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Tonga’s economy steady, not facing bankruptcy

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10 December 2010  The information released by TVNZ on 08 December 2010 from Nuku'alofa stating that " a confidential report on the status of Tonga's economy shows almost a quarter of the population lives in poverty and the kingdom faces virtual bankruptcy" is  totally inaccurate and misleading. This is the kind of erroneous reporting that gives Tonga a poor image overseas and encourage the local people to have a wrong conception of their own country.

The International standard for measuring extreme poverty is living below $1 per day per person. In 2001 the proportion of population in this category was 4% in Tonga. This figure has not changed much by 2009. In measuring basic needs poverty based on hardship and using a figure of about $4.00 per person for a day in 2001 and about $7.10 in 2009, the proportion of the population of Tonga living in conditions described as hardship was 16.2% in 2001 and 22.5% in 2009. May be this is what the report refers to as poverty without making the necessary distinction between extreme poverty and basic needs poverty or hardship.

As at the end of 7th December 2010 only two Government bank accounts were overdrawn but this is by arrangement and the net balance of Government bank accounts was well over $1 million. This net balance fluctuates daily and at times it can be as high as $5 million or more. Reserves stand at almost $7 million. Salaries and wages are paid on time and payments for goods and services are up to date. This is not the sign of a country facing bankruptcy or its bank accounts being in the red and unable to pay its bills.

The Development Funds accounts are over $18 million and the Trust Fund accounts are over $12 million and other Bank accounts are over $5 million. These funds accounts are used for specific purposes.

Because of the Global economic crisis, the Tongan economy has been adversely affected and revenues are well below normal levels. The budget for 2010/11 forecasts revenue shortfalls and for the first 5 months of the year revenues collected is $63.4 million and expenditures $68.6 million. The shortfall by the end of the fiscal year will be covered by budget support programmes of:

USD5.0 million from the World Bank (being drawn down);

USD5.0 million from the ADB (expected draw down in January 2011);

And Euro 5.5 million from the EU (expected draw down February/March 2011).

It is true the main commercial banks are consolidating because of poor credit a few years back and had to write off losses. The liquidity in the banking system is high but bank credit is still tight. Although there have been some foreclosures but this is mainly in business and certainly not the figure of over 200 homes causing over 1,000 people to be homeless. Foreign reserves are over seven months imports and Balance of Payments fluctuates annually between a small surplus or a small deficit.

The Government is concerned with the growth in its borrowings and this level would not have occurred if the riot and the burning of businesses did not take place in November 2006. So those who pushed for popular democracy are responsible for pushing the Government to borrow for reconstruction of Nuku'alofa CBD. These borrowings were approved by parliament and are in the budget.

Contrary to what Professor Hodges is saying and he may be forgiven for making statements on wrong information, there is no need to cut public salaries or social services. However, prioritising is necessary, as well as review of government activities and some restructuring, continue public finance reform and good management and build up the economy to reduce reliance on remittances and improve exports and tourism.

The new government will find a firm fiscal and economic foundation on which to build their administration.

ENDS

Issued by the: Ministry of Finance and National Planning, Nuku'alofa, 2010

 
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