## 1tonea2020001 ## Source details **Canonical URL:** [1tonea2020001](https://www.imf.org/-/media/files/publications/cr/2020/english/1tonea2020001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1tonea2020001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1tonea2020001.pdf.json) --- ### Major findings on exposure and impact - Tonga is one of the world’s most exposed countries to climate change and natural disasters. - Tonga 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. - Tropical Cyclone Gita (2018) caused immediate damage of 38 percent of GDP and had long-lasting socioeconomic effects (for example, on children whose education was disrupted). - Tropical Cyclones Ian and Gita caused damage and loss equivalent 11 and 38 percent of GDP, respectively. - TC Gita resulted in economic growth dropping more than 5 percentage points between 2017 and 2018. - PCRAFI (2012) estimates Tonga is expected to incur on average US$ 16 million of losses (3 percent of 2018 GDP) per event per year due to earthquakes and tropical cyclones. - PCRAFI (2012) also estimates: in the next 50 years Tonga has a 50 percent chance of experiencing a per event loss exceeding US$178.2 million (37 percent of 2018 GDP), and a 10 percent chance of experiencing a per event loss exceeding US$437.4 million (91 percent of 2018 GDP). - Some estimates indicate that economic growth could be lower on average by 0.1-0.2 percentage points per year (Lee and others 2018). - IMF staff estimates for the Debt Sustainability Analysis indicate a natural disaster shock could reduce economic growth by more than 3 percentage points, with exports contracting by 7 percentage points of GDP; the PV of public debt-to-GDP is expected to immediately increase by 15 percentage points of GDP in 2021 and reach 100 percent in 2030. - The sea level has risen near Tonga by about 6mm per year since 1993, larger than the global average of 2.8 – 3.6 mm. - Under high emissions scenarios, further sea level rise by 2030 could be in the range of 0.03 to 0.17m; mean SLR for the second half of the 21st century under RCP8.5 is 0.41-0.88m (Kiem 2019). - Since 1997, Tonga has experienced 15 significant natural disasters including tropical cyclones, earthquakes and droughts. - Between 1969 and 2010, Tonga experienced an average of 17 cyclones per decade. - 32 percent of cyclones that have affected Tonga from 1970-2015 have been classified by Tonga’s Meteorological Service as severe. - Projections: average maximum wind speeds and rainfall intensity are projected to increase by 2-11 percent and about 20 percent, respectively. - Tonga’s NDC focuses on mitigation (renewable energy, reduction of energy losses) and has limited consideration of adaptation and does not set objectives with adequate costing for other-than-energy sectors. - Tonga needs to plan for extreme events, long-term adaptation horizons, and possible “transformational responses,” including relocating major pieces of infrastructure and supporting migration from at-risk areas. ### Institutional preparedness, coordination, and capacity gaps - High-level commitment through NECCC and ECCSC; consolidation of climate and DRM functions under MEIDECC. - Since 2017, MEIDECC has received the highest recurrent budget allocation. - Coordination and implementation challenges: - Lack of clarity of roles and responsibilities within MEIDECC and across ministries, including with MOF and Department of Planning. - Need to clarify institutional structures and define roles for planning, financing and implementation. - Emergency and response structures: - Cross-government Emergency Management Committee and ten clusters (shelter, education, WASH, food security and livelihood, safety and protection, telecommunication, essential services, early recovery and logistics, economic and social recovery). - Key institutions: NEMO, Tonga Meteorological Service (TMS), National Resources Division, Tonga Geological Service (TGS). - Human, financial and data shortfalls: - National Emergency Fund established 2008 with annual appropriation up to at least TOP $5 million (about US$ 2 million); pre-emptively unlocked TOP 500,000 (US$208,000) ahead of 2019-2020 cyclone season. - Officials indicate current resourcing insufficient for cluster staffing needs; dependence on National Emergency Fund and international relief can delay initial implementation. - Need standardized post-disaster data collection and stronger localized hazard and risk information; current exposure mapping is 10 years old. - Legislative reform: - Draft National Emergency Management Act (NEMA) revised and envisaged for submission to Parliament by FY 2021 to clarify NEMO’s role and promote decentralized, consultative recovery management. - Health emergencies: - Recommendation to integrate health emergencies (e.g., measles 2019, COVID-19) into disaster preparedness and review contingent financing disbursement triggers and links to CAT-DDO. ### Mitigation and energy policy findings and recommendations - Tonga emits 310 Gg (0.001 percent of the global GHG emissions) and is a net GHG sink, absorbing approximately 1568 Gg when tree cover is accounted for. - NDC and targets: - Renewable share targets: 50 percent in 2020 and 70 percent in 2030 (NDC); JNAP2 aim: 100 percent by 2035. - Electricity line losses target: reduce from 18 percent in 2010 to 9 percent by 2020. - Achieving the 2020 renewable target estimated to reduce emissions by 27 Gigagram (Gg), around 9 percent from 2006. - Energy statistics: - 2006 energy demand: imported petroleum 53 percent; biomass 47percent. - Renewables electricity generation around 10 percent of total (6 percent of total energy demand) in 2017. - Around 64 percent of households now use LPG for cooking. - In 2018/19 parasitic and line losses were 11 percent. - TERM phases and financing: - Phase 1 cost US$29 million (6 percent of 2018 GDP); US$25 million grants. - Phase 2 expected to cost between US$13 million (3 percent of 2018 GDP). - Phase 3 requires around US$53 million (11 percent of 2018 GDP); US$44.6 million grants. - Electricity and fuel prices and tax treatment: - Electricity tariff standardized at US$0.34/kWh. - Automotive diesel approximately US$ 1.2/liter; petroleum approximately US$ 1.1/liter. - Excise tax rate US 28 cents/liter; consumption tax 15 percent. - Exemptions on diesel for ferry operators, fishing boats and Tonga Power Limited (TPL). - TPL shortfall between fuel costs and fuel revenue was 0.5 percent of GDP in 2018/19. - Foregone excise tax revenue from diesel used by TPL was 0.9 percent of GDP in 2018/19; foregone revenue from other TPL purchases was 1.2 percent of GDP in 2017/18. - Two IPPs have exemptions: 10-year income tax holiday and duty, excise and consumption tax exemptions for solar equipment installation and maintenance. - Emissions projections: - Under current system GHG emissions from electricity and road transportation expected to increase from 140 ktCO2e in 2017 to around 210 ktCO2e by 2030 (120 ktCO2e from transportation; 90 ktCO2e from electricity) — a 50 percent increase. - Recommended price and tax adjustments: - Return to adjusting the fuel component of the electricity tariff every three months — estimated immediate impact: increase tariff by 4 percent to US 36 cents/kWh. - Impose excise taxation on imported diesel used for electricity generation reflecting an implied carbon tax of USD 50/tCO2e — would raise electricity prices by an additional 9 percent to US 39 cents/kWh. - Apply excise duty on diesel used for generation; apply the standard rate of consumption tax on electricity. - While protecting the poor, remove electricity subsidies by passing on the full cost of diesel used for generation; protect vulnerable households with cash transfers or a lifeline tariff. - Lifeline tariff: first 100kWh at 30 cents/kWh; in 2018/19 this lifeline tariff cost around 0.2 percent of GDP. - Complementary mitigation options: - Introduce higher excise on older vehicles (suggested design: excise on older cars around 30 percent higher than excise on newer cars) or “feebates”; coordinate MEIDECC, MOF and Ministry of Revenue and Customs on motor vehicle taxation. ### Adaptation needs, costing, and project inventory - CCPA consolidated currently identified climate-related project costs at about US$671 million (139 percent of 2018 GDP). - Project breakdown (US$ million): Renewable Energy: 76; Resilient Transport Infrastructure: 130; Resilient Public Buildings (inc. Schools): 100; WASH + Waste Management: 16; Coastal Protection: 81; Agriculture, Fishery, Food, Ecosystem: 70; Public Finance Management: 52; ICT: 12; Early Warning System: 25; Others (inc. housing): 109; Total: 671. - Development partners’ financing secured for about half of identified needs; within US$671 million about 57 percent have committed financing. - Additional financing gap estimated at about US$289 million (60 percent of 2018 GDP). - JNAP2 indicates costs of US$147 million (31 percent of 2018 GDP) for six priority objectives through 2028. - GCF Country Program indicates spending needs about US$548 million (114 percent of 2018 GDP). - Official development assistance for Tonga between 2002-2017 cumulatively about US$864 million (180 percent of 2018 GDP). - Adaptation spending increased but remains insufficient; adaptation beyond infrastructure (health, education) requires more effort. - Project preparation stages vary; some expected to start in 2020. - Costing caveats: - Costing of predominantly physical infrastructure is a lower-bound estimate. - IMF SDG Costing approach (adapted) estimates additional annual spending needs for selected SDGs could amount to about 5 percent of GDP by 2030 after accounting for currently identified projects annualized over the next 11 years; IMF SDG Costing also indicates up to 7 percent of GDP in 2030 for the selected SDGs (see SDG section below). - Recommendations for adaptation (timing): - Extend adaptation coverage to current and capital projects in more sectors, especially health and education (Short to Medium term). - Use international firms as a complement to local capacity (Short to Medium term). - Improve, enact and enforce climate-informed building and land-use codes (Short term). - Establish the Housing Sector Resilience Office (Short term). - Explore options to develop private insurance market for homes and businesses and improve financial literacy (Short to Medium term). ### Disaster risk financing and risk management - Layered disaster risk financing exists but would benefit from a comprehensive National Disaster Risk Financing Strategy. - Key instruments and facts: - National Emergency Fund: appropriation up to TOP $5 million (about US$ 2 million); pre-emptive release TOP 500,000 (US$208,000). - Contingency budget: level agreed annually, must not exceed 5 percent of government total spending. - PCRIC sovereign parametric insurance: maximum possible payout US$7.1 million per year for Tonga based on actual coverage; premiums covered by WB-funded PREP at US$0.5 million per year; government counterpart payments roughly US$ 70,000 for 2020; payouts received within ten days after TC Ian (US$1.3 million) and TC Gita (US$ 3.5 million). - Access to ADB’s Policy-Based Contingent Finance Instrument: maximum roughly US$6 million per year. - World Bank CAT-DDO: IDA clients such as Tonga can request up to US$20 million. - Social protection: - Existing schemes: disability benefit and social pension; no comprehensive shock-responsive system yet. - After TC Gita: around TOP $225 (US$94) per beneficiary for 3000 elderly; TOP 400 (US$ 167) for the disabled in Tongatapu and Eua. - A registry of poorest and most vulnerable households is being developed with World Bank technical