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Minister of Finance Budget Statement for Year 2011-12

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07 June, 2011, Minister of Finance and National Planning Budget Statement for Year 2011-12; presented to the Parliament of Tonga, Tuesday, 07 June, 2011.

Lord Speaker of the House,

Lord Prime Minister and Ministers of the Crown,

Honourable Representatives of the Nobles,

Honourable Representatives of the People and The People of Tonga,


Introduction

Great thanks to the God Almighty for His provisions, guidance and blessings bestowed upon us on this historical day.

It gives me great pleasure to present the 1st Budget of the current administration, with a mandate from the people and expectation for delivery.

Lord Speaker, I consider important that we all be reminded of our mutual rights and responsibilities under our Constitution:

Clause 18 of the Constitution:

“All the people have the right to expect that the Government will protect their life liberty and property and therefore it is right for all the people to support and contribute to the Government according to law”

Lord Speaker, This Government is to govern according to the will of the people and to serve the people according to the Constitution and Laws of Tonga. Accordingly, every Tongans has a mutual responsibility to support and contribute to the Government according to the Constitution and the Law.

Constitution Clause 19:

“No money shall be paid out of the Treasury nor borrowed nor debts contracted by the Government  but by the prior vote of the Legislative Assembly”

The Public Finance Management Act Section 7, requires that I shall:

1)    Prepare and submit to Cabinet a statement of anticipated revenue for the forthcoming financial year together with a statement of the anticipated budgetary appropriations.

2)    Prepare the Estimates, in accordance with the Budget approved by Cabinet, for introduction to the Legislative Assembly for the forthcoming financial year.

3)     Present the Estimates for the forthcoming financial year to the Legislative Assembly.

Lord Speaker, His Majesty’s Cabinet has approved the proposed Budget Estimates for 2011/12, and now submitted to the House for deliberations and approval.

Allow me Lord Speaker to present to the House the Budget Estimates 2011/12.


Our Vision, Objectives and Strategies

Lord Speaker, this Government has approved the vision that we will work to realise:  and this government will focus its efforts in the next four (4) years, which is:  “To develop and promote a just, equitable and progressive society in which the people of Tonga enjoy good health, peace, harmony and prosperity, in meeting their aspirations in life”

We have approved the “Tonga Strategic Development Framework (TSDF)’ which provides the overall framework to guide government activities and set out the roadmap for the development of Tonga in the next (4) four years.

The framework established nine (9) priority outcome objectives for delivering this Vision.

The nine (9) outcome objectives focus on:

1.    Strong inclusive communities;

2.    Dynamic public and private sector partnership as the engine of growth;

3.    Appropriate, well planned and maintained infrastructure that improves the everyday lives of the people and lowers the cost of business;

4.    Sound education standards;

5.    Appropriately skilled workforce to meet the available opportunities in Tonga and overseas;

6.    Improved health of the people;

7.    Cultural awareness, environmental sustainability, disaster risk management and climate change adaptation, integrated into all planning and implementation of programs;

8.    Better governance; and

9.    Safe, secure and stable society.

The implementation of this strategic framework is through detailed Sector Plans, Ministries’ Corporate Plans, supported by Annual Management Plans linked to the budget.

These plans also set out activities that will put us on track to the achievements of our Millennium Development Goals by 2015. This is a progressive effort and we will continue to ensure that budget allocations are linked to these plans. These plans will help us to have a more focussed approach, cut back on waste, and better deliver our vision and mandate.

Lord Speaker, we will deliver to achieve these outcome objectives.


The focus of our budget

This Budget is based and seeks to achieve these fiscal and macro-economic objectives:

I.    To regain fiscal stability while enhancing service delivery in core areas

II.    To increase growth by providing economic stimulus

It gives particular focus on the following five (5) objectives which are key areas of reforms in the next fiscal year. These include:

1.    Improved Public Financial Management;

2.    Confirmed core functions of government and improved public service; structure to improve government’s focus;

3.    Improved access to cost effective energy;

4.    Improved enabling environment for private sector development;

5.    Viable and inclusive communities with access to improved services (such as health, education).

The corner stone of this budget is prudency and improved transparency.

