarians, non-government organizations (NGOs), and the general public. Work with the line ministries will involve developing a sector-based approach to budget planning, as well as methods of intersectoral prioritization. Outreach will be focused on creating awareness on, and building demand for, medium term budgeting reforms.

The achievements of these objectives, that is, a strengthened forecasting model and implementation of a MTBF, will support government in addressing the weaknesses identified in the 2010 PEFA, so as to improve the overall quality of public financial management and reduce the significant financial pressure that the Government is under. Discussions are also underway with the Pacific Financial Technical Assistance Centre (PFTAC) to leverage their comparative advantage in the area of economic modeling. To strengthen the analytical base for the reforms being implemented and to raise policy awareness, the TA will fund short-term, ad hoc, analytical pieces on macroeconomic and fiscal policy, public financial management, and corporate planning. Of particular importance is the need to prepare an overarching public financial management reform plan that links all on-going efforts in this space. MFNP can draw on this expertise as needs emerge during TA implementation.

There are several risks to the proposed TA including lack of public awareness of the extent of Tonga's fiscal difficulties, on-going financial difficulties (which might strain budget allocation and prompt ad hoc change in policy focus), and turnover in key staff in MFNP. However, the Government, and members of Parliament are aware of the critical need to strengthen the manner in which the budget is managed (the fiscal difficulties are well publicized) and remain fully committed to these reforms. ADB will continue to engage a wide range of key stakeholders in programming discussions and TA management to ensure that a minimum level of awareness is maintained, and allow for continued support during implementation.

There is a need for continuing coordination through regular dialogue and information sharing with other key development partners, and with ADB's regional TA for Pacific Economic Management. ADB's joint country focal office with the World Bank Group in Tonga will continue to strengthen collaboration between ADB and the World Bank, and other development partners with on-the-ground presence.

During Project Implementation

MFNP will be the executing agency, while implementing agencies will include the Budget, and Policy and Planning divisions of MFNP. MFNP will use a TA Steering Committee mechanism (chaired by the Permanent Secretary, and comprising the Heads of Budget, Policy and Planning and Project and Aid Management) to coordinate TA-related activities. Staff from the Budget Division and the TA consultants will serve as the Committee's secretariat. The consultants will also liaise with relevant development partner programs/projects, so as to promote coordination and complementarity in activities.

The TA will be implemented over 24 month period (from 09 January 2012 to 31 December 2013) and is expected to finance 20 person-months of full time and intermittent international consulting, and 12 person-months of intermittent national consulting services. The consultants will work as a cohesive team to deliver the tasks below. The international consultant team will comprise a medium term budgeting specialist/team leader (8 person-months); an economic modeling specialist (3 person-months); and policy advisors (9 person-months). They will be joined by a budget advisor (national, 12 person-months). The outline terms of reference for the consultants are in Appendix 3.

The consultants will be selected and engaged on an individual basis and according to ADB Guidelines on the Use of Consultants (2010, as amended from time to time). Preliminary costs estimates are in Appendix 3. The proceeds of the TA will be disbursed in accordance with the Technical Assistance Disbursement Handbook (2010, as amended from time to time).

The team leader will produce a concise inception report outlining the work program and milestones for the duration of the TA, and a final report summarizing achievements, issues, lessons learned, and next steps. Throughout the TA, the team leader will submit (by e-mail) mission reports summarizing the progress of TA activities, progress, issues, and constraints. A mid-point report will also be prepared, which will be used as a basis for a mid-term review of TA progress. Team members will produce inputs (reports) on their respective activities for the team leader's progress, mid-point, and final reports. The team leader's final report will be submitted in draft form at least 5 weeks prior to the end of the assignment, and the final report within 2 weeks of receipt of comments from the Government and ADB.

Progress of the TA will be monitored using intended outcomes and outputs described in the DMF attached as Appendix 1. ADB will assist Government in sharing all reports with other development partners. This will be disseminated through round table meetings, radio interviews and through the ADB website.