assistance. - Public asset insurance: - Some SOEs insured (airports, Tonga Water Board); most public assets uninsured. - Recommendation: assess feasibility of increasing public property insurance, consolidate coverage, and develop comprehensive asset registry including replacement values and geo-references. - Suggested risk-layering actions: - Maintain international reserves above the current 6½ months of imports. - Build Emergency Fund to about 1 percent of GDP and review Emergency Fund Act; provide operations manual. - Insure more government infrastructure assets. - Continue expanding social safety nets that can be scaled post-disaster. - Broaden sovereign insurance solutions (e.g., PCRIC product expansion to additional perils such as storm surge). - Recommended timing: - Develop a comprehensive National Disaster Risk Financing Strategy considering the above (Priority: Short to Medium term). ### Public financial management, investment planning, and national processes - MOF is responsible for overall budget, procurement, and coordination with development partners; Climate Change Financing unit in MOF needs capacity building for access to funds (notably GCF). - Public investment management depends heavily on development partners’ systems. - NIIP (2013-2023) should be updated: costed, prioritized, sequenced whole-of-government projects and integrated into annual budgets. - Public investment and budgeting issues: - No single database for externally funded projects; limited public fixed-asset information on fixed assets; asset register covers mobile assets only. - Maintenance costs for new assets not calculated in a standardized manner. - Budget differentiates operating and capital expenditure by classifying capital broadly (e.g., “buildings”). - Climate Change Trust Fund should be incorporated into regular budget/PFM processes; CCTF grants appropriated annually and subject to budgeting, reporting, auditing, procurement rules. - Projects should be identified by degree they contribute to adaptation/mitigation (e.g., proportion of extra cost attributable to adaptation). - Recommendations for national processes (timing): - Enhance NIIP and update in annual budget (Short to Medium term). - Better integrate climate into ministries’ plans and budget process—greater MEIDECC involvement (Short term). - MOF manage climate financing but build capacity and collaborate with MEIDECC (Short term). - Prepare and keep updated registry of public fixed assets including geo-references (Short to Medium term). - Incorporate Climate Change Trust Fund into regular budget/PFM system (Short term). - Expand classification of capital spending and better identify climate component (Short term). ### Capacity constraints and market responses - Tonga faces limited human resources and a shallow domestic private sector (skilled labor, construction firms). - Recommendations: - Improve transparency on pipeline of priority projects so markets can prepare. - Strengthen procurement measures, including framework agreements or bundling contracts to attract international firms. - Improve business environment to attract private investment in priority adaptation projects. - Build MOF and implementing ministries’ capacity in planning, project implementation, monitoring. ### Financing, debt sustainability, and policy implications - Total identified climate-related spending needs: about US$671 million (139 percent of 2018 GDP); about 57 percent committed financing; financing gap about US$289 million (60 percent of 2018 GDP). - Grants expected to constitute main source of funds; historically grants represented more than 90 percent of total funding. - Debt outlook: - IMF staff estimates PV public debt-to-GDP ratio expected to breach 70 percent in 2029 and increase to 88 percent at end of projection period. - Debt-financing additional SDG- and climate-related spending could push PV public debt-to-GDP to exceed 95 percent in 2030. - Policy implications: - Financing to achieve development and climate-resilience goals by 2030 should be in the form of grants to avoid worsening debt dynamics. - Complement grants with fiscal consolidation, rationalizing current spending (particularly the wage bill), greater PFM efficiency, and further domestic revenue mobilization. - Grow the private sector to expand the tax base in the longer term. - Execution and access: - About half of identified projects lack committed financing. - Access to international climate funds is difficult for small states due to procedural requirements and low awareness. - Improve absorption capacity, coordination, and domestic capacity to increase access and reduce disbursement delays. - Development partners should coordinate policy advice, co-funding and harmonize funding requirements. ### IMF SDG Costing results and additional spending needs - IMF SDG Costing adapted for Tonga finds: - Additional annual spending needed to achieve selected SDGs in health, education, and physical infrastructure amounts to at least 7 percent of GDP in 2030. - After reconciling with currently identified climate-related projects, residual additional spending needs are about 5 percent of GDP in 2030. - Combining the 5 SDGs with currently identified climate-related plans gives an annual cost of 13 percent of 2030 GDP. - Sectoral composition: - Two-thirds of residual needs are in health and education. - Additional annual spending to reach universal safely managed WASH, and to improve electricity and roads, includes about 0.7 percent of GDP in 2030 for electricity and roads on top of current projects. - Methodology and assumptions: - Ongoing projects with committed financing assumed implemented over 4-6 years; remaining projects extended beyond 2025. - Estimates account for higher unit costs and maintenance for climate-resilient infrastructure and faster capital depreciation. - Financing implications: - Achieving SDGs and increasing climate resilience without exacerbating debt requires additional grant support. - External support also needed for technology, technical skills, capacity building, and statistics. - Domestic priorities: improve sectoral strategies, spending efficiency, public investment management, and domestic revenue mobilization. ### Box 1 — Summary of Key Recommendations (selected) - General preparedness: - Update the NDC and plan for longer-term adaptation horizons (Short term). - Mainstream climate resilience into all sectoral plans and strengthen cooperation across ministries, especially MEIDECC, MOF, MLSNR (Short term). - Finalize reform of the National Emergency Management Act (Short term). - Develop a fully integrated MHEWS and standardize post-disaster reporting (Short to Medium term). - Mitigation: - Accelerate expansion of renewables (Short term). - Remove electricity subsidies while protecting the poor by passing on full diesel costs (Short term). - Apply excise duty on diesel used for generation and standard consumption tax on electricity (Short to Medium term). - Introduce higher excise on older vehicles or feebates (Short to Medium term). - Adaptation: - Extend adaptation coverage to more sectors, use international firms to complement local capacity, improve building and land-use codes, establish Housing Sector Resilience Office (Short to Medium term). - Financing and risk management: - Continue project preparation and secure donor grant financing given high debt distress risk; complement with fiscal consolidation (Short to Medium term). - Develop a comprehensive National Disaster Risk Financing Strategy; consider increasing Emergency Fund to about 1 percent of GDP, insuring more government assets, and expanding social protection (Short to Medium term). - National processes: - Strengthen NIIP with costed, prioritized, sequenced projects and integrate into annual budget (Short term). - MOF to manage climate financing while building capacity and collaborating with MEIDECC (Short term). - Prepare and update a public fixed-asset registry and incorporate CCTF into PFM system (Short to Medium term). *Source: 1tonea2020001 — IMF and World Bank CCPA mission report (PREFACE, EXECUTIVE SUMMARY, Box 1, and selected chapters summarized).* ### PREFACE _________________________________________________________________________________________ 6 ### PREFACE ### Mission and Participants - A joint IMF-World Bank Climate Change Policy Assessment (CCPA) mission visited Nukuʻalofa, Tonga, February 3-10, 2020, in response to a request from the CEO of the Ministry of Finance, Ms. Fa’otusia. - Mission leadership and contributors included J. Daniel (IMF) and staff from IMF, WB, and ADB, with additional input from other IMF and WB staff and external experts. - The mission met with a wide range of government officials, development partners, civil society, and international representatives, including: the Minister of Finance Hon. Tevita Lavemaau; Governor of National Reserve Bank of Tonga Dr. Sione Ngongo Kioa; CEOs and senior officials from MEIDECC, MOF, MLSNR, Ministry of Agriculture, Tonga Power Limited, Tonga Water Board, Waste Authority Limited, Ministry of Revenue and Customs, and others. ### Major Findings on Exposure and Impact - Tonga is one of the world’s most exposed countries to climate change and natural disasters. - Tonga 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. - Cyclone Gita (2018) caused immediate damage of 38 percent of GDP and had long-lasting socioeconomic effects (for example, on children whose education was disrupted). - Under very high emissions scenarios (RCP 8.5), some sea level estimates based on the upper bounds of the IPCC suggest that the mean in Tonga could be almost 0.9 meters higher by 2100. - Nukuʻalofa is mainly 1-2 meters above sea level, implying vulnerability to projected sea level rise. ### Preparedness, Plans, and Implementation Gaps - Tonga has multiple strategic, national-level plans recognizing climate change risk, including: - Tonga’s 2015 Nationally Determined Contribution (NDC) - Tonga’s National Strategic Development Framework (TSDF, 2015-2025) - Climate Change Policy (TCCP 2016-2035) - Joint National Action Plans on Climate Change Adaptation and Disaster Risk Management (JNAP 2018-2028) - National Infrastructure Investment Plan (NIIP 2013-2023) - Third National Communication (TNC forthcoming) - These strategic plans need more consistent implementation: sector-specific plans and annual budgets remain largely project-based. - Constraints to implementation include limited human and financial capacity, frequent natural disasters, gaps in coordination, and changes in priorities. - Tonga needs to plan for long-term and potentially transformational responses (e.g., relocating infrastructure, supporting migration from at-risk areas), and some of these responses may require action now. ### Mitigation and Energy Policy Findings - Tonga’s emissions are globally minuscule, but the country is advancing renewable energy—mainly solar. - Electricity is underpriced; the full cost of diesel used for generation should be passed on to consumers and the electricity company should not be granted tax breaks. - Any resulting rise in electricity tariffs could be phased in while protecting vulnerable households. - Achieving renewables targets should allow electricity price reductions over time, given renewables’ potential lower running costs. ### Financing Needs, Debt, and External Support - The list of projects to build climate resilience is large and expensive—some 140 percent of 2018 GDP cumulatively. - Development partners’ financing has been secured for about half of the identified needs. - Tonga also faces other development goals that will require additional spending beyond climate needs. - Given Tonga’s high risk of