A preliminary report from a mission of IMF officials to Nuku’alofa from February 29-March 11, has warned Tonga of a possible weakening fiscal position despite government’s strong revenue collection.
The mission which was led by Ms Elena Louoianova reported that Tonga’s fiscal position is expected to weaken in the near term due to a large increase in government’s wage bill, an increase in current spending, and potential costs overruns related to the preparation to host the 2019 Pacific Games.
According to the report, these are factors that will weaken the government’s fiscal sustainability, and raise public debt.
The IMF also warns the Tongan government of possible drop of aid, remittances, and tourism receipts, particularly from Australia and New Zealand because of a protracted period of slow growth in their economies.
Over the medium term, however, the fiscal position is projected to improve “provided that revenue continues to grow steadily, the wage bill is held in check, and the cost of the 2019 Pacific Games is under control.”
The IMF report also pointed out that Tonga’s External Balance and International Reserves have improved substantially, thanks to low oil prices and stronger remittances.
“Real GDP is projected to grow at 3.1 percent in 2015-16, driven by agriculture and construction sectors, as well as private consumption.”
The overall conclusion of the report is tilted toward the downside however, urging the authorities to reign in the wage bill, complemented by civil service reforms, and to seek grant finance, not loans, for the 2019 Pacific Games.”