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Business and Economics > Public Finance

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Cover IMF Staff Country Reports
Tonga: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Tonga
International Monetary Fund. Asia and Pacific Dept
The 2024 Article IV Consultation discusses that Tonga’s economic activity has strengthened, bolstered by consistent remittance flows, continued tourism recovery, and robust construction activities. Inflationary pressures have substantially eased. After peaking at 14.1 percent in September 2022, headline inflation has since been normalizing. The near-term baseline economic outlook remains favorable appropriately supported by expansionary fiscal and monetary policy. Real gross domestic product (GDP) growth is projected to accelerate to 2.4 percent in FY2025, mostly led by continued strength in domestic demand including large public investment projects and a rebound in agricultural output as the effects of El Nino dissipate. The medium-term growth prospects remain uneven, however. Tonga’s long-term growth is projected at 1.2 percent, reflecting its exposure to increasingly frequent natural disasters, persistent loss of workers to emigration, and limited economies of scale due to geographical barriers. Structural reforms with a focus on bolstering disaster resilience, advancing digital transformation, and strengthening governance frameworks to foster a conducive business environment are essential to meet Tonga’s developments goals.
Keywords:
priority safeguards assessment recommendation; Tonga authorities; reference rate; currency basket; intervention currency; Natural disasters; Debt sustainability analysis; Global; Pacific Islands; Australia and New Zealand
Cover IMF Staff Country Reports
Tonga: 2023 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. Asia and Pacific Dept
The 2023 Article IV Consultation discusses that The Tongan economy is performing strongly, underpinned by resilient remittance inflows and major reconstruction activities following the Hunga Tonga–Hunga Haʻapai volcanic eruption in January 2022. The authorities are confronting a challenging trade-off between supporting reconstruction and managing inflation in the short term. In the long term, Tonga’s high vulnerability to natural disasters complicates its efforts to create the fiscal space necessary to finance development spending. Tonga is one of the largest recipients of IMF capacity development resources in the region, and the authorities have shown strong ownership. In the medium to long term, once the recovery becomes entrenched, Tonga should strengthen the public finances through a combination of domestic fiscal measures―including rationalization of tax exemptions and tax administration reform―and by seeking continued donor support, which is essential to meet Tonga’s development spending needs while reducing the risk of debt distress.
Keywords:
climate resilience; development spending needs; inflation pressure; PFTAC mission; development objective; development goal; GDP compilation capacity; Inflation; Natural disasters; Debt sustainability; Australia and New Zealand; Global; Pacific Islands
Cover IMF Staff Country Reports
Tonga: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Tonga
International Monetary Fund. Asia and Pacific Dept
Tonga’s nascent economic recovery following Tropical Cyclone Harold and border closures in early 2020 has been severely disrupted by a double blow from the Hunga Tonga–Hunga Haʻapai volcanic eruption and the first local outbreak of COVID-19 at the start of 2022. The authorities are augmenting reconstruction and restoration efforts, with support from the international community. Real GDP is projected to contract by 1.9 percent in FY2022 (July 2021–June 2022), before rebounding by 3.2 percent in FY2023 with a gradual reopening of international borders.
Keywords:
Tongan authorities; climate resilience; monetary policy mix; accommodative fiscal policy; priority area; Natural disasters; Debt sustainability analysis; Global; Australia and New Zealand
Cover IMF Working Papers
Review of the Public Financial Management Reform Strategy for Pacific Island Countries, 2010-2020
Mr. Richard I Allen
,
Ms. Majdeline El Rayess
,
Laura Doherty
, and
Priya Goel
This paper reviews the Public Financial Management (PFM) reform stategy for 16 Pacific Island Countries (PICs) during the period 2010-2020. The strategy was endorsed by the finance and economic ministers of the region (FEMM) in 2010. The paper analyzes more than 30 PEFA assessments carried out across the region. The region shares the generally slow pace of PFM reform that is also a feature of most developing countries. Some PICs have improved their PFM performance significantly, while others have done less well. PFM reforms have suffered from the small size and low capacity of many PICs, poorly designed PFM roadmaps, variable political suppport for reform, and vulnerability to natural disasters. The paper recommends that in the next five years, there should be a more granular and targeted approch to PEFAs. PICs should focus on basic PFM reforms and (where capacities allow) more transparent public finances, as well as better management of climate change considerations, public infrastructure, gender inequalities, and state-owned enterprises. Perseverance by countries in implementing reforms and leadership by finance ministries are critical. PFTAC’s advice is highly regarded across the region, and it could consider alternative modalities of CD delivery and stronger coordination with other development partners.