debt distress, external financing should be in the form of grants to avoid worsening debt dynamics. - Fiscal consolidation is required to ensure debt sustainability (see the Concluding Statement to 2020 Article IV Consultation for Tonga). ### Disaster Risk Financing and Management Recommendations - Tonga has a reasonable range of disaster risk financing tools but would benefit from a comprehensive disaster risk financing strategy informed by comprehensive, accessible, and appropriately-scaled disaster and hazard risk information. - The strategy could consider: - Building up the Emergency Fund to around 1 percent of GDP and establishing clear operational procedures. - Registering and insuring more government assets. - Building out social protection systems that can be automatically scaled up after a disaster. - Exploring options to develop the existing private insurance market, including building awareness and financial literacy. - Natural disaster and emergency management systems are in place but could be enhanced by: - Finalizing reform of the National Emergency Management Act to clarify NEMO’s role and enable more inclusive planning and delivery. - Improving and coordinating the multi-hazard early warning system and hazard impact assessments. - Boosting human and financial resources for MEIDECC and MLSNR functions, including the National Resource Division (NRD). - Standardizing practices for gathering and reporting post-disaster data and damages across ministries. ### Public Financial Management, Investment Planning, and Structural Reforms - Tonga’s public financial management systems are on the whole reasonably sound, but public investment management depends heavily on development partners’ technical and financing assistance. - Key actions to improve value for money and implementation: - Update the NIIP (2013-2023) with costed, prioritized, sequenced, whole-of-government investment projects. - Integrate updated investment priorities into the annual budget and avoid frequent changes in priorities. - Involve MEIDECC more in planning and technical coordination for ministerial projects and budgets to mainstream climate. - Strengthen MOF capacity for managing climate financing and central oversight. - Structural reforms that would aid resilience: - Improve and enforce building and land use codes. - Establish an effective Housing Sector Resilience Office. - Strengthen awareness and information sharing about climate impacts and disaster risks among government units. ### Capacity Constraints and Market Responses - Tonga faces overarching human and financial capacity constraints typical of very small states (thin public sector capacity, limited private sector skills such as construction firms and skilled labor). - Recommendations to address capacity constraints include: - Greater transparency on the pipeline of priority projects so markets can prepare. - Strengthening procurement measures, including framework agreements or bundling contracts, to attract international firms where appropriate as a complement to local capacity. ### International Community Role - Tonga has very limited capacity to finance its climate resilience needs and continued international support is essential. - The international community should: - Reduce emissions to stabilize global warming. - Provide additional financing (via grants) for adaptation, maintenance, and insurance. - Streamline access to international climate funds and assist Tonga in applications. - Coordinate better on projects and support Tonga’s public financial management systems. - Broaden coverage of regional parametric insurance schemes (for example, to cover storm surges). - Partner with Tonga and other PICs in considering longer-term and potentially transformative approaches, including support for migration from at-risk areas. *Source: PREFACE and EXECUTIVE SUMMARY (CCPA mission report for Tonga, February 3-10, 2020).* ### Box 1. Summary of Key Recommendations ### Box 1. Summary of Key Recommendations ### General preparedness - Update the NDC and plan for longer-term adaptation horizons. (Short term) - Mainstream climate resilience into all sectoral plans and strengthen cooperation across ministries, especially between MEIDECC, MOF, and MLSNR. (Short term) - Finalize the reform of the National Emergency Management Act to provide an overarching framework, a clearer role for NEMO and a more inclusive approach to preparedness and response. (Short term) - Continue to develop a fully integrated MHEWS, strengthening human and financial resources for key functions across MEIDECC and MLSNR, while promoting clear roles, responsibilities and an integrated approach for monitoring and issuing warnings for natural hazards. (Short to Medium term) - Standardize post-disaster information gathering and reporting across ministries. (Short to Medium term) ### Mitigation - Accelerate expansion of renewables, as planned. (Short term) - While protecting the poor, remove electricity subsidies by passing on the full cost of diesel used for generation in the electricity tariff. (Short term) - Apply excise duty on diesel used for generation. (Short term) - Apply the standard rate of consumption tax on electricity. (Short to Medium term) - Introduce a higher excise tax on older vehicles, or, alternatively, “feebates” to encourage uptake of fuel-efficient vehicles. (Short to Medium term) ### Adaptation - Extend coverage of adaptation strategies and plans to current and capital projects in more sectors (especially health and education). (Short term) - Use international firms as a complement to local capacity. (Short term) - Improve, enact and enforce the climate-informed building and land-use codes. (Short to Medium term) - Establish the Housing Sector Resilience Office. (Short to Medium term) - Explore options to further develop the private insurance market for homes and businesses including by raising awareness and improving financial literacy to include natural disasters. (Short to Medium term) ### Financing - Continue project preparation and dialogue with development partners to secure donor financing for unmet climate and development goal. (Short term) - Given Tonga’s high debt distress risk, this financing should be in the form of grants to avoid worsening debt dynamics, complemented by fiscal consolidation. (Short to Medium term) - Improve visibility across ministries on international climate financing and application procedures. (Short term) - Improve administrative capacities in planning, project implementation, monitoring. (Short term) - International community should streamline access to climate funds, and assist Tonga to apply. (Short to Medium term) ### Risk management - Develop a comprehensive National Disaster Risk Financing Strategy that could usefully consider: (Short term) - Increasing the Emergency Fund’s size to about 1 percent of GDP with a review of the Emergency Fund Act. - Insuring more government infrastructure assets. - Continuing to expand the social safety net to cover more vulnerable households, and ensure it can be effectively used after disasters. - The international and regional community could usefully continue broadening the offer of sovereign insurance solutions, building on existing initiatives/platforms (such as PCRIC). (Short to Medium term) ### National processes - Strengthen NIIP with costed, prioritized, sequenced whole of government investment projects and update in the annual budget. (Short term) - Better integrate climate into ministries’ plans and regular budget process—greater involvement of MEIDECC would help. (Short term) - The MOF should be responsible for managing climate financing, but needs to build capacity in climate financing and collaborate with MEIDECC. (Short to Medium term) - Prepare and keep updated a registry of public fixed assets, ensure they are maintained, and plan for their replacement/repair after a disaster. (Short to Medium term) - Incorporate the Climate Change Trust Fund into the regular budget/public financial management system. (Short term) - Expand the classification of capital spending and better identify the climate component. (Short term) ### Key findings and risk statistics (preserved verbatim) - Tropical Cyclone Gita caused extensive damage and loss, equivalent to around 38 percent of Tonga’s annual GDP. - Tropical Cyclones Ian and Gita caused damage and loss equivalent 11 and 38 percent of GDP, respectively. - TC Gita resulted in economic growth dropping more than 5 percentage points between 2017 and 2018. - PCRAFI (2012) estimates Tonga is expected to incur on average US$ 16 million of losses (3 percent of 2018 GDP) per event per year due to earthquakes and tropical cyclones. - PCRAFI (2012) also estimates: in the next 50 years Tonga has a 50 percent chance of experiencing a per event loss exceeding US$178.2 million (37 percent of 2018 GDP), and a 10 percent chance of experiencing a per event loss exceeding US$437.4 million (91 percent of 2018 GDP). - Some estimates indicate that economic growth could be lower on average by 0.1-0.2 percentage points per year (Lee and others 2018). - Other estimates show Tonga is expected to incur, on average, about US$9.5 million of losses (2.7 percent of 2018 GDP) per event per year due to tropical cyclones. - The IMF staff estimates for the Debt Sustainability Analysis indicates that a natural disaster shock could reduce economic growth by more than 3 percentage points, with exports contracting by 7 percentage points of GDP. Following the shock, the Present Value (PV) of public debt-to-GDP is expected to immediately increase by 15 percentage points of GDP in 2021 and reach 100 percent in 2030. - The sea level has risen near Tonga by about 6mm per year since 1993, larger than the global average of 2.8 – 3.6 mm. - Under high emissions scenarios, further sea level rise by 2030 could be in the range of 0.03 to 0.17m; mean SLR for the second half of the 21st century under RCP8.5 is 0.41-0.88m (Kiem 2019). - Since 1997, Tonga has experienced 15 significant natural disasters including tropical cyclones, earthquakes and droughts. - Between 1969 and 2010, Tonga experienced an average of 17 cyclones per decade. - 32 percent of cyclones that have affected Tonga from 1970-2015 have been classified by Tonga’s Meteorological Service as severe. - Projections: average maximum wind speeds and rainfall intensity are projected to increase by 2-11 percent and about 20 percent, respectively. - Tonga is expected to incur on average US$ 16 million of losses (3 percent of 2018 GDP) per event per year due to earthquakes and tropical cyclones (PCRAFI 2012, reiterated). - Tonga’s NDC focuses on mitigation (renewable energy, reduction of energy losses) and has limited consideration of adaptation and does not set objectives with adequate costing for other-than-energy sectors. - National policies and plans provide an overarching framework (TSDF 2015-2025, TCCP 2015, JNAP2 2018-2028) but gaps persist in translating these into comprehensive, consistent, and costed sectoral policies and operational plans. - Tonga needs to plan more for extreme events, long-term adaptation horizons, and possible “transformational responses,” including relocating major pieces of infrastructure and supporting migration from at-risk areas. *Source: 1tonea2020001 - Box 1. Summary of Key Recommendations* ### 7. Institutional preparedness has improved with key government stakeholders taking ### 1tonea2020001 - 7. Institutional preparedness has improved with key government stakeholders taking ### Institutional preparedness and coordination - High-level commitment across government to coordinate on climate change and disaster risk management through the parliamentary-level