We commit to our fiscal approach in ensuring:

*       prudent budgets,

*       prudent revenue system,

*       prudent expenditure allocation,

*       prudent debt management

This continues the efforts started this year, by continuing to constrain overall recurrent expenditure while focussing on the core functions of government, and seeking improved revenue collection.

Our current fiscal situation and large debt cannot be solved in one (1) budget.

However, our first budget, has been prepared within this longer adjustment perspective, and start us on the path to a sounder financial situation. This is what the 2011/12 Budget does.

Our development partners will continue to provide budget support with the development of a prudent and appropriate set of key government reform indicators that support our ambitious reform program.

It is only through strong inclusive and viable communities and a dynamic public and private sector partnership that we can generate the growth and welfare essential for us to succeed with our adjustment process, while also delivering our Vision.

Lord Speaker, we will work hard to implement these reforms.


Economic Outlook

This Government took office mid-way the 2010/11 Budget implementation, and given the tight fiscal situation had limited scope for changing track.

We still at a challenging time for our country as the economy is still vulnerable to economic shocks and natural disasters.

These events have adversely affected our economy, but they will not knock it off.

Real GDP growth is forecast to 1.2% in 2011/12.

Lord Speaker, this is in line with the economic growth target that His Majesty delivered from the throne in His opening of the 2011 Parliament session targeting a grow of 2.0% by 2013/14.

Lord Speaker, this government will work to achieve such target.

This Government will continue to ensure improvements to the quality and distributions of this growth so that it is not concentrated in any particular group or area but are felt across the Kingdom where people are still suffering from limited opportunities and the lower levels of remittances.


Key sectors for driving this growth include:

Community based development initiatives;

•    a vibrant Private Sector;

•    Agriculture and Fisheries

•    Tourism;

•    Infrastructure Investment

•    Energy and Water consumptions.

We believe that a strong private sector will create job opportunities and employments for our people especially our youth population thus release them from underutilizing their knowledge and skills.

Inflation is forecast to increase with higher world fuel prices and food prices, but we will continue co-operation with the National Reserve Bank to ensure inflation stays within a manageable level.

The Pa’anga has been weakened against the main currencies. However efforts will continue to manage the exchange rate appropriately, and ensure adequate reserves at the level that will encourage and boost trades in goods and services.

Tourism is picking up and remittances have stabilized.  However, agriculture and fisheries still need more focus to restore opportunities for trade and growth.

There are both positive and negative signs in the global and regional economies. These indicate the need to continue to be very prudent with our finances.

Lord Speaker, this Government increased focus on transparency, accountability, improved governance and greater private-public consultation as a result of the shift to a more democratic system of government is expected to improve efforts to grow the economy.

Lord Speaker, we will increase growth for our country and ensure it is inclusive sustainable growth.


Prudent Finance

This Government has managed the financial situation with care, and ensured that we end the fiscal year with relatively sound fiscal situation despite a short fall in the anticipated budget support.

Our development partners recognize our situation and we appreciate their willingness to increase direct budget support in future years, in addition to ongoing project grants, to help us while we adjust our fiscal position.

Lord Speaker, Tonga is not all alone in such dire financial situation, but it covers all our neighbouring countries.

We have also inherited a large debt level and face increased debt repayments making it very unwise to commit to any new borrowing until our debt is back within acceptable limits. This severely limits our flexibility to adjust to new challenges.

We have been working hard during our first half-year in office to establish a clear vision and outcome objectives. In addition to managing the 2010/11 budget with care, we have established the 2011/12 budget on a clear medium-term path of adjustment to a more sustainable fiscal situation.

At the same time, we are improving the focus on expenditure on core areas and improving revenue, so that important expenditures can be protected to maintain delivery of key services to our people, and promote an environment in which government and the private sector can work more effectively together to promote sustainable and inclusive growth.

Lord Speaker, we will regain fiscal stability while enhancing service delivery in core areas.

The new Budget Statement format;

•    The detailed analysis behind the budget is contained in one Budget Statement document.