Keywords:
WP; PEFA assessment; PFM advisor; PFM reform; PFM performance; PFM system; CD activity; Public Expenditure and Financial Accountability (PEFA); Budget planning and preparation; Fiscal risks; Budget execution and treasury management; Pacific Islands; Pacific Islands Countries; public finance management (PFM) reform; PFTAC; PEFA
Cover IMF Staff Country Reports
Tonga: Technical Assistance Report-Climate Change Policy Assessment
International Monetary Fund. Fiscal Affairs Dept.
Tonga is one of the world’s most exposed countries to climate change and natural disasters. It suffered the highest loss from natural disasters in the world (as a ratio to GDP) in 2018 and is among the top five over the last decade (Table 1). Climate change will make this worse. Cyclones will become more intense, with more damage from wind and sea surges. Rising sea levels will cause more flooding, coastal erosion and contaminate fresh water. Daily high temperatures will become more extreme, with more severe floods and drought.
Keywords:
ISCR; CR; short term; excise tax; emergency fund; international community; cross-government Emergency Management Committee; private sector; annual budget; investment project; Climate change; Natural disasters; Renewable energy; Budget planning and preparation; Public investment and public-private partnerships (PPP); Global
Cover IMF Working Papers
A Possible Approach to Fiscal Rules in Small Islands — Incorporating Natural Disasters and Climate Change
Ryota Nakatani
A big challenge for the economic development of small island countries is dealing with external shocks. The Pacific Islands are vulnerable to natural disasters, climate change, commodity price changes, and uncertain donor grants. The question that arises is how should small developing countries formulate a fiscal policy to achieve economic stability and fiscal sustainability when prone to various shocks? We study how natural disasters affect long-term debt dynamics and propose fiscal policy rules that could help insulate the economy from such unexpected shocks. We propose fiscal rules to address these shocks and uncertainties using the example of Papua New Guinea. Our study finds the advantages of expenditure rules, especially a recurrent expenditure rule based on non-resource and non-grant revenue, interdependently determined by government debt and budget balance targets with expected disaster shocks. This paper contributes to the literature and policy dialogue by theoretically analyzing the impact of natural disasters on debt sustainability and proposing fiscal rules against natural disasters and climate changes. Our fiscal policy framework is practically applicable for many developing countries facing increasing frequency and impact of natural disasters and climate change. Our rules-based fiscal framework is crucial for sustainable and countercyclical macroeconomic policies to build resilience against devastating natural hazards.
Keywords:
WP; expenditure rule; stabilization fund; capping expenditure growth; revenue rule; resource revenue; cash-flow constraint; revenue volatility; government activity; appropriation strategy; government deficit bias; C. expenditure rule; budget balance rule; Natural disasters; Fiscal rules; Climate change; Pacific Islands
Cover IMF Working Papers
Fiscal Buffers for Natural Disasters in Pacific Island Countries
Hidetaka Nishizawa
,
Mr. Scott Roger
, and
Huan Zhang
Pacific island countries (PICs) are vulnerable severe natural disasters, especially cyclones, inflicting large losses on their economies. In the aftermath of disasters, PIC governments face revenue losses and spending pressures to address post-disaster relief and recovery efforts. This paper estimates the effects of severe natural disasters on fiscal revenues and expenditure in PICs. These are combined with information on the frequency of large disasters to calculate the rate of budgetary savings needed to build appropriate fiscal buffers. Fiscal buffers provide self-insurance against natural disaster shocks and facilitate quick disbursement for recovery and relief efforts, and protection of spending on essential services and infrastructure. The estimates can provide a benchmark for policymakers, and should be adjusted to take into account other sources of financing, as well as budget risks from less severe as well as more frequent disasters.