National Environment and Climate Change Committee (NECCC) and the Environment and Climate Change Standing Committee (ECCSC). - Consolidation of climate change and disaster risk management functions under MEIDECC, which includes institutions responsible for forecasting, early warning, coordinating, and implementing the emergency response, and promoting climate risk preparedness and adaptation. - Since 2017, MEIDECC has received the highest recurrent budget allocation, reflecting ongoing adaptation and disaster risk management projects supported by development partners and the GCF. - Remaining coordination and implementation challenges: - Lack of clarity of roles and responsibilities within MEIDECC’s different departments and across ministries, including with the MOF and the Department of Planning in the Prime Minister’s office. - Need to clarify institutional structures and define roles and responsibilities for climate change and disaster risk management planning, financing and implementation, while promoting cross-ministerial and cross-sector collaboration. ### Consistency of climate response with development goals (TSDF and SDGs) - Climate response strategy is broadly consistent with Tonga’s development goals (SDGs); Tonga included both its SDGs and climate resilience objectives into TSDF. - National Action Plan for Climate Change, TCCP, and JNAP2 single out climate and disaster resilience as an “integral component” of Tonga's development strategy. - Climate mitigation and adaptation, and disaster risk management are integrated at the strategic policy level into sectoral aspects of TSDF. - Table 2 (summarized): TSDF national outcomes align with SDGs and climate mitigation/adaptation components, including: - Climate Resilient Environments for Agriculture*, Forestry*, Fisheries* - Resilient Housing# - Protection of vulnerable-to-natural disasters population and areas* - Access to quality infrastructure and public building# - Health, WASH, disaster preparedness awareness programs and curriculum - Costal Protection# - Sustainable management of costal, marine, and land resources* - Better access to and management of climate finances - Stronger project implementation and monitoring capacity through technical assistance - Note: * indicates emission targets in NDC; # indicates objectives mentioned in NDC. ### Preparedness for intensified disasters: structures, capacities, and gaps - Progress in immediate preparedness and emergency response across government and community levels; primary responsibility for saving lives and preserving public health rests with the government of Tonga with international support. - Coordination structures: cross-government Emergency Management Committee and ten key clusters (shelter, education, WASH, food security and livelihood, safety and protection, telecommunication, essential services, early recovery and logistics, economic and social recovery). - Key institutions: National Emergency Management Office (NEMO), Tonga Meteorological Service (TMS) under MEIDECC, National Resources Division and Tonga Geological Service (TGS) under MLSNR. - Financial and capacity constraints: - National level budget allocation for climate resilience and disaster recovery until 2021. - Authorities indicate current resourcing is not enough to meet human capacity needs for adequately resourcing clusters. - Dependence on the National Emergency Fund and international relief for post-disaster financing can delay initial implementation. - Individual ministry budgets lack dedicated funds for disaster resilience and response. - Data and information shortfalls: - Need for standardized approach to collecting, reporting and sharing weather and post-disaster information to clarify damage and losses and support financing requests to donors. - Requirement for stronger localized hazard and risk information and Multi-hazard early warning systems (MHEWS). - Institutional clarity and legislative reform: - Lack of clarity between ministries responsible for hazard monitoring and early warning (including MEIDECC and MLSNR); need for greater coordination and knowledge-sharing. - Draft National Emergency Management Act (NEMA) revised and envisaged for submission to Parliament by FY 2021; reform expected to clarify the role of NEMO, promote a decentralized and consultative model of disaster recovery management, and streamline coordination. - Health emergencies within disaster frameworks: - Recommendation to integrate health emergencies (e.g., measles 2019, COVID-19) into disaster preparedness and response policies, including a “declaration of a state of health emergency” in the draft Emergency Management Bill and review disbursement triggers for contingent disaster-risk financing instruments (Chapter V) and potential linkages to the proposed World Bank supported CAT-DDO. ### Remaining human, financial, and data resource challenges - Human resources: TMS and other agencies need more specialized and qualified staff to meet growth in demand. - Financial resources: need clarity on access to and procedures for drawing on existing funding sources, particularly between climate change and disaster risk management services. - Data: need standardized post-disaster information gathering, reporting and sharing across ministries to support damage/loss estimates and financing requests. ### Recommendations for General Preparedness (time horizons indicated) - II. Update the NDC and plan for longer-term adaptation horizons (Priority: Short term). - III. Mainstream climate resilience into all sectoral plans and strengthen cooperation across ministries, especially between MEIDECC, MOF, and MLSNR (Priority: Short term). - IV. Finalize the reform of the National Emergency Management Act to provide an overarching framework, a clearer role for NEMO and a more inclusive approach to preparedness and response (Priority: Short term). - V. Continue to develop a fully integrated MHEWS, strengthening human and financial resources for key functions across MEIDECC and MLSNR, while promoting clear roles, responsibilities and an integrated approach for monitoring and issuing warnings for natural hazards (Priority: Short to Medium term). - VI. Standardize post-disaster information gathering and reporting across ministries (Priority: Short term). ### Tonga’s contribution to mitigation and mitigation objectives - Tonga contributes insignificantly to global greenhouse gas (GHG) emissions but is a net GHG “sink”. - Key mitigation targets in Tonga’s NDC and JNAP2: - NDC targets: renewable in total energy generation of 50 percent in 2020 and 70 percent in 2030. - JNAP2 aim: 100 percent renewable energy generation by 2035. - Electricity line losses target: reduce from 18 percent in 2010 to 9 percent by 2020. - Estimated impacts: - Achieving the 2020 renewable target is estimated by the authorities to reduce emissions by 27 Gigagram (Gg), around 9 percent from 2006. - National emissions profile and sequestration: - Tonga emits 310 Gg (0.001 percent of the global GHG emissions). - Emissions by source: land use change 60 percent; transportation 23 percent; electricity generation 13 percent. - Tonga absorbs approximately 1568 Gg of emissions (carbon sink when tree cover is accounted for). ### Sectoral mitigation objectives and proposed actions (summary) - Renewables - Objective: Increase share of renewable energy sources to 50% of the generation mix in 2020 and 70% by 2030. - Actions: Increase investment in solar generation, expand use of solar water pumping. - Electricity - Objective: Reduce energy losses from 18% to 9%. - Actions: Power distribution network upgrades, smart meter installation, interconnection upgrades and energy efficiency programmes for residential and commercial customers. - Agriculture - Objective: No specific objective. - Actions: Greater water availability to livestock, improvements in feed quality and improve soil management practices. - Transport - Objective: No specific objective. - Actions: Expand use of biofuels. - LULUCF policies: - National management plan for forest and tree resources (finalized 2017) includes incentives for landholders to plant native trees or sandalwood and promotion of traditional agro-forestry practices; implementation prioritized for 2020-23. ### Clean energy plans and energy statistics - Main energy sources: imported petroleum, biomass, and renewable energy. - 2006 energy demand composition: - Imported petroleum products accounted for 53 percent of energy demand (used mainly for electricity generation and transportation). - Biomass accounted for 47percent of energy demand (used mainly for cooking). - Renewables and cooking fuel transitions: - Increased penetration of renewable energy for electricity generation boosted share of renewables electricity generation to around 10 percent of the total (6 percent of total energy demand) in 2017. - Around 64 percent of households now use LPG for cooking, replacing biomass use. - Line and parasitic losses: - Commitment to reduce electricity line losses from 18 percent in 2010 to 9 percent by 2020. - In 2018/19 parasitic and line losses were 11 percent. *Source: IMF staff summary of chapter content from the provided PDF content unit.* ### 15. Continuing the expansion of renewables is critical, and progress is planned to ### 1tonea2020001 - 15. Continuing the expansion of renewables is critical, and progress is planned to ### Renewables expansion: objectives, benefits, and progress - Increasing the share of renewables in electricity generation to 70 percent by 2030 would reduce CO2 emissions by 44 ktCO2e, a 14 percent reduction compared to 2006 (UN Climate Technology Center and Network). - Switching the fuel mix of electricity generation is identified as one of the more cost-efficient mitigation options and would reduce Tonga’s exposure to oil price volatility; when construction costs are covered by grants it could reduce the cost of electricity. - Historical share of renewables in generation has fluctuated between 7 to 11 percent. - Slower-than-expected growth in renewables is attributed to faster growth in electricity demand relative to renewable generation growth and insufficient Battery Energy Storage Systems (BESS) capacity. - Tonga Energy Road Map (TERM) and subsequent sector plans clarify technical requirements including BESS needs. - TERM phases: - Phase 1 delivered an additional 3 percent of generation from renewable energy and additional BESS capacity. - Phase 2 scheduled for completion in 2020 and would deliver an additional 16 percent. - Phase 3 construction to begin in early 2020 and will provide the remaining 27 percent to bring the share of renewable energy generation to 54 percent. - Note: BESS capacity is needed because of the intermittent nature of renewable energy and because TPL’s grid cannot fully absorb intermittent electricity from planned IPP renewable energy generation facilities (GCF proposal, 2019). ### Financing and costs of renewable phases - Tonga relies on grant financing to implement renewable energy projects; the government’s contribution is an exemption from applicable taxes for material inputs used by the project. - Phase costs and financing: - Phase 1 cost US$29 million (6 percent of 2018 GDP), of which US$25 million were grants from the ADB, the Government of Australia and the European Union, and other development partners. - Phase 2 expected to cost between US$13 million (3 percent of 2018 GDP) and will be funded by JICA, the Government of China and the private sector (Independent Power Providers, IPPs). - Phase 3 requires around US$53 million (11 percent of 2018 GDP), of which US$44.6 million will be grants, with the remaining coming from Tonga Power Limited and the Government of