Business Opportunities
Consulting Services

Medium Term Budget Specialist / Team Leader (International, 8 person-months, intermittent)

The medium term budget (MTB) specialist and team leader will have a strong background in expenditure management, especially performance-based budgeting; capacity building and training; and project and/or program development and management. The specialist should have at least 10 years of experience providing such advice to a variety of Pacific governments and societies, including having demonstrated strong political, negotiation, and process facilitation skills, and should hold a tertiary degree, preferably a Master's degree or PhD, in finance, economics, or a related field. This consultant should have excellent communication skills, both written and verbal, and be skilled in the use of consultative and participatory processes.

Economic Modeling Specialist (International, 3 person-months, full time)

The person will have a background appropriate to undertaking the tasks set out below, with at least 10 years practical experience in economic modeling and significant experience specific to technical assistance in small island states and should hold an advanced degree, preferably a Master's degree in economics, finance or a related field

The specialist will:

(i)coordinate closely with the Medium Term Budget Specialist/Team Leader on the macroeconomic framework needed to underpin the MTBF;

(ii)work closely with the PFTAC Macroeconomic Advisor to evaluate and customize the current GDP and revenue forecasting model;

(iii)based on the outcomes of the above work, establish a new model in MFNP (to be located in Policy and Planning, and the Statistics Department);

Budget Adviser (National, 12 person-months, intermittent)

The person will have a background appropriate to undertaking the tasks set out below, with at least 10 years practical experience in budget management and significant experience specific to small island states and should hold a tertiary degree, preferably a bachelor's degree in economics, finance or a related field.

The Budget Adviser will:

(i)coordinate closely with the Medium Term Budget Specialist/Team Leader on the overall MTB work;

(ii)assist with the development and implementation of a strategically aligned MTBF;

(iii)assist MFNP and line ministries with the alignment of annual budget provisions to the medium-term envelopes set out in the MTBF;

(iv)assist MFNP in incorporating policy directives and other Ministerial initiatives in the budget;

Policy Advisors (International, 9 person-months, full time). This is reserved to respond to needs emerging during TA implementation, and may encompass skills in macroeconomic and fiscal policy, public financial management and corporate planning.

An inception report will be prepared for ADB and the Government by the team leader within 8 weeks of the start of field activities. Mission progress reports will be submitted throughout the TA, and a draft final report completed by October 2013. The final report is to be submitted within 2 weeks of the incorporation of comments from ADB and the Government on the draft final report.

Procurement

The technical assistance (TA) will require the services of a team of international and national consultants in medium term budgeting, economic modeling, and macroeconomic management.

The consultants will assist the Ministry of Finance and National Planning (MFNP) to develop and implement a Medium Term Budget Framework (MTBF) that is designed to improve macroeconomic stability, as well as a GDP and revenue forecasting model that will strengthen the data and information underpinning strategic economic management in Tonga.

Responsible ADB Officer Laisiasa Tora
Responsible ADB Department Pacific Department
Responsible ADB Division Pacific Subregional Office in Suva, Fiji
Executing Agencies
Ministry of Finance and National PlanningMr. Tiofilusi Tiueti, Secretary of Finance and National PlanningVuna Road Nuku'alofa Kingdom of Tonga
Timetable
Concept Clearance 22 Nov 2011
Fact Finding 22 Aug 2011 to 26 Aug 2011
MRM -
Approval 09 Dec 2011
Last Review Mission -
Last PDS Update 25 Feb 2015

TA 7959-TON

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
09 Dec 2011 10 Jan 2012 10 Jan 2012 31 Dec 2013 31 Dec 2015 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
1,650,000.00 0.00 0.00 0.00 0.00 0.00 1,650,000.00 09 Dec 2011 2,435,937.14
Title Document Type Document Date
Implementing Strategic Economic Management Technical Assistance Reports Dec 2011

Safeguard Documents

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Evaluation Documents

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