Comment: Tonga Finance Minister warns of a ‘shrinking economy’

Tongan Minister of Finance Tatafu Moeaki. PHOTO: ILO

Tonga’s economy is in trouble, says Tonga Wires. 

The economic contraction during two years of border restrictions, has been accelerated by January’s devastating Hunga volcanic eruption and tsunamis, followed by the arrival of COVID-19 in February and further job losses.  

Tonga’s Minister of Finance warned of a continuing contraction of the economy, the likes of which we have not experienced before. He told the House that he expected a further 29% contraction by June but, unfortunately, gave no useful context. When a fall of this much is forecast, surely it would be useful to know from when to when, and a percentage of what? 

The government’s 2022/2023 Appropriation Bill that was tabled by Tatafu Moeaki on 2 June to the Tonga Legislative Assembly. The budget documents are in his hands, but when members talk about it they don’t give away the details, references or any useful context that will make it understandable to the people outside of the house. 

What we do know is that the Minister of Finance’s $764.7 million pa’anga (US$332 million) budget for 2022/2023 is the government’s biggest budget ever and, once again, we will be looking to development partners to finance a deficit of over $30 million (US$13 million). Foreign aid support for the recurrent budget has been a practice for a number of years now, in addition to the development funding received from aid donors. 

Tonga’s Minister of Finance told the Legislature that his Budget Estimates consisted of $437 million (US$189 million) of government budget support and $327.7 million (US$142 million) from development partners. 

This compares to a $618.4m (US$268 million) budget passed for the previous year 2021-22. 

Moeaki told the Legislature that the government was looking at how it was going to set up Tonga economically to work through a whole lot of problems we face: the eruption, arrival of the COVID (omicron variant), a loss of jobs, a shrinking economy and other issues. Tonga’s foreign earnings will continue to drop. 

“Remittances and foreign aid was good to pay overseas and for us to counter our deficit. In future we will be spending more to buy things from overseas,” he said. 

“So we are working now trying to set up a system that can solve some of those problems,” he said, also bearing in mind that Tonga has very limited resources. 

Repayment of the principal amount of Tonga’s multimillion dollar loan from China has started. 

“We have to speedily develop Tonga to be able to counter all these problems,” said Moeaki. 

An estimated $280 million (US$121 million) damage was inflicted by the Hunga Tonga-Hunga Ha’apai eruption and tsunamis, only a few days after the new Cabinet had been selected. 

He stressed peace and love for one another. 

“God will guide us in Tonga,” he said. 

So what was very clear from the debate on 2 June, is that on top of the difficulties of financing another large deficit, Tonga must find a way of getting the parliament to work out how to solve some of these problems.  

Many of the members have different plans, and on top of that pending electoral challenges distracted the budget debate.  

The budget was ready in April but parliament’s sitting was delayed, meaning there is less time to debate the budget.