Tonga. - Development partners are willing to fund projects, but meeting partner requirements (design specifications and private sector participation) amid Tonga’s capacity constraints has slowed securing funding and contributed to TERM delays. - Grants were conditioned on private sector participation (IPP); the first solar IPP under this project will begin construction in 2020. ### Electricity and fuel prices; tax/subsidy treatment - Electricity tariff standardized across the four main islands at US$0.34/kWh. - Automotive diesel cost approximately US$ 1.2/liter and petroleum approximately US$ 1.1/liter. - Tonga Competent Authority regulates prices of petrol, kerosene and diesel in line with international fuel prices every three months. - Road fuels taxation: - Road fuels are subject to an excise tax and a consumption tax; no import tariffs on petroleum products. - Excise tax rate is US 28 cents/liter; consumption tax levied at the standard rate of 15 percent. - The level of excise taxation is close to the efficient level of between US 30 to 40 cents/liter (Coady et al, 2019), of which US 12 cents/liter is to reflect the cost of GHG emissions priced at US$ 50/tCO2e. - Exemptions from excise tax on diesel for domestic ferry operators, fishing boats and Tonga Power Limited (TPL). - Motor vehicle taxation: - Passenger motor vehicles have no tariff; vehicles for transportation of goods have a tariff rate of three percent. Buses with ten seats or more can be imported duty free. - Tariff rates will be removed under PACER plus for participating countries. - All motor vehicles subject to standard consumption tax rate of 15 percent. - Prior to July 2019, excise rates varied by vehicle age; from July 2019 excise tax no longer varies by age. - Excise tax regimes based on engine size encourage uptake of smaller, more fuel-efficient cars. - Electricity favorable tax treatment and implicit subsidies: - Electricity is zero rated under the consumption tax; no tax on sales of electricity, but electricity providers receive a tax credit for consumption tax paid for inputs. - Government has not passed on increases in fuel costs to consumers since July 2017 to reduce price volatility; prior to July 2017 fuel component adjusted every three months. - Implicit subsidy partly financed by withholding the government dividend from TPL. - In 2018/19 the shortfall between TPL’s fuel costs and fuel revenue was 0.5 percent of GDP (TPL Annual Report 2018/19). - TPL exemption from excise taxation and import duties for diesel and other purchases (vehicles, machinery, equipment). In 2018/19 the foregone excise tax revenue from diesel used by TPL was 0.9 percent of GDP; in 2017/18 foregone revenue from other TPL purchases was 1.2 percent of GDP. - Two IIPs have exemptions: 10-year income tax holiday and duty, excise and consumption tax exemptions for installation and maintenance of solar electricity generation equipment. - Under current system, GHG emissions from electricity and road transportation expected to increase from 140 ktCO2e in 2017 to around 210 ktCO2e by 2030 (UN Climate Technology Center and Network): - Of these emissions, around 120 ktCO2e are from transportation and 90 ktCO2e from electricity generation. - This represents a 50 percent increase in emissions from these two sectors. ### Recommended carbon pricing and electricity tariff adjustments - Return to adjusting the fuel component of the electricity tariff in line with diesel prices every three months; estimated immediate impact: - This would increase the current tariff by 4 percent to US 36 cents/kWh. - Impose excise taxation on imported diesel used for electricity generation to reflect the cost of GHG emissions: - An implied carbon tax of USD 50/tCO2e would raise electricity prices by an additional 9 percent, bringing the overall price to US 39 cents/kWh. - Support for the poor: - Subsidy on electricity tariff benefits both high- and low-income households; high-income households benefit more both as a share of expenditure and in absolute terms. - Cash transfers preferred to protect the poor; where social safety nets lack feasibility, a lifeline tariff is an alternative. - Lifeline tariff introduced in April 2017: first 100kWh sold at a lower rate of 30 cents/kWh. In 2018/19 this lifeline tariff cost the government around 0.2 percent of GDP. - For better targeting, subsidy should only apply to those with consumption below the threshold; original policy designs included clawing back subsidy benefits for consumption above 200kWh. - Electricity tariff estimate assumptions (Figure 8 notes): - exchange rate of 2.3 TOP/USD - 8.7 million liters of diesel used under 50 percent RE scenario - diesel price of 70 US cents/liter - excise of 12 US cents/liter - non-fuel cost of 18 US cents/kWh - renewable electricity generation cost of 18 US cents/kWh - Corporate Tax rate of 15 percent - generation of 71 GWh, and billing of 63 GWh - Feed-in tariffs from IPPs currently between 12-15 US cents/kWh ### Complementary policies to carbon pricing (short-term focus) - Discourage carbon-intensive uses and promote renewable energy across emitting sectors. - Short-term policy options: - Introduce a higher rate of taxation on older vehicles to encourage uptake of fuel-efficient vehicles. Suggested design: excise on older cars could be around 30 percent higher than excise on newer cars to equalize costs on emissions. Consider differentiated rates for hybrid vs. non-hybrid cars. - Introduce feebates to increase prices of low fuel-efficiency vehicles and decrease prices of high fuel-efficiency vehicles. Feebates can be revenue neutral or designed to collect same revenue as current motor vehicle excise tax; represent a larger departure from current regime. - MEIDECC, MOF and Ministry of Revenue and Customs to coordinate to improve motor vehicle taxation, combining expertise in climate mitigation, tax policy and tax administration. ### Recommendations for mitigation (timing indicated) - Accelerate expansion of renewables, as planned (Priority: Short to Medium term). - While protecting the poor, remove electricity subsidies by passing on the full cost of diesel used for generation in the electricity tariff (Priority: Short to Medium term). - Apply excise duty on diesel used for generation (Priority: Short term). - Apply the standard rate of consumption tax on electricity (Priority: Short term). - Introduce a higher excise tax on older vehicles, or alternatively, “feebates” to encourage uptake of fuel-efficient vehicles (Priority: Short term). ### Adaptation plans, spending, and needs - Adaptation spending has increased and should continue to do so to meet SDG and climate-resilience targets; recommended actions include incorporating adaptation beyond infrastructure (health, education), greater use of international firms where appropriate, improving regulations (building code, housing recovery and reconstruction policy, land use regulations), and promoting private and public disaster insurance. - Official development assistance for Tonga between 2002-2017 cumulatively about US$864 million (180 percent of 2018 GDP). - Projects directly targeting climate adaptation increased over the period; share of adaptation across sector projects is difficult to estimate. - JNAP2 and GCF: - JNAP2 indicates costs of US$147 million (31 percent of 2018 GDP) for six priority objectives through 2028. - GCF Country Program (2018) consolidated JNAP2 and sectoral project costing, indicating spending needs for mitigation and adaptation of about US$548 million (114 percent of 2018 GDP), not yet including recent sectoral projects. - CCPA mission consolidated currently identified climate-related project costs at about US$671 million (139 percent of 2018 GDP). Climate adaptation is a major part of these needs. - Cumulative cost of currently identified climate-related projects (US$ million): - Renewable Energy: 76 - Resilient Transport Infrastructure: 130 - Resilient Public Buildings (inc. Schools): 100 - WASH + Waste Management: 16 - Coastal Protection: 81 - Agriculture, Fishery, Food, Ecosystem: 70 - Public Finance Management: 52 - ICT: 12 - Early Warning System: 25 - Others (inc. housing): 109 - Total: 671 - Investment in resilient transport, public building, coastal protection, water, waste management, and renewable energy account for about 60 percent of the total; PFM, ICT and Early Warning System about 13 percent; other projects include resilient housing, education and health. - Project preparation stages vary; some expected to start in 2020. Overall timeframe is not specified. Upcoming updates to GCF and development partners’ work programs and the 2020/21 Budget Strategy should collectively provide more comprehensive prioritization over the medium term. *Source: IMF staff summary of the provided chapter content.* ### 30. This costing—predominately of physical infrastructure—is a lower-bound estimate ### 1tonea2020001 - 30. This costing—predominately of physical infrastructure—is a lower-bound estimate ### Costing and SDG Financing Needs - The costing (predominately of physical infrastructure) is a lower-bound estimate for adaptation needs. - IMF SDG Costing approach (adapted for high climate vulnerabilities) is used to estimate additional annual financing needs in health, education, WASH, electricity, and roads by 2030 (Annex 1). - Even after accounting for existing projects annualized over the next 11 years, additional spending requirements for achieving Tonga’s selected SDG targets are substantial. - Annual additional spending needs to meet the selected SDG goals could amount to about 5 percent of GDP by 2030 (Figure 11). - Current identified projects with committed financing are assumed to be implemented over the 4-6 years; implementation of remaining projects is extended beyond 2025. - The exercise assumes the annual costs of the currently identified projects (Table 5) at about 8 percent of 2030 GDP. - Figure 11 highlights sectoral additional spending (IMF SDG Costing without the currently identified climate related projects): Health, Education, Water and Sanitation, Electricity, Roads; chart indicates US$39 million scale reference. ### Human Resource and Domestic Private Sector Capacity - Tonga faces limited human resource capacity with only a small number of skilled officials to implement the adaptation strategy. - Sector staff reported lack of human and financial capacity, particularly for project preparation and feasibility studies that adequately respond to global climate financing mechanisms. - The shallowness of the domestic private sector is a constraint (skilled labor and construction firms). Domestic capacity will need time to grow while climate needs are urgent. - Recommendations to address capacity constraints include: - Improving communications on the pipeline of priority projects so the market can prepare. - Strengthening procurement measures, potentially including framework agreements or bundling contracts to attract international firms as a complement to local capacity. - Improving the business environment to attract private sector investment in high-priority adaptation projects. ### Adaptation in Health and Education - Adapting health services and education to climate change to meet Tonga’s SDGs requires more substantial efforts. - Currently identified climate-related projects include some development projects in health and education, but additional efforts are needed to adapt to indirect climate change effects, support mitigation, and improve disaster preparedness. - Needed measures include: - Developing public health services (medical goods and medical personnel to monitor/control climate-health risks and react to health emergencies). - Integrated