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Asia and Pacific > Tonga

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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
Tracking Trade from Space: An Application to Pacific Island Countries
Mr. Serkan Arslanalp, Mr. Robin Koepke, and Jasper Verschuur
This paper proposes an easy-to-follow approach to track merchandise trade using vessel data and applies it to Pacific island countries. Pacific islands rely heavily on imports and maritime transport for trade. They are also highly vulnerable to climate change and natural disasters that pose risks to ports and supply chains. Using satellite-based vessel tracking data from the UN Global Platform, we construct daily indicators of port and trade activity for Pacific island countries. The algorithm significantly advances estimation techniques of previous studies, particularly by employing ways to overcome challenges with the estimation of cargo payloads, using detailed information on shipping liner schedules to validate port calls, and applying country-specific information to define port boundaries. The approach can complement and help fill gaps in official data, provide early warning signs of turning points in economic activity, and assist policymakers and international organizations to monitor and provide timely responses to shocks (e.g., COVID-19).
Keywords:
Merchandise trade Data; I. Pacific island; liner shipping connectivity index; Merchandise import; supply disruption; Imports; Natural disasters; COVID-19; Trade balance; Tourism; Pacific Islands; Global; port boundary; port call; vessel data
Cover IMF Staff Country Reports
Tonga: 2020 Article IV Consultation and Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Tonga
International Monetary Fund. Asia and Pacific Dept
Tonga’s recovery following the devastation of the 2018 Cyclone Gita has been derailed by a double blow from the pandemic and Cyclone Harold. FY2020 GDP growth is estimated to fall to -2½ percent due to domestic containment measures, a sudden stop in tourism, and investment delays. The full brunt of the pandemic will be felt in FY2021 (beginning July) during peak tourism season, when a deeper contraction is expected. A worse outcome was avoided by early actions to close external borders—which has kept Tonga COVID-19-free—and prompt economic support. Beyond FY2021, the recovery is expected to resume in line with the global recovery, but the magnitude and trajectory is uncertain.
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 Departmental Papers
Report on the Pacific Roundtables: Actions to Address Correspondent Banking and Remittances Pressure
Ms. Alison Stuart, Jihad Alwazir, Ms. Yan Liu, Mr. Scott Roger, Mr. Si Guo, Chau Nguyen, Mr. Emmanuel Mathias, and Mr. Jonathan Pampolina
The paper looks at feasible concrete action that can be taken by correspondent and respondent banks, money transfer operators, the Pacific authorities, the Australian and New Zealand authorities, and international organizations.
Keywords:
DPPP; DP; money transfer operator; correspondent banking relationship; accounts open; guidance to member; operator transaction; transfer operator; operator practice; transfer operator account; operator remittance; transfer operator practice; transfer operator closure; correspondent banking link; money transfer operator remittance; Correspondent banking; Remittances; Anti-money laundering and combating the financing of terrorism (AML/CFT); Compliance costs