•    This Government has been working to improve the presentation of our fiscal accounts so that we have a more transparent and accurate presentation of all Government   related fiscal activities.

•    The actual path of expenditure (in-kind) for the Chinese loans is better documented.

•    This is important given the significant size of this loan and the resulting impact of the timing of this expenditure on each year’s GDP.

•    The in-kind grant expenditure is better reported, and in future years we plan to include it fully in government financial statistics (GFS), rather than as a memo item as at the moment.

•    This is consistent with our commitment to open and transparent government.


The Budget Appropriation 2011/12

Lord Speaker, The Total Appropriation is $210.4 million.

Of which a total amount $170.9 million is proposed to be funded from government revenue (comprised of $142.9m from Government domestic revenue and  budgetary supports of $27.9 m).

An estimate amount of $39.5 million is expected to be funded from development grants and other sources.

The Government Fund Appropriation Budget 2011/12 (which includes budget support) is in balance; excluding budget support there is a Budget deficit of $27.9 million.

When in-kind grant funding of $134.2 million is included the total budget is $344.6 million.

The total of the Development Budget funded by development partners is estimated to be  $173.5 million.

Of the estimated domestic revenue of $142.9m, about $109.7m (76.7%) are to be collected from Taxes and Duties.

Budgetary supports are expected to be received from the World Bank $8.7 m, European Union $12.8 milions, $6.5 milions likely to be funded from Australia and New Zealand.

Of the total budget expenditure of $170.9m, about $27.8m (16.3%) allocated for Health and $22.6m (13.2%) are allocated for Education.

The Ministry of Finance is shown a budget allocation of $50.1m (29.3%) but that include a Government General Fund expenses of $23.9m (14%), to cover for general government payments such as pensions, subsidies etc, and Debt Servicing expenses of $18.2m (10.7%).

The total expected grants (cash: $39.5m, and in-kind : $134.2m) from development partners for specific projects constitute mainly for Capital Expenditure (47.2%) and for Purchases of Goods and Services (36.7%).

This means that our development partners, though grants and some remaining loan draw downs, are funding nearly 60% of our total budget.

We expect to use $31 million from the Chinese loan in 2011/12 to complete existing road and building projects.

Once this loan is fully drawn down, we will not be able to borrow further for some years, so we will focus on maximizing the available grant funding and putting it to productive use, meeting priority development objectives throughout the Kingdom.

Equally important, we will devise a medium debt strategy to address and manage our high debt level.

Taking into account these loans, using the GFS analysis, there is an estimated overall deficit of $24.7 million

Lord Speaker, again, we are committed and we will regain fiscal stability while enhancing service delivery in core areas and increase growth, so that we ourselves can fund more of our budget in the longer term.


Risks

Lord Speaker, We recognised that our program is demanding and that risks exist. We will ensure proper measures are in place to mitigate these risks through commitment to strategic reforms and good governance.


The path for development

Lord Speaker, we have established Outcome Objectives to guide government’s activities and set out the roadmap for the development of Tonga for this coming year.

We will ensure Strong Inclusive Communities by engaging districts/villages/communities in meeting their prioritized service needs and ensuring equitable distribution of development benefits.

Lord Speaker, People is the key to our success. We want prosperity and opportunity to reach all corners of the Kingdom, especially our outer islands, districts and villages. This is crucial to managing our population growth and promoting sustainability right around the country.

Our people need to have a greater say in our policy formulation and decision making process in order for our policies to be well received and implemented.

We have allocated $1.7 million pa’anga for the first time, to provide a specific Constituency Grants for particular development activities of the constituencies.

We have approved a Community Driven Development Program for the communities, including working with the World Bank.

Lord Speaker, our economy depends on the environment that the private sector can flourish and generate jobs and income not only for our people, but business and for the government also.

We will ensure A Dynamic public and private sector partnership as the engine of growth, is achieved by promoting better collaboration between government and businesses, appropriate incentives, and streamlining of rules and regulations.

We will collaborate with private sector to improving output of the productive sectors: tourism; agriculture; fisheries; and remittances and seasonal work schemes.