climate curricula in schools, training and awareness programs. - Technical skills development (project design and implementation, infrastructure construction, maintenance, post-disaster rehabilitation and upgrades). - Current projects cover only partially the needs for climate-resilient infrastructure, particularly in other-than-Tongatapu islands. ### Regulatory, Land-Use, and Housing Measures - Formalize and implement updates to the Building Code: proposed revisions include climate resilience measures (materials, design, construction methods); updates not yet approved by Cabinet. - Compliance with existing regulations is limited due to weak regulatory supervision, lack of budget, shortage of enforcement expertise, and high construction and maintenance costs. - Enacting and monitoring enforcement of the improved, climate-informed Building Code are important next steps. - Improve and support housing recovery and reconstruction policies: - Post-TC Ian and TC Gita disaster-specific housing recovery support existed, but lack of overarching policy led to long delays. - A Housing Recovery and Resilience Policy and House Identification Guide have been developed. - Swift establishment by the Ministry of Infrastructure of an effective Housing Sector Resilience Office would support post-disaster reconstruction and promote a whole-of-government approach. - Strengthen hazard and disaster risk-informed land use planning and regulations: - Some risk information used (foreshore protection, long-term modelling of inundation areas) but efforts are ad-hoc and information is not comprehensively shared. - Existing information is scattered across MEIDECC, Ministry of Lands and Natural Resources, and Ministry of Infrastructure. - Future land planning could incorporate CCA and DRM measures into other legislation (e.g., Towns Regulations Act). ### Financial Sector and Insurance - The financial sector’s contribution to climate efforts has been small due to a narrow scope: banks largely lend to households for real estate; insurance sector comprises four companies with low penetration. - Two insurers cover cyclones and earthquakes; premium amounts reportedly small—1 percent for the average insurance policy—and stable. - Banks and nonbanks generally do not lend for infrastructure, though commercial banks are considering lending to renewable energy projects recently. - The public sector pension fund recently started lending to a utility company (a state-owned enterprise). - Positive developments: - Banks require adequate insurance and adherence to the building code before lending, increasing insurance penetration and resilience for private homes. - In natural disasters, banks allow loan repayment deferrals by 3-6 months on average at no charge until insurance claims/remittances arrive. - Banks have refused environmentally damaging loans without an Environmental Impact Assessment Report. - Insurance claims are generally settled within 1-2 months (majority of claims after TC Gita settled). - Insurance firms and NRBT actions: - Insurers plan awareness campaigns, door-to-door outreach on main island, extension to outer islands with local language campaigns and tailored premiums. - NRBT plans to improve financial literacy and awareness once new insurance regulations are finalized. ### Financing Strategy, Current Financing, and Debt Sustainability - Within total identified spending needs of about US$671 million (Table 4), about 57 percent have committed financing (mainly external, signed or advance financial agreement). - About an additional 7 percent of the total climate-related projects have a well-advanced proposal ready for submission with broadly identified financing sources but no firm commitment. - The financing gap is estimated at about US$289 million (60 percent of 2018 GDP). - Grants are expected to constitute the main source of funds. - Tonga relies on a broad range of external financing sources (GCF, Climate Technology Centre and Network, Global Environment Facility, recurrent budget financing, pooled and bilateral development partner financing with public enterprise contributions). - Debt outlook: - Tonga faces high debt distress risk. - IMF staff estimates indicate the PV of the public debt-to-GDP ratio is expected to breach 70 percent in 2029 and increase to 88 percent of GDP at the end of the projection period. - Debt financing for additional SDG- and climate-related spending would increase risks; PV of public debt-to-GDP ratio could exceed 95 percent of GDP in 2030 under debt-financing. - Policy implications: - Financing to achieve development and climate-resilience goals by 2030 should be in the form of grants to avoid worsening debt dynamics. - Rationalizing current spending (particularly the wage bill), greater PFM efficiency, and further domestic revenue mobilization could generate some savings. - Growing the private sector to expand the tax base is a longer-term solution. ### Institutional Capacity, Access to Climate Finance, and Execution - About half of identified climate-related projects do not have committed financing. - Access to international climate funds is difficult for small states due to heavy procedural requirements and low awareness across ministries. - Tonga has received reasonable climate funding mainly through development partners; grants represented more than 90 percent of total funding historically. - Improving absorption capacity, coordination, and domestic capacity in planning, budgeting, managing, and implementing projects is key to increase access to financing and reduce disbursement delays. - Execution issues are particularly visible in years with natural disasters when capital spending and project grant execution drop significantly because of disrupted government operations (Figure 14). - Recommendations to improve access and execution: - Continue project preparation and dialogue with development partners to secure donor financing for unmet climate and development goals. - Given Tonga’s high debt distress risk, this financing should be in the form of grants to avoid worsening debt dynamics, complemented by fiscal consolidation. - Improve visibility across ministries on international climate financing and application procedures. - Improve administrative capacities in planning, project implementation, monitoring. - International community to streamline access to climate funds and assist Tonga to apply (including access to GCF funding through existing relationships with accredited entities). - Development partners could coordinate policy advice, project co-funding, and harmonize funding requirements and processes. ### Recommendations for Adaptation (Short term: within 1-2 years; Medium term: within 2-5 years) - Extend coverage of adaptation strategies and plans to current and capital projects in more sectors (especially health and education) — Priority: Short to Medium term - Use international firms as a complement to local capacity — Priority: Short to Medium term - Improve, enact and enforce the climate-informed building and land-use codes — Priority: Short term - Establish the Housing Sector Resilience Office — Priority: Short term - Explore options to further develop the private insurance market for homes and businesses including by raising awareness and improving financial literacy to include natural disasters — Priority: Short to Medium term *Source: GCF (2018), World Bank, ADB, Tonga’s Budget Strategy 2020, Staff estimates.* ### 44. Tonga has some disaster and climate risk identification processes in place, but falls ### Tonga has some disaster and climate risk identification processes in place, but falls short of a comprehensive risk assessment. ### Risk identification and data gaps - Tonga has some disaster and climate change risk identification processes in place (for example, the forthcoming Third National Communication), often supported by development partners and regional climate change entities. - Current processes fall short of a comprehensive risk assessment; no systematic assessment of the government’s contingent liabilities arising from disaster exists. - Risk assessments are predominantly ad-hoc and project-level; few programs or plans reflect comprehensive financial risks associated with climate hazards and natural disasters. - Support required: - Strengthen data, analysis and integration of climate and natural disaster risk into planning, prioritizing and budgeting. - Standardize collection and use of data on damages across sectors to inform relief, recovery and reconstruction costs. - Leverage catastrophe models developed under the Pacific Catastrophe and Risk Financing Initiative (PCRAFI). - Update exposure mapping (current mapping is 10 years old) and develop models for additional hazards such as drought or excess rainfall. ### Self-insurance (government financing buffers, contingency provisions, reserves) - Tonga has built a layered approach to disaster risk financing aligned with international good practice; mix of risk retention and risk transfer instruments is recommended. - World Bank risk-layering framework guidance highlighted: - Small, frequent disasters: cover costs through reserve funds. - Medium-sized disasters: use ex-ante contingent financing arrangements and sovereign insurance instruments. - Largest disasters: partially covered by insurance, remainder by ad hoc international support. - Current practices and instruments: - Post-disaster practices: budget reallocations, capital budget realignments, temporary targeted tax exemptions (e.g., consumption tax exemptions for imported construction materials and capital goods for two years after TC Gita). - Contingency budget: level agreed annually by the Legislative Assembly; level must not exceed 5 percent of the government’s total spending. Minister may release funds while ensuring they remain within limits (PCRAFI 2015). Historically not exclusively used for emergency natural disasters. - National Emergency Fund: established 2008 with annual appropriation up to at least TOP $5 million (about US$ 2 million). Core source of funding for disaster management and response through NEMO. - Pre-emptively unlocked $TOP 500,000 (US$208,000) ahead of 2019-2020 cyclone season for fast release. - Officials note a funding gap for immediate pre-disaster preparedness and immediate post-disaster response needs. - Contingency financing timing considerations emphasized (short term 1-3 months; medium term 3-9 months; long term over 9 months). ### Social protection and vulnerability coverage - Social protection system: disability benefit scheme (Ministry of Internal Affairs) and social pension scheme (national retirement benefits fund). - No consistent measures to target vulnerable communities after a natural disaster; a database of poorest and most vulnerable populations is being developed under the Skills and Employment for Tongans Project with World Bank technical assistance. - After TC Gita, international bilateral aid supported a one-off top up: - around $TOP 225 (US$94) per beneficiary for 3000 elderly - $TOP400 (US$ 167) for the disabled in Tongatapu and Eua - Schemes are ad hoc; no comprehensive shock- or disaster-responsive social protection mechanism currently in place. Existing systems provide a base for developing targeted schemes using modern payments infrastructure. ### Risk transfer and external instruments - Contingent financing arrangements from development partners: - Contingent Emergency Response Component (CERC) in the World Bank IDA grant for the Climate Resilience Transport Project; Pacific Resilience Program (PREP) drawn down for $US500,000 after TC Gita. - Access to ADB’s Policy-Based Contingent Finance Instrument with maximum amount available