January 25, 2021
PRESS OFFICER: Pemba Sherpa
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Washington, DC: The Executive Board of the International Monetary Fund (IMF) today approved the disbursement of SDR 6.9 million (about US$9.95 million or 50 percent of quota) under the Rapid Credit Facility (RCF) [1] to Tonga to help meet its urgent balance of payments and fiscal needs arising due to the COVID-19 pandemic and Cyclone Harold.
At the conclusion of the Executive Board’s discussion, Mr. Tao Zhang, Chair and Deputy Managing Director issued the following Statement:
“Tonga’s slow recovery from the devastating 2018 Tropical Cyclone Gita has been derailed by twin shocks from the Covid-19 pandemic and Cyclone Harold. Early closure of external borders and prompt economic support have helped avoid a worse economic outcome. Nevertheless, an economic contraction is expected in FY2021. A sudden stop of tourist arrivals and higher pandemic- and reconstruction-related imports are expected to generate a large external financing gap. Fund assistance under the Rapid Credit Facility is intended to help Tonga cope with its immediate balance-of-payments and budget financing needs and to catalyze critical donor support for the recovery.
“Macroeconomic and financial stability has been maintained despite the difficult circumstances. A series of budget surpluses, low inflation, adequate bank capital buffers, and ongoing efforts to improve financial supervision have demonstrated the authorities’ commitment in this regard. In response to the pandemic, the authorities have put together a strong policy package, with fiscal support for health care and affected businesses and households, and provision of liquidity to the financial sector. The authorities are committed to enhancing the AML/CFT framework and are considering developing macroprudential tools.
“Post-pandemic, high-quality fiscal adjustment will be important to ensure debt sustainability while achieving climate and development goals. Continued efforts are needed to broaden the tax base, improve spending efficiency and the targeting of fiscal support, strengthen transparency and accountability in public financial management, and ensure effective debt management strategies. Financial supervision warrants further improvements in light of rising risks to financial stability.
“Over the medium term, structural reforms to promote private sector-led growth will help Tonga meet fiscal and development challenges. Continued support from the international community, through grant financing and debt relief, would be essential.”
[1] The RCF provides rapid financial support in a single, up-front payout for low-income countries facing urgent financing needs. Financial assistance under the RCF is provided as an outright disbursement to Poverty Reduction and Growth Trust (PRGT)-eligible members that face an urgent balance of payments need, and where a full-fledged economic program is either not necessary or not feasible. Financing under the RCF carries a zero interest rate, a grace period of 5½ years, and a final maturity of 10 years.
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