Lord Speaker, as much as our need to grow our economy, we also have a great need to focus on improved productivity.

We will ensure appropriate, well planned and maintained infrastructure that improves the everyday lives of the people and lowers cost of business by the adequate funding and implementation of the National Infrastructure Investment Plan.

We will ensure safe and reliable transport infrastructure (roads, ports, airports); implementation of the Tonga Energy Road Map projects - to increase efficiency of energy usage and identify options for non-renewable energy ; and the Tonga Cable Fibre Optic Project to improve coverage, access and affordability of communications among our people.

Lord Speaker, we continue to value our education as key to our people’s present and future development and success.

We will ensure sound education standards, by emphasizing quality universal basic education.

This government will continue to ensure provision of primary education, working in partnership with the churches and other groups for the provision of secondary and technical education to promote, support, and ensure improvement in education.

Lord Speaker, we expect our people to be more skilful so that increasing number of people will have the opportunity to get a job.

We will ensure that we have a well educated and appropriately skilled workforce to meet available opportunities in Tonga and overseas, by delivery of improved Technical and Vocational Education & Training.

Lord Speaker, in addition to our well educated and skilled population is the need for healthy people to sustain our culture, environment, economy and future developments.

We will ensure improved health of the people, by promoting healthy lifestyles choices, with particular focus on addressing non-communicable diseases (NCD), and providing quality, effective and sustainable health services.

Lord Speaker, our country is vulnerable to risks beyond our control that may hinder our inclusive developments.

Lord Speaker, we will ensure cultural awareness, environmental sustainability, disaster risk management and climate change adaptation integrated into all planning and implementation of programs, by establishing and adhering to appropriate procedures and consultation mechanisms.

Lord Speaker, we need the support, co-operation, and trust of our people to drive the inclusive sustainable growth and developments for our nation.

We will ensure better governance by adherence to the principles of good governance, accountability, transparency, and rule of law.

We will continue the work that has commenced to exercise prudent fiscal measures and approach, and also working with the Parliament Public and Finance Accounts Committee to improve public expenditure management and accountability.

The Anti-Corruption office will be set up and strengthen and ensure application of Rule of Law, and also will continue implementing the Constitutional and Political Reforms

We will be developing an improved communications strategy, for our people awareness of government activities and, with more transparent publications and access to Cabinet decisions, government publications, press releases, and allow government employees to share and clarify relevant government policies and procedures.

Lord Speaker, we want our people to live and enjoy our beautiful country with no fear or insecure to anyone or any force in all aspects of life.

We will ensure safe, secure and stable society, by maintaining law and order.

We will be strengthening the operation of the judiciary to enhance its independence and carry out the mandate stipulated by His Majesty’s speech from the throne in the opening of this Parliament session.


Conclusion

Lord Speaker, this government has taken the mandate from the people during a challenging time.

Efforts by the past administration to stimulate the economy have held up GDP, but at a price. This has limited our scope for future action.

We have encountered natural disasters and could not escape the impact of the Global Economic Crisis that adversely affected our economy.

Despite these, we shall never be discouraged.

We have presented a budget that puts us onto a long term sustainable fiscal path while protecting service deliver to our communities and improving the foundations for growth.

We need sustainable and inclusive growth, rather than the non-sustainable and non-inclusive growth that particular

But we are a resourceful people with a forward looking Monarch, a new more democratic constitution, a sound cultural basis, a broad Tonga Diaspora, and development partners willing to support us both with overseas working opportunities and development assistance.

We need to do things for ourselves and our country before others can help us.

We therefore call on all Tongans to be in harmony and stand up with good hearts and minds to collate our talents and energy to help grow and build our nation.

The challenge may not so much external but more within among us to work together in partnership, to develop and promote a just, equitable and progressive society in which the people of Tonga enjoy good health, peace, harmony and prosperity, in meeting their aspirations in life.

With the help of Almighty God we can face this challenge together.

Lord Speaker, I thank you for the opportunity.


END.

Issued by the: Ministry of Information and Communications 2011.

 

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