per year of roughly US$6 million. - Discussions with World Bank on Catastrophe Deferred Drawdown Option (CAT-DDO); CAT-DDO details: - IDA clients such as Tonga can request up to US$20 million. - 50 percent funded by core IDA allocation, remaining 50 percent matched by IDA’s global resources. - Three-year drawdown period renewable up to four times, maximum 15 years. - Sovereign parametric insurance via Pacific Catastrophe Risk Insurance Company (PCRIC): - Maximum possible payout is US$7.1 million per year for Tonga based on actual coverage. - Annual premiums for PCRIC covered by WB-funded PREP at $US0.5 million per year; government counterpart payments roughly $US 70,000 for 2020. - Payouts received within ten days after TC Ian (US$1.3 million) and TC Gita (US$ 3.5 million). - PCRIC coverage focuses on tropical cyclone and earthquake/tsunami hazards; does not cover some important climate risks (e.g., storm surges and damaging winds from storms other than tropical cyclones). PCRIC is developing new products to cover additional perils. - Access to external credit is limited; Tonga predominantly receives in-kind assistance or grants. Tonga had access to WB Crisis Response Window through IDA (for US$10 million) following TC Gita and is eligible for the IMF’s Rapid Credit Facility and Rapid Financing Instrument. ### Public asset insurance and coordination - Some SOEs (airports, Tonga Water Board) have property insurance; not mandatory and coverage is low. - Most public assets are uninsured and there is little coordination with public asset management. - Recommendation: assess feasibility and cost-effectiveness of increasing public property insurance coverage, consolidate coverage into larger policies to reduce premiums, and develop an updated comprehensive asset registry including replacement values. ### How to improve risk layers in Tonga - Maintain international reserves above the current 6½ months of imports to provide an adequate buffer against natural disaster shocks. - Suggested measures: - Draw on grant financing to increase investment in resilient infrastructure, reducing future pre-arranged finance needs. - Implement a layered set of instruments: risk retention mechanisms, private sector insurance, contingent financing. - Increase and strengthen the Emergency Fund: - Options include increasing Emergency Fund level to about 1 percent of GDP, supported by international donors. - Review Emergency Fund Act and implementing framework to ensure effective and efficient availability of funding for preparedness and immediate response. - Provide clear guidance via an operations manual. - (Calibration note: proposed size based on estimates of past fiscal impact of severe natural disasters, with Tonga-specific annual fiscal costs per disaster varying between 0.7-1.1 percent of GDP; full evaluation recommended.) - Consider shock-responsive social protection systems that can be scaled by event severity; ongoing development of a registry of poor households will enable more effective transfers. - Further analysis to be included in the National Disaster Risk Financing Strategy to: (i) specify high-level objectives and institutional strengthening measures; (ii) identify and quantify risks; (iii) outline measures to strengthen risk retention and transfer instruments; (iv) promote transparency and efficiency of post-disaster spending. - Work on the National Disaster Risk Financing Strategy has commenced, supported by World Bank PREP and PCRAFI projects. ### Recommendations for risk management (timing indicated) - Develop a comprehensive National Disaster Risk Financing Strategy that could consider: - Increasing the Emergency Fund’s size to about 1 percent of GDP with a review of the Emergency Fund Act (Priority: Short to Medium term). - Insuring more government infrastructure assets (Priority: Short to Medium term). - Continuing to expand the social safety net to cover more vulnerable households, and ensure it can be effectively used after disasters (Priority: Short to Medium term). - The international and regional community broadening the offer of sovereign insurance solutions, building on existing initiatives/platforms (such as PCRIC) (Priority: Short term). ### National processes and mainstreaming climate change - Progress integrating climate change into national plans is relatively good; less progress in mainstreaming into ministries’ plans and the regular budget process. - Public investment management is generally adequate (reflecting donors’ systems); public financial management is relatively sound. - JNAP2 is an important start for climate resilience planning, but more comprehensive and prioritized planning is needed across all ministries. - Needs include preparing an updated register of government fixed assets and ensuring adequate maintenance. - Mainstreaming recommendations: - Renewing the NIIP presents an opportunity to finalize an overarching climate resilience plan for infrastructure covering the entire public sector; use the GCF Country Program as a base for a renewed NIIP. - The renewed NIIP should align with expanded guidelines to appraise, prioritize and sequence projects; requires coordination from MOF, MoI and MEIDECC. - MEIDECC should lead and cooperate with MOF to mainstream climate change awareness across government agencies and planning processes; MEIDECC involvement in initial screening of proposed projects to ensure consistency with climate change adaptation. - MEIDECC and MoF should work with implementing ministries to: (i) develop a prioritized plan of costed adaptation activities based on an updated JNAP2; (ii) screen proposed activities and corporate plans to advise contribution toward climate change adaptation objectives prior to CDCC budget consideration. *Source: Excerpt from the provided IMF Tonga country report content.* ### 54. The MoF should manage the overall process of sourcing, funding, prioritizing, and ### 1tonea2020001 - 54. The MoF should manage the overall process of sourcing, funding, prioritizing, and ### MoF role in sourcing, funding, prioritizing, sequencing - The MoF is the sole agency responsible for overall budget, procurement and financial reporting processes and is the focal point for major development banks and coordination of development partner assistance. - The MOF has a strong understanding of development partner processes and funds availability, but greater capacity will need to be built in the newly created Climate Change Financing unit of MOF to improve readiness to access specific climate change funds, particularly the GCF. - Tonga needs a clear financing strategy for adaption investment needs, designed in close collaboration with MEIDECC, development partners, and the private sector. ### Alignment of line ministries’ planning with climate objectives - Line ministries’ planning processes should more closely align with national climate change objectives to strengthen linkages between planning and budget outcomes. - The Prime Minister’s Office assesses three-year corporate plans which underpin the budget submission to MOF; MEIDECC should be consulted on whether climate considerations were included in ministries’ three-year rolling corporate plans. - Strengthening these additions could reinforce the existing JNAP document. ### Implementation risks and disaster-related delays - Past natural disasters caused major disruptions: government and development partners re-allocated scarce administrative and human resources to disaster response, delaying planned implementation and weakening budget reliability. - Future planning should acknowledge the probability of disruption and build redundancy into timeframes. ### Adequacy of Public Investment Management System (PIM) - Overall assessment: "Yes—however, public investment systems reflect largely the involvement of development partners." - Major projects undergo robust economic, environmental, social, cost benefit assessments consistent with development partners’ guidelines. - National guidelines for developing project proposals exist but are not publicly available and are used for projects below TOP$ 1 million (US$ 0.4 million). - Projects are selected through CDCC; line ministries are responsible for ongoing implementation and monitoring; PMUs funded by development partners have supported implementation. - A Central Services Unit (CSU), funded jointly by the World Bank and the government of Australia, has been established in the MOF to provide services for World Bank projects. - Main weaknesses: coordination across government entities, maintenance funding, and monitoring of public assets. ### Planning sustainable levels of public investment - Public investment levels are driven by development partner resources. - Existing fiscal rules: maintain external debt below 50 percent of GDP; domestic revenue above 22 percent of GDP; compensation of employees below 45 percent of operating expenditure. - Past plans vary in project detail, timing and coverage: NIIP prioritized and broadly costed economic infrastructure to 2023; JNAP2 identified initial budget requirements but did not demarcate proposed public investments; TREM provides indicative costings for mitigation activities. - No standard central methodology exists to appraise projects to assist prioritization; alternate finance sources exist but access is limited. - Public corporations provide most utility services; two PPPs exist between Tonga Power and private renewable energy generators; public corporations can borrow but capacity is limited and requires government approval. - The budget is comprehensive and differentiates operating and capital expenditure by classifying capital as a single code (“buildings”). - Maintenance funds are appropriated to ministries, but maintenance costs associated with new assets are not calculated in a standardized manner. - A multi-year budgeting framework exists but lacks detailed annual composition of public investment. - The Development Budget outlines development partner activities and total funding but does not demarcate programmatic vs. investment activities; a limited number of public corporation capital projects not financed by development partners are excluded from budget documentation. ### Delivering productive and durable public assets - Development partner procurement processes are transparent but differ across partners; a central procurement database exists for local government procurement only. - There is no single database for externally funded projects; development partners monitor and publish their own procurement outcomes. - Some development partner funds from the Development Budget are deposited into commercial operating accounts accessible to government; implementation has not been restricted by lack of cash flow in recent years. - Individual PMUs monitor financial and physical progress of major investment projects; project funds are protected and cannot be transferred between projects. - No entity provides overall monitoring to ensure consistency across investment project implementation; CSU (Australia and World Bank financed) will provide monitoring for World Bank projects. - Existing asset register covers mobile assets (cars, furniture) but has very limited information on fixed assets (buildings, roads); ex-post reviews are conducted when required by development partners. ### Adequacy of PFM systems for managing climate change funding and outlays - The 2019 PEFA identified relatively sound PFM processes; weak budget reliability in recent years resulted from overestimation and/or underspending of budget support and development partner funds significantly increased in response to TC Gita. - The Climate Change Trust Fund (CCTF) should be incorporated into