Keywords:
WP; private sector; real GDP; government expenditure; Natural Disasters; Pacific Islands Countries; Fiscal Cost; Fiscal Buffers; PIC government; contingent government liability; government cash buffer; government financing source; financial support; Fiscal space; Disaster aid; Budget planning and preparation; Pacific Islands
Cover IMF Staff Country Reports
Tonga: 2017 Article IV Consultation-Press Release; and the Staff Report for Tonga
International Monetary Fund. Asia and Pacific Dept
This 2017 Article IV Consultation highlights that over recent years, Tonga has enjoyed robust growth and macroeconomic stability. Growth continued to be strong at 2.7 percent in FY2017 following 3.4 percent in FY2016, supported by construction, agriculture, tourism, strong remittances, and strong private credit growth. Inflation spiked in FY2017 because of a new import tax and an increase in domestic food prices. The country’s external position weakened slightly owing to construction-related imports, with reserves supported by strong remittances and donor aid. The outlook for the Tongan economy is favorable, despite external headwinds. Real GDP growth is projected at 3.4 percent in FY2018, driven by construction, agriculture, and tourism.
Keywords:
ISCR; CR; current account; real GDP; GDP; GDP deflator; gradual adjustment; creating flow; PFTAC TA; public sector employment reform; remittance inflow; distress rating; expenditure measure; budget revenue; moderating inflation; Natural disasters; Fiscal stance; Pacific Islands; Australia and New Zealand; Global; Asia and Pacific; GFS TA mission
Cover Resilience and Growth in the Small States of the Pacific
Resilience and Growth in the Small States of the Pacific
Hoe Ee Khor
,
Mr. Roger P. Kronenberg
, and
Ms. Patrizia Tumbarello

Abstract

Pacific island countries face unique challenges to realizing their growth potential and raising living standards. This book discusses ongoing challenges facing Pacific island countries and policy options to address them. Regional cooperation and solutions tailored to their unique challenges, as well as further integration with the Asia and Pacific region will each play a role. With concerted efforts, Pacific island countries can boost potential growth, increase resilience, and improve the welfare of their citizens.

Keywords:
BOOK; GDP; GDP-weighted distance; financial crisis; market share; U.S. dollar; lending rate; real GDP; Natural disasters; Inflation; Income; Pacific Islands; Global; Asia and Pacific; Australia and New Zealand; Caribbean; IMF staff estimate; IMF staff calculation; business climate shortcoming; Climate change
Cover IMF Staff Country Reports
Tonga: 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Tonga
International Monetary Fund. Asia and Pacific Dept
This paper discusses recent economic developments, economic outlook, risks, and challenges in Tonga. The Tongan economy has been rebounding since a contraction in FY2013. Growth accelerated from 2.1 percent in FY2014 to 3.7 percent in FY2015, supported by construction, tourism, strong remittances, and strong private credit, notwithstanding weather-related disruptions to agricultural production. The FY2016 real GDP growth is projected to remain relatively strong at 3.1 percent, driven by a recovery in agriculture and an increase in construction activity in preparation for the South Pacific Games. However, a protracted period of slower growth in advanced and emerging market economies, particularly in Australia and New Zealand, could weigh on Tonga via aid, remittances, and tourism channels.
Keywords:
ISCR; CR; right; government; Tonga; authority; Tongan authorities; government delivery; Tongan economy; accommodative monetary policy stance; financing gap; Tongan authority; Natural disasters; Credit; Global; Pacific Islands; Australia and New Zealand