government public investment and PFM processes; CCTF grants should be appropriated annually in the budget and subject to budgeting, reporting, auditing, procurement rules, and regular reporting of grant outcomes. - A single, comprehensive and up-to-date public fixed-asset registry is needed to determine asset value and state, and to plan maintenance and replacement/repair after natural disasters; a policy framework for this registry is under preparation. - The public asset register could include geo-referenced public assets to map climate-resilient assets and those needing retrofitting. - Capacity development is needed in line ministries to plan and implement routine maintenance, which should be part of budget submissions. - Expanding whole-of-government monitoring of public investment through the annual budget process would strengthen links to planning outcomes; annual budget should provide project-level details (multi-year allocations, source of funds, programmatic vs. capital). - The degree to which public investment projects relate to climate change is not identified; rather than a Chart of Accounts code for climate projects, projects should be identified by the degree they contribute to adaptation/mitigation (e.g., proportion of extra cost attributable to adaptation). - Improved project-level climate attribution could help attract donor funding. ### Recommendations for National Process (timing in parentheses) - Enhance the NIIP with costed, prioritized, sequenced whole of government investment projects and update in the annual budget (Short to Medium term). - Better integrate climate into ministries’ plans and regular budget process—greater involvement of MEIDECC would help (Short term). - The MOF should be responsible for managing climate financing but needs to build capacity in climate financing and collaborate with MEIDECC (Short term). - Prepare and keep updated a registry of public fixed assets including geo-references to ensure maintenance and plan for replacement/repair after a disaster (Short to Medium term). - Incorporate the Climate Change Trust Fund into the regular budget/public financial management system (Short term). - Expand the classification of capital spending and better identify the climate component (Short term). ### TAKING STOCK: Priority needs to be met By Tonga: - Update the NIIP country program with costed, prioritized, sequenced, and whole-of-government investment and other projects, and provide updates in the annual budget. - Mainstream climate awareness into all government priorities and activities by involving MEIDECC in project and budget planning, building capacity in MOF and complementing domestic capacity with international firms. - Improve disaster management by providing an overarching framework, clearer role for NEMO, developing a fully-integrated multi-hazard early warning system, building human and financial resources across MEIDECC and MLSNR, and financial resources at the Emergency Fund. - Implement structural economic reforms: improve and enforce land-use and building codes, build out social protection and insurance coverage. - Continue scaling up renewable power and price electricity correctly. - Plan for the long-term, consider tail risks and potentially transformative approaches. By the international community: - Reduce emissions to stabilize global warming. - Fully recognize the already-occurring impact of climate change on Tonga and the existential threat it poses. - Help finance (via grants) Tonga’s climate agenda (the current project list has a financing gap of about $300m), especially adaptation, maintenance, and insurance. - Streamline access to international climate funds and assist Tonga in applying. - Coordinate better on projects and support Tonga’s public financial management systems. - Broaden coverage of regional parametric insurance schemes (e.g., to cover storm surges). - Partner with Tonga and other Pacific Island Countries on longer-term, potentially transformative approaches, including supporting migration from at-risk areas. ### Annex I — Spending needs to achieve SDGs and climate resilience: key points - Tonga remains committed to SDGs and climate resilience but progress is mixed; constraints include financial and technical capacity and natural disasters. - The annex extends IMF costing methodology for five selected SDGs to Tonga and finds substantial additional spending needs beyond currently identified climate-related projects; largest requirements are in social sectors: health and education. - Health: external financing accounts for about 20 percent of total health spending; meeting health SDGs requires a consistent multisectoral approach (health, WASH, education, transportation). - WASH: projected declines in freshwater availability and groundwater recharges by "10 and 30 percent, respectively, by 2050 (GEF, 2007)". - Education: immediate priority is building safe schools and ensuring maintenance; integrating climate components into curricula and building technical skills are longer-term objectives. - Electricity: resilience has increased, but more effort is needed to increase renewable share and guarantee affordable energy by 2030. - Roads and transport: access is good but physical condition and climate resilience are weak; longer term adaptation (e.g., rerouting) and capacity/resource expansion are needed. *Source: Excerpt from IMF staff assessment in 1tonea2020001, pages 54–62.* ### 3. Additional spending requirements for achieving the selected five SDGs are ### 3. Additional spending requirements for achieving the selected five SDGs are ### Estimated additional annual spending needs (2030) - Additional annual spending needed to achieve selected SDGs in health, education, and physical infrastructure (WASH, roads, energy) amount to at least 7 percent of GDP in 2030. - IMF SDG Costing results (Figure A2, left bar chart) underpin the 7 percent of GDP estimate. ### Reconciliation with currently identified climate-related projects - Reconciling the cost of currently identified climate-related projects with the IMF SDG additional spending estimates indicates an overlap of 2 percent of GDP in 2030. - Remaining additional spending needs—beyond currently identified climate-related projects—to meet Tonga’s SDG targets in health, education, WASH, electricity, and roads amount to about 5 percent of GDP in 2030 (Figure A2, right bar). - Combining the 5 SDGs with the currently identified climate-related plans gives the annual cost of 13 percent of 2030 GDP to meet both Tonga’s climate and 5 SDG targets (Box A1). ### Sectoral composition of additional needs - Social sectors account for the largest part of additional spending; health and education account for more than two thirds of the remaining needs. - Health and education needs include: - Additional spending on investment in safe schools (beyond the PREP) and medical buildings. - Increased coverage of teacher and medical personnel (current coverage is still relatively low compared to peer countries). - Increased other (non-wage) current spending, particularly directed to maintenance and training. - Physical infrastructure needs: - Annual spending requirements to reach universal access to safely managed WASH are described as more moderate. - Improving the quality of and access to electricity and roads requires additional annual spending of about 0.7 percent of GDP in 2030 on top of the current projects. These additional estimates account for the authorities' renewable energy plans. - For roads, the additional spending requirement also accounts for rehabilitation, upgrading, and maintenance costs of existing infrastructure. - The estimates do not include additional investment to build additional energy transition grids or other transport infrastructure (bridges, ports, airports). ### IMF SDG Costing methodology (Box A1) — approach and adaptations for vulnerable small states - Core IMF SDG Costing approach (Gaspar and others 2019): - Each sector performance (outcome indicator) is a function of a mix of inputs and associated unit costs. - Reference values for inputs and unit costs are set at the (median) values observed in countries with similar GDP per capita that reach high development outcomes today. - For the country of interest, additional spending in 2030 is computed by assigning these values to the cost drivers and controlling for country-specific factors such as demographics and the level of GDP per capita projected in 2030. - Application notes: - Cost estimates for water and sanitation are taken from the WASH World Bank model. - For WASH, electricity, and roads, the estimates show additional annual spending needed to reach targets by 2030. - For health and education, the estimates indicate additional (non-annualized) spending required to achieve the targeted outcomes between now and 2030. - ‘Total’ refers to public and private spending. - Extensions for small, climate-vulnerable states: - For health and education, reference values and unit costs are set at the (median) values observed in countries with similar GDP per capita and vulnerabilities to climate change and natural disasters (Chen et al, 2015) that also attain better health and education outcomes. - For infrastructure, cost drivers are assigned values that reflect higher costs for building climate-resilient infrastructure. - In estimating additional spending, the methodology accounts for higher maintenance requirements (i.e., faster capital depreciation) and adds the cost of rehabilitating and upgrading existing infrastructure. The rehabilitation and upgrade costs vary across countries and state of infrastructure. - Implementation timing assumptions: - Ongoing projects with committed financing are assumed to be implemented over the 4-6 years. - Implementation of remaining projects is extended beyond 2025. - Tonga-specific synthesis from the methodology: - Additional annual spending needed to meet the selected 5 SDGs and climate resilience is about 7 percent of GDP in 2030 (Figure, left bar). - Reconciliation detects overlapping sectoral needs (mainly in physical infrastructure); after subtracting identified renewable energy and other climate-related projects, the residual additional annual spending on top of currently identified projects is about 5 percent of GDP in 2030. - Two-thirds of the residual needs are in health and education, with direct and indirect links to climate. - Combining the 5 SDGs with the currently identified climate-related plans results in an annual cost of 13 percent of 2030 GDP. ### Financing and policy implications - Continued external support is critical to meet development goals without exacerbating already-high debt levels: - Achieving SDGs and increasing climate resilience without exacerbating debt would require additional grant support. - Additional external support in providing technology, technical skills, capacity building, and statistics is also key. - Domestic policy and institutional priorities for Tonga (within its national overarching framework): - Improve sectoral strategies and develop new national health, education, and investment strategic plans that clearly define and prioritize development objectives and channel financial and technical resources. - Improve spending efficiency and public investment management practices, including better budgeting, planning, and coordination across government units and development partners. - Further domestic revenue mobilization is also needed. *Source: IMF SDG costing (Gaspar and others 2019), Staff estimates; content from "3. Additional spending requirements for achieving the selected five SDGs are" in 1tonea2020001.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1tonea